Bankruptcy FAQ

Bankruptcy FAQ

What is bankruptcy?

Bankruptcy allows a person or a legal entity to declare in a legal setting that he or she or it is unable to pay debts.

Is there more than one kind of bankruptcy?

Yes. There are many different types of bankruptcy called “chapter.” Generally, only chapter 7 and chapter 13 are relevant to regular consumers and small businesses. Chapters 9, 11, and 12 are available for complex situations.

Which kind of bankruptcy is best for me?

Determining the best bankruptcy chapter is analyzed on a case by case basis and the means test. Chapters 7 and 13 are the most common types of bankruptcies filed by the general consumer or small business.

What is the means test?

The bankruptcy means test is an impartial standard of evaluation on whether a debtor qualifies for bankruptcy under the chapter 7 filing. It requires people who can afford to pay at least part of their debts to enter into a chapter 13 payment arrangement, rather than discharging their debts as in chapter 7. This was put in place to prevent bankruptcy abuse.

How much does it cost to file bankruptcy?

The cost for filing a chapter 7 bankruptcy is $306. This fee may not be waived but you may be able to pay it in installments. The fee of $281 for a chapter 13 bankruptcy cannot be waived. If you do decide to hire an attorney, the attorney fee will be an addition to the overall cost of filing for bankruptcy.

Can I keep my things if I file bankruptcy?

The intent of bankruptcy is to allow a person overwhelmed by debt to discharge or pay off debts in a reasonable period while protected from the creditors. Bankruptcy law allows debtors to keep a certain amount of property after going through bankruptcy proceedings. This is called exempt property. There will be things you cannot keep, which are known as non-exempt property. An example of an exempt property is a vehicle (up to specific amount). Non-exempt properties includes heirlooms, pensions, bonds, and investments.

Will bankruptcy keep me from owning anything after my bankruptcy is finished?

No, after a bankruptcy has been discharged, reestablishing good credit is best. The need to do this right away is imperative. However, how fast credit is built will depend on a lot of factors that vary greatly. Bankruptcy will not keep you from owning anything. It is a fresh start.

Can I file bankruptcy alone if I am married?

Yes, bankruptcy can be filed jointly as one case if you are married but it doesn’t have to be. Deciding on filing solo or jointly should be done only after weighing the pros and cons of each option. If you file without your spouse, only your liability for debts is discharged. If eliminating your debts only would solve your family’s problems, then it might be a good idea to file bankruptcy without your spouse. You should be aware of all the factors contributing to your bankruptcy case.

What is the reason for claiming bankruptcy?

The biggest reason someone might file for bankruptcy would be for a fresh start. Filing bankruptcy will do two things, relieve the debtor of some or all of their debt, and make sure that the creditors are treated fairly as  well.

What is a discharge in bankruptcy?

A discharge comes at the end of the Bankruptcy. It removes the personal liability of the debt from the debtor. Meaning the debtor is no longer required to pay any debts that were discharged.

What is the difference between Chapter 7 and Chapter 13?

Chapter 7 and 13 Bankruptcies are the two most common amongst personal Bankruptcies.

A Chapter 13 is a reorganization of the debtor’s debt and is generally used when a debtor makes to much to file for Chapter 7. It is designed to allow people with steady income to pay back some or all of their debt over a 3-5 year period. Chapter 13 can be very complex and will almost alway require an attorney.

In Chapter 7 the trustee uses property that was given up by the debtor to sell. The trustee uses those funds to pay the debts to the creditors. Debtors are generally allowed to keep the money or property they receive after the bankruptcy has been filed. Chapter 7 can be filed Pro-Se or without an attorney but it’s always best to seek an attorney for help.

How do I know which one I am eligible for?

The best and really only way to find out is to do a “means test”. The “means test” will allow you to determine which your income would best qualify you for.  Most people qualify for Chapter 7 as it uses a debtor’s personal assets to pay the creditors. Chapter 13 allows a debtor to pay their debts down monthly but is more complicated and not everyone will qualify to file. Chapter 13 is best for people with a predictable higher income.

What is the benefit of having an attorney file bankruptcy for me?

In any legal field there are rules, deadlines and codes that need to be followed. Hiring an attorney is the best way to make ensure that a Bankruptcy is handled within the rules and guidelines set by the Bankruptcy court. An attorney will know the procedures and have the knowledge to ensure that you never miss a deadline pursuant to the Courts procedures. Failure to comply with the guidelines could result in your case being dismissed.

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