Chapter 7 BK - How to File For Bankruptcy, Answers to Questions About Chapter 7 Bankruptcy
Chapter 7 Bankruptcy Frequently Asked Questions
Last Updated: March 3, 2014
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- What is Chapter 7 bankruptcy?
- Who can file bankruptcy?
- Is it true that I can eliminate all my debt?
- Do I have to go through credit counseling before filing for bankruptcy?
- What are the most common reasons for filing bankruptcy?
- Will bankruptcy stop the bill collectors from calling?
- Does my spouse also have to file?
- Will I lose my job?
- Will my employer find out about my bankruptcy?
- When I file for bankruptcy, can I keep my personal property, my house, my car, and other assets?
- Can I keep my credit cards after filing for bankruptcy?
- Will bankruptcy stop a wage attachment?
- Will bankruptcy stop a foreclosure?
- Will bankruptcy stop an eviction?
- Will bankruptcy stop a judgment?
- Will bankruptcy remove a lien?
- Will bankruptcy wipe-out my obligation to pay community debts if I am divorced?
- I am a co-signer for a debt. How does bankruptcy affect my obligation?
- Who notifies the creditors and bill collectors regarding my bankruptcy?
- Do I have to fill out forms?
- Do I have to go to court?
- What happens after I file my bankruptcy?
- Who deals with the creditors and bill collectors during the bankruptcy?
- What if I forget to list a creditor on my bankruptcy papers?
- What happens to my credit rating after bankruptcy?
- Can I get credit after bankruptcy?
- Is there anything I should not do if I am contemplating bankruptcy?
- If I need to file bankruptcy again, how long do I have to wait?
- Who can help me with my bankruptcy?
- Are there any alternatives to bankruptcy?
- How long will a Chapter 7 bankruptcy stay on my credit report?
- Do I need to be a U.S. citizen in order to file bankruptcy?
This article deals with Chapter 7 bankruptcy. Each state has its own bankruptcy laws, so you need to check with your state for details. If you need information regarding Chapter 13 bankruptcy, go to our article "Chapter 13 Bankruptcy Frequently Asked Questions". The information contained in the following FAQs is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of Chapter 7 bankruptcy. Every individual's factual situation is different and you should seek independent legal advice regarding specific information. - Return
2. What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor then receives a discharge of all dischargeable debts. - Return
3. Who can file a Chapter 7 bankruptcy?
- You must reside or have a domicile, a place of business, or property in the U. S. 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.
- You must have completed a debt counseling class within the past 6 months.
- You must pass this means test.
4. Is it true that I can eliminate all my debt?
The underlying purpose 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; non-dischargeable debts from a prior bankruptcy; student loans; criminal fines and penalties and forfeitures. Here is a more specific list of non-dischargeable debts.
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. - Return
5. Do I have to go through credit counseling before filing for bankruptcy?
Yes, at least six months prior to filing your Chapter 7 bankruptcy petition, you must get credit counseling from a government approved organization. You can find a state-by-state list of government approved credit counseling organizations at U.S. Dept. of Justice. In addition, you must also complete a financial education course prior to filing for CH 7 BK. - Return.
6. What are the most common reasons for filing bankruptcy?
The most common reasons for bankruptcy are: unemployment, large medical expenses, marital problems and other large unexpected expenses. Most people do not just run up their credit cards irresponsibly with the expectation that you can just wipe out the debts in a bankruptcy. - Return
7. Will bankruptcy 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.
Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he/she must stop all efforts to collect the debt. After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditor immediately.
If a creditor continues to use collection tactics once informed of the bankruptcy, they may be liable for court sanctions and attorney fees for this conduct. - Return
8. 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, it might be advisable to have only one spouse file. You must be careful about filing separately if, as a couple, you own joint debt and property. See our divorce section. Return
9. Will I lose my job?
No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws. - Return
10. Will my employer find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not know. However, most employers are pulling credit reports for new job applicants. If you leave your job, your new employer will probably know that you had a bankruptcy. - Return
11. When I file for bankruptcy, can I keep my personal property, my house, my car, and other assets?
All property of the debtor at the time of the filing becomes the property of the bankruptcy estate and a bankruptcy trustee will take control of this property for purposes of satisfying the creditors. However, property can be classified as either exempt (which the debtor will be able to keep) or non-exempt (which the debtor will have to turn over to the trustee to liquidate).
