Bankruptcy: Is It An Option?


It is an unfortunate fact of life that people sometimes face great financial problems caused by failed businesses, divorce, accident claims not covered by insurance, job loss, etc. In these situations, people are often faced with increasing financial obligations while trying to provide for their families and other basic living expenses. When this happens and the bills cannot be paid, the U.S. Bankruptcy Code may provide relief.

What is bankruptcy?
Why someone might need bankruptcy?
Can anybody file for Chapter 7 bankruptcy?
What can I keep if I file Chapter 7 bankruptcy?
Can I keep my car or house even if I file Chapter 7 bankruptcy?
What are the procedures of filing Chapter 7 Bankruptcy?
What is a discharge in bankruptcy?
May the court deny a chapter 7 discharge?
May the debtor pay a discharged debt after the bankruptcy case has been concluded?
May the creditors file an objection to the debtor’s discharge?
What debts are not discharged in bankruptcy?
Does filing bankruptcy discharge debts for others who have co-signed with me?
If I am married, can I file bankruptcy by myself and not include my spouse?
If I am married and I file individually, will the filing affect my non-filing spouse's credit?
How long does it take to be discharged once the petition is filed?
Is my case over once the discharge order is entered?
Can I transfer assets to someone else prior to filing and get them out of my name so that they are not my assets when I go to file bankruptcy with the court?
Do I have to disclose all of my assets?
What if I do not want my house or car loan creditors notified of the bankruptcy?
How long does bankruptcy stay on my credit?
Can I be discriminated or fired if I file Chapter 7 bankruptcy?
If I am behind my mortgage payment and received a notice from the mortgage company that they will sell my house unless I pay the full arrearage, what can I do to prevent the foreclosure sale?

What is bankruptcy?
Bankruptcy is a legal process by which a person or business who cannot pay his or her debts can obtain relief from creditors. Chapter 7 is the most common form, and involves wiping out most debts so that the debtor is no longer legally obligated to pay. In exchange for the discharge of debts, the debtor must turn over any assets not protected under state or federal law to a Bankruptcy Trustee, who then distributed them to creditors.

