What is bankruptcy?

Bankruptcy is a legal proceeding in which a person (the debtor) who is unable pay his or her bills (the creditors) can get a fresh start. Bankruptcy is started by filing a petition with the Federal Bankruptcy Court. The petition discloses all of the debtor's financial affairs including assets and liabilities. Filing bankruptcy immediately and instantly, though sometimes only temporarily, stops creditors from seeking to collect debts. Bankruptcy may also eliminate a debtor's obligation to pay many, if not all, debts incurred prior to the bankruptcy filing

Who can file a bankruptcy?

• You must reside or have a domicile, a place of business, or property in the United States or a municipality.
• You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
• You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
• It must not be a "substantial abuse" of Chapter 7 to grant the debtor relief. Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7.
• It would not be fundamentally unfair to grant the debtor relief under Chapter 7.

Is it true that I can wipe out all my bills?

The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding.

Not all debts are dischargeable. Generally speaking, the following debts will not be discharged: Taxes; Spousal and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; Student loans; Criminal fines and penalties and Forfeitures.

Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor's equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.

Can I stop the bill collectors from calling?

One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed. This means that debt collection efforts and foreclosure is halted.

I am married; does my spouse also have to file bankruptcy?

No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. In cases where real property is involved the question regarding a joint bankruptcy is beyond the scope of this FAQ, see an attorney.

What happens to my personal property, real property and other assets?

Once the bankruptcy is filed, all the property of the debtor at the time of the filing and certain other property to be received in the future, becomes the property of the bankruptcy estate. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt and the debtor will be able to keep it. Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. You need a good lawyer. Don't pick one that advertises in your local paper.

What is a Chapter 7 Bankruptcy?

Chapter 7 cases are commonly referred to as straight bankruptcy or liquidation cases, and may be filed by an individual, corporation, or a partnership. A Chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in Chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. The Bankruptcy Code will allow the debtor to keep a certain amount of property called "exempt" property; however, potential debtors with valuable assets should realize that the filing of a petition under Chapter 7 may result in the loss of property.

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. Chapter 13 permits individuals to keep their property by repaying creditors out of their future income.  It is not available to corporations or partnerships. After completion of payments under the plan, Chapter 13 debtors receive a discharge of most debts.

What is a Foreclosure?

Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's failure to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien".

A Foreclosure by Sale begins with the posting of a sign advertising the auction of your home on the sale date. You can stop a foreclosure sale by filing a Chapter 13 bankruptcy by paying the full arrearage or arranging a workout agreement with your mortgage company.  Full Payment: If you are able to obtain and tender the full amount of your arrearage, including fees and costs, you can stop the foreclosure of a standard residential mortgage. Most people lack the money to make full payment. Chapter 13 stops the foreclosure and allows you to repay your arrearage over a three-to-five year period. The arrearage is paid through a court-appointed official, while you resume your regular monthly payments to the bank in order to keep your home. A Chapter 13 can be filed at any time prior to the sale date, and it is often the only avenue to save your home at the last minute.

What is Bankruptcy Fraud?

Bankruptcy fraud is a business crime of filing for bankruptcy with criminal intent, that is with the intention of evading payment for goods even though the buyer has funds that could be used to pay for them, or accepting payment for goods or services but not supplying them. Common types of bankruptcy fraud include petition mills, false oath, concealment of assets, and fraudulent conveyance. Multiple filings are not per se fraudulent; as with all things in the law, it depends on the circumstances. Bankruptcy fraud should be distinguished from strategic bankruptcy, which is not a criminal act (but may prejudice a judge against the filer if there is evidence that bankruptcy is being used strategically).

What is a Debt Consolidation?

Contrary to popular belief, debt consolidation is not a loan. Debt consolidation is a process in which debt is restructured into one low monthly payment. It further enables a consumer to reduce the amount owed and thereby eliminate interest. Very often a consumer can detect warning signs of being in too much debt long before any collection notices are received. If more than two of the following signs apply to you, you are probably in too much debt:

• You charge essential expenses, like food and daily expenditures, to your credit card  
• You make only the minimum payments on your credit cards each month
• You are near the limit of your credit cards
• You have too many credit cards
• You don't know how much money you owe creditors