Frequently Asked Bankruptcy Questions - Law Offices of Michael N. Vaporis

1. What is a Chapter 7 Bankruptcy Case? A Chapter 13? A Chapter 11?

A regular bankruptcy case filed by an individual, or husband and wife, is under Chapter 7 of the Bankruptcy Code. Most debts that you have at the time you file are “discharged” or forgiven. You keep “exempt” assets/property, which for most means you do not lose any assets/property that you own when you file.

A Chapter 13 is a personal reorganization, which can include a small business, filed when circumstances are such that a Chapter 7 would not work for you.

A Chapter 11 is a business reorganization for medium to large businesses.

[return to the list of bankruptcy questions]

2. Why would I file a more costly and more time consuming Chapter 13 instead of a Chapter 7?

First Reason. Most Chapter 7 cases filed (about 95%) are classified as “no asset” cases, which does not mean the people filing have nothing, but that their assets (real estate, contents of their home, bank accounts, etc.) are worth less than the limits imposed by law (it is considered “exempt property”). But if you own assets and their value is more than what the law lets you keep, then you might file a Chapter 13 in order to keep the assets you might lose in a Chapter 7. (If you don’t care about those assets, you file a Chapter 7.)

Second reason. If you are behind on your mortgage, and need time to catch up, and want to keep your house, then you might file a Chapter 13.

Third reason. If your household income is “too high”, as defined by the bankruptcy law, you might be forced to file a Chapter 13, and not allowed to file a Chapter 7.

[return to the list of bankruptcy questions]

3. How long does the bankruptcy process take?

In a Chapter 7 case four to six months is the average time for the case to take.

In a Chapter 13 case, most plans are either for three years or five years.

[return to the list of bankruptcy questions]

4. What relief can bankruptcy provide?

In a Chapter 7 case almost all of your debt is discharged-eliminated. The exceptions, and debts which you will continue to have to pay, are alimony and child support, nearly all student loans, and most taxes (income taxes more than three years old, for which timely tax returns were filed, can be discharged/forgiven). But bankruptcy does not eliminate a lien or mortgage that you agreed to. For example, when you file bankruptcy your car loan is forgiven-you don’t have to pay it-but the lien on the certificate of tile to the car loan company is not eliminated. Unless the payments are made, the loan company can take the car, but they cannot make you pay anything. So if it is a car you want to keep, you continue to make your payments. If it is a car you don’t care about, you let them take it, and stop making the payments.

Filing a bankruptcy petition generally stops most lawsuits that are pending, and stops most new ones from being filed. (It does not stop criminal cases or fines.)

In a Chapter 13 filing a bankruptcy petition also stops most lawsuits, including any mortgage foreclosure action or efforts by a finance company to take your vehicle. It may give you up to five years to catch up on past due payments on your house or vehicle in a plan your propose. There are legal requirements for a Chapter 13 Plan which we will discuss with you when you come in for your free consultation.

[return to the list of bankruptcy questions]

5. What are the costs associated with filing bankruptcy, in addition to the attorney fee?

In our office we give you the bottom line price of attorney fees and costs. The Court filing fee is approximately $300, and some miscellaneous fees can be as much as an additional $100. But the price we quote you, includes attorney fees and all costs. The only exceptions are rare cases, which are specified in our written fee agreement, a copy of which we give to you at the free initial consultation.

[return to the list of bankruptcy questions]

6. Will I lose my home if I file bankruptcy?

In most cases no, you will not lose your home. The answer depends on how much equity you have in your home. The equity of your home is its value, less any valid liens (mortgages, taxes, judgement liens) on the house. In most cases the law allows you to keep your home if the equity is $24,000 or less, $48,000 is you are married. If the equity is larger, you can still keep your house if you can pay the difference (the value over the exempt amount), or if you file a Chapter 13 Bankruptcy Case.

[return to the list of bankruptcy questions]

7. If my stuff (personal property) is not worth that much, do I still have to list it in my bankruptcy petition?

Yes, everything valued and listed in the petition can be exempted and kept by you. If you don’t list it, you run the risk of losing it and/or having your bankruptcy petition dismissed. You are required to list all of your assets (property) and all of your debts (loans).

[return to the list of bankruptcy questions]

8. Can my wages be garnished if I file bankruptcy?

Before you file bankruptcy wage garnishment is allowed for only a few debts: child support and alimony; taxes; student loans. After you file bankruptcy, and while your case is pending, most wage garnishments will end (but not child support or alimony).

[return to the list of bankruptcy questions]

9. Will I go to jail for not paying a creditor?

No. Jail for non-payment of debts is prohibited by our Constitution. You can only go to jail for intentionally violating a court order. So if there is a court order for you to pay child support, and you have the ability to pay, and refuse, then you can go to jail. But if you owe a bank thousands of dollars and refuse to pay a court judgement stemming from a lawsuit, they cannot put you in jail.

[return to the list of bankruptcy questions]

10. How soon can I get a loan after filing bankruptcy?

There is no fixed rule, and it depends on the type of financial institution. Most banks will not give you a loan for five years after you file. Credit unions, however, if they were not listed as a creditor in your bankruptcy petition, do not follow that rule and will make loans to qualified borrowers.

[return to the list of bankruptcy questions]

11. If I file Bankruptcy, can I keep some of my credit cards?

If you list a creditor in your bankruptcy petition, the credit card is almost always cancelled by the company. And you are required to list all credit cards debts if you are carrying a balance. If you have a card(s) for which you pay the amount due in full each month, or have no balance, it is up to the credit card company to decide if they will let you keep your account open.

[return to the list of bankruptcy questions]

12. Can the bank take my money from my checking account if I owe them money? If I file bankruptcy?

Most deposit agreements with banks give them the right to “set off” any debt from any deposits you have. So if you are behind on a loan, or if you file bankruptcy, they can take every penny from your bank accounts and apply it to their loan. That is why you should not keep your money in bank if you owe that bank money.

[return to the list of bankruptcy questions]

13. What is a secured debt? An unsecured debt?

A secured debt is a loan where you have given “security”, usually a mortgage or lien, on property. If you buy a house or car on credit, usually the financial institution will require you to give them a mortgage on the house or a lien on the certificate of title to the motor vehicle. If you default on a secured loan, the lender can foreclose and take the property back by filing a lawsuit, or in the case of a motor vehicle, by towing the vehicle away.

An unsecured debt is a loan with no security given, sometimes called a “personal” loan or debt, such as medical bills, and most credit card bills.

[return to the list of bankruptcy questions]

14. What does it mean to “reaffirm” a debt?

If you reaffirm a debt it means you agree to pay it, even though you have filed bankruptcy and your other debts are discharged. Court approval is needed. It is usually a very bad idea to reaffirm a debt.

[return to the list of bankruptcy questions]

15. Why does the attorney fee have to be paid before filing my bankruptcy case?

You are required to list all of your debts, all of your creditors, as of the date your bankruptcy petition is filed. If you owe your attorneys any money, they must be listed, and then when you file you do not have to pay them. As a consequence, in all Chapter 7 bankruptcies, the full fee must be paid before the case is filed. (This rule does not apply to Chapter 13 cases.)

[return to the list of bankruptcy questions]

16. What is a bankruptcy preference?

A preference is a special payment you make to a creditor, a payment which is not a regular monthly payment. It also includes payments made to family members or close friends within a year of filing your bankruptcy. If you pay back money you borrowed from your family, and not the other creditors, that is “preferring” them over the others. In that situation the person paid can be sued to give back the money, which is then divided equally among all of your creditors. Payments made after you file your bankruptcy case are not preferences. So wait to pay back your family after you file; do not make payments before you file.