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Bankruptcy FAQs

What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A Chapter 7 bankruptcy is often referred to as a liquidation bankruptcy. In Chapter 7 proceedings, you do not pay anything to unsecured creditors included in your bankruptcy petition unless the court requires a liquidation sale of your non-exempt assets. (Non-exempt assets are those not protected from forced liquidation by either federal or state statutes. For example, under the Georgia statutes, each individual is allowed to exempt, among other things, $10,000 for real estate used as a primary residence, $3,500 for a vehicle, the right to state or federal benefits, and alimony and child support benefits.) If you own assets that are non-exempt, you may be required to liquidate them. The court would then distribute the proceeds from the sale to your unsecured creditors as partial satisfaction of the debts you owe. Any remaining unpaid debt would then be discharged, and you would no longer be held responsible for it.

Often known as a “wage-earner’s plan,” a Chapter 13 bankruptcy does not require liquidation of non-exempt assets to satisfy your creditors. Instead, you pay some or all of your unsecured debt back through the court over a 36- to 60-month period. The percentage of unsecured debt you are required to repay must be at least equal to what your creditors would receive if your non-exempt assets were liquidated as part of a Chapter 7 bankruptcy. If you successfully complete the court-ordered repayment schedule, any unpaid unsecured debt is then discharged.

If you wish to forestall and ultimately prevent foreclosure on real property (e.g., your home), you should seek to do so through Chapter 13. Although a Chapter 7 petition delays foreclosure, it does not always prevent it without liquidation of the property to satisfy the mortgage debt. In Chapter 13, the petitioner may be given the opportunity to catch up in full on a mortgage arrearage as part of the 36- to 60-month court-approved repayment plan. If he or she does so, the foreclosure is prevented and the mortgage is brought up to date.

Will my creditors stop harassing me?

Yes, they will! By law, all actions against a debtor must cease once bankruptcy documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. However, secured creditors, such as banks, holding a lien on a car, will get the stay lifted if you cannot make payments.

What debts are erased by a Chapter 7 bankruptcy?

Most unsecured debt is erased (discharged) in a bankruptcy except for: child support and alimony; debts for personal injury or death caused by your drunk driving; student loans; certain income tax debt.

How long will a bankruptcy stay on my credit report?

Typically, a Chapter 7 remains on your credit report for 10 years. A Chapter 13 remains on your credit report for 7 years. You can however, begin to rebuild your credit as soon as you receive your discharge. You will receive a discharge in a Chapter 7 bankruptcy 5-7 months from the date of filing. A Chapter 13 bankruptcy normally takes 3-5 years to receive a discharge. The further in the past the bankruptcy filing is the less significant it becomes. The truth is that you are probably a better credit risk after bankruptcy than before.

Can my boss fire me for filing bankruptcy?

No. U.S.C. Sec. 525, prohibits any employer from discriminating against you because you have filed bankruptcy.

Can I keep any credit cards if I file for Chapter 7 bankruptcy?

Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card they will cancel the card unless you reaffirm the debt. Even if you have a zero balance the credit card company might cancel the card.

Will my spouse be affected if I alone file for bankruptcy?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card they are probably responsible for that debt. However, In community property states, either spouse can contract for a debt without the other spouse’s signature on anything, and still obligate the marital community. There are a few exceptions to that rule, such as the purchase or sale of real estate; those few exceptions do require both spouses’ signatures on contracts. But the day to day debts, such as credit cards, do NOT require both spouses to have signed.

Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

I filed a Chapter 7 bankruptcy before. Can I file another one?

A person can file Chapter 7 again if it has been more than 8 years since he or she filed the previous Chapter 7 bankruptcy. If you have filed a Chapter 7 bankruptcy less than 8 years ago, while you can not file a Chapter 7, you will be able to file a Chapter 13 bankruptcy.

Can I go to jail if I file bankruptcy or don’t pay my debts?

No. There are no debtor’s prisons in the United States.

Must I disclose all of my assets?

Yes! You must list everything you own and everything you owe on your bankruptcy. If you knowingly and fraudulently conceal an asset from the court you have committed a felony and can be fined up to $5,000, imprisoned for up to five years, or both. In addition, the court can deny your discharge, or dismiss or convert your bankruptcy proceeding. Listing your assets does not mean that you will lose them and it is best to give your attorney all of the information so that he or she can help you make an informed decision as to whether you should file bankruptcy and what type you should file.