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Why someone might need bankruptcy?
• Car payments or house payments behind
• Owe IRS
• Repossession & Foreclosure
• Can't afford to pay living expenses with debts
• Garnishments of wages or bank accounts.
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Can anybody file for Chapter 7 bankruptcy?
Under the new Bankruptcy Law, anyone who has earned more than the median income for that person’s state over the six months prior to filing for Bankruptcy will be required to take a “Means Test” to determine if they can file a Chapter 7 Bankruptcy. The results of the Means Test, which deducts certain expenses as allowed by the IRS, and certain secured debt payments such as car payments and mortgage payments, from the individuals average monthly income, will determine whether that individual is eligible to file for Chapter 7 Bankruptcy protection. Those who are not eligible for Chapter 7 may need to file for protection under a different Bankruptcy chapter.
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What can I keep if I file Chapter 7 bankruptcy?
Unlike the common misconception about Chapter 7 Bankruptcy that the debtor will lose everything that he or she owns, each state has basic “exemptions” that allow the debtors to keep certain property. For example, in Virginia, a person filing Chapter 7 Bankruptcy can keep $5,000.00 of his or her equity ($10,000.00 for a married couple) in any asset whatsoever, plus $2,000.00 equity in an automobile, $5,000.00 in household goods, $1,000.00 in clothing, wedding and engagement rings of any value, and 401k or IRA retirement accounts. These exemptions vary, sometimes greatly, from state to state.
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Can I keep my car or house even if I file Chapter 7 bankruptcy?
This will depend on how much equity you have in the property and whether you are willing and able to continue to make the payments on the property. A general rule is that the Bankruptcy Trustee will not be interested in taking over property in which the debtor has little or no equity. For example, if you owe $10,000.00 on your car and it is worth $12,500.00, then you have $2,500.00 in equity in the car. In Virginia, you can protect the $2,000.00 of the equity, continue to make your car payments, and keep your car. However, if you are unable or unwilling to make the monthly payments, you will be unable to keep your car.
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What are the procedures of filing Chapter 7 Bankruptcy?
First, the eligible debtor should receive the required credit counseling. Next, the debtor, through his or her attorney, files a Chapter 7 Petition listing all assets, liabilities, and exempt property, as well as monthly income, expenses, a Means Test, and several other documents. Spouses can file a joint petition. The debtor then needs to provide certain documentation to the Court, Bankruptcy Trustee, or both, by certain dates, and then appear about a month later at a brief hearing before the Bankruptcy Trustee at which the Trustee, among other things, seeks to confirm what is in the Petition and asks questions to see if there are any available assets. The debtor is then required to take a Debtor Education Course and file a certificate of completion. Then, a few months later, if all goes well, a discharge is issued by the Court.
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What is a discharge in bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal actions and communications with the debtor such as telephone calls, letters, and personal contacts.
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May the court deny a chapter 7 discharge?
Yes. The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets.
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May the debtor pay a discharged debt after the bankruptcy case has been concluded?
Yes. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents a obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.
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May the creditors file an objection to the debtor’s discharge?
Yes. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. To object to the debtor’s discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adverse proceeding.”
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What debts are not discharged in bankruptcy?
In general, a debtor cannot discharge most taxes unless, in some cases, they are over 3 years old, student loans, and debts incurred through fraud (including credit card charges made after it is clear that you are going to filing for bankruptcy). A debtor also cannot discharge most obligations arising out of divorce, such as spousal or child support. Fines and penalties are also generally not dischargeable. The dischargeability of debts must be determined on a case-by-case basis, and the debtor should receive consultation on this and other issues from an experienced bankruptcy attorney.
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Does filing bankruptcy discharge debts for others who have co-signed with me?
No. The discharge in bankruptcy will discharge only your liability on the debt and not the debt owed by the non-filing co-debtor. In most instances, the debt owed is owed on the basis of joint and several liability. Whatever was owed prior to filing remains owed by the non-filing co-debtor. This means that the non-filing co-debtor is responsible for 100% of the remaining debt.
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If I am married, can I file bankruptcy by myself and not include my spouse?
Yes, but you do have to include your spouse’s income for the Means Test.
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If I am married and I file individually, will the filing affect my non-filing spouse's credit?
No.
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How long does it take to be discharged once the petition is filed?
In a Chapter 7 case, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting). Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court.
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Is my case over once the discharge order is entered?
In some limited circumstances, a discharge can be revoked. Also, in some limited circumstances, there is a continuing obligation to report the occurrence of certain events that extend beyond the discharge date, especially if there are assets that the Trustee is administering.
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Can I transfer assets to someone else prior to filing and get them out of my name so that they are not my assets when I go to file bankruptcy with the court?
No. The trustee will determine to whom you transferred property within one year of filing. Some trustees go back as far as five years or more. Transferring property to others prior to filing is a serious matter and should be avoided at all costs.
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Do I have to disclose all of my assets?
Yes. Assets are rights to property as well as property that you presently possess. For example, the right to insurance proceeds, tax refunds, or marital assets are assets even though you do not currently possess them. If you knowingly and fraudulently conceal any asset from the Bankruptcy Court, you have committed a felony and could be fined up to $5,000.00, imprisoned for up to five years, or both. The court can also deny your discharge, revoke your discharge, or dismiss or convert your bankruptcy proceeding.
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What if I do not want my house or car loan creditors notified of the bankruptcy?
This is not possible. These creditors are required to be listed as debts in your bankruptcy schedules. These creditors will, therefore, receive notice from the Bankruptcy Court. It is important to recognize that bankruptcy does not prevent you from repaying any debt that you want to repay.
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How long does bankruptcy stay on my credit?
Up to 10 years.
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Can I be discriminated or fired if I file Chapter 7 bankruptcy?
The federal, state, county, or municipal government may not discriminate against you with respect to the issuance of a license or permit because you filed bankruptcy. Also, 11 U.S.C. section 525 prohibits government units and private employers from discriminating against you because of a bankruptcy filing.
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If I am behind my mortgage payment and received a notice from the mortgage company that they will sell my house unless I pay the full arrearage, what can I do to prevent the foreclosure sale?
What is appropriate in this case is the Chapter 13 Bankruptcy, also known as a “debt-adjustment” Bankruptcy because if you file for Chapter 7, and depending on the level of equity you have in your home you may lose your house. The filing of a Chapter 13 Bankruptcy before the foreclosure sale will stop the foreclosure sale and allow you to propose a repayment plan to the Bankruptcy Court. In that repayment plan you will be allowed to pay the “arrears” on your mortgage over a period of three to five years depending on your income. But credit card debts, unlike your mortgage, would not necessary need to be paid in full. For example, depending on your individual circumstances, you may only have to pay 10% of your credit card debt, with the balance being discharged at the end of your plan.

As a simple illustration, say that, your mortgage arrears is $9,600. In addition, say you had $18,000.00 in credit card debts, you have less than $5,000.00 in equity in your house, and you are able to “exempt” all of you other assets (furniture, clothes, car, bank accounts, etc.). Depending on your monthly income and expenses, you could propose a plan to pay $220.00 a month for five years (60 months), which would pay off the arrears on your mortgage and about 20% of your credit card debts. If you successfully completed the plan and stay current on your regular $1,200.00 mortgage payments, the remaining $14,400.00 left on your credit cards would be discharged and your mortgage would be current again.

The Chapter 13 Bankruptcy allows you time to catch up on a mortgage (or car payment) on which you have fallen behind. Often, as in your situation, this occurs when you have lost your job, or maybe had unexpected medical bills, or for any number of reasons. The benefit is that you can stop your foreclosure sale and have the opportunity to save your home.
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