Personal property exemptions are determined based upon your situation, income and the laws of your state. Details of the following are dependent upon which exemption scheme you select but here is a general list of commonly found exemptions:
- Household Items
- Tools of the Trade
- Health Aids
- Retirement Accounts
- Unmatured Life Insurance
- Personal Injury Awards
As for real property, again, it is dependent upon which exemption scheme is selected and your circumstances. For more detailed information on what assets you can keep after filing bankruptcy, read our article What Property Can I Keep When Filing For Chapter 7 Bankruptcy. - Return
12. Can I keep my credit cards after filing for bankruptcy?
You may keep your credit cards under some circumstances and many factors must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt. - Return
13. Will bankruptcy stop a wage attachment?
Yes. - Return
14. Will bankruptcy stop a foreclosure?
Yes. However, a home is an asset usually secured by a deed of trust. The lender is entitled to apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. You usually have to make a deal with the lender in order to keep a home that is in foreclosure. - Return
15. Will bankruptcy stop an eviction?
Perhaps. However, this will only delay the inevitable. The owner is entitled to possession of his property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court. I must caution you that if the only reason you filed the bankruptcy is to stop an eviction, this may be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true, the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you. Also, in California, laws have been passed favoring the landlords. Apparently, landlords can evict even if a tenant files bankruptcy.- Return
16. Will bankruptcy stop a judgment?
Yes. Most civil judgments are stopped by bankruptcy. - Return
17. Will bankruptcy remove a lien?
Under some circumstances once the bankruptcy proceedings have started, a special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted. However, here are the guidelines for removing tax liens.
You can discharge debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:
- The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
- You didn't file a fraudulent return or try to evade paying taxes.
- The liability is for a tax return actually filed at least two years before you filed for bankruptcy.
- The tax return was due at least three years ago.
- The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you filed for bankruptcy. (11 U.S.C. 523(a)(1) and (7)).
18. Will bankruptcy wipe-out my obligation to pay community debts if I am divorced?
In general, you will be discharged from all dischargeable community debts in the eyes of the court. In the eyes of the creditors, it is another thing. You should discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action (divorce case).
Also, remember that if you are discharged from community debts, your spouse becomes responsible for the entire balance owing on the debt. Put another way, the debt does not go away; it simply shifts from you to your spouse. Which, depending on your feelings for your spouse, might not be a bad thing.- Return
19. I am a co-signer for a debt. How does bankruptcy affect my obligation?
You will not have to pay the debt if it is dischargeable. However, the co-signer will become primarily responsible for the debt. Be sure to list the cosigner as a creditor in your schedules as they have a contingent claim against you. - Return
20. Who notifies the creditors and bill collectors regarding my bankruptcy?
After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks. If this is not soon enough, then you should have your representative inform the creditors immediately. - Return
21. Do I have to fill out forms?
If you file the bankruptcy yourself, you must fill out the forms. There could be between 30 and 60 pages in your petition, schedule and other papers filed at the time of your bankruptcy. You must follow the local and federal bankruptcy court rules in completing the forms. Preparing these forms requires an understanding of both bankruptcy law and local state law in order to enter the information correctly and accurately. - Return
22. Do I have to go to court?
Yes. About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing, the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry. Your attorney will help you prepare for the hearing and will be there to represent you. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or your desire to retain a credit card. Your attorney will negotiate with them, with your knowledge and approval.
You will normally not need to return to court after this hearing. However, if a creditor files a motion or an adversary action, you may have to return to court. This is the exception and only your attorney can determine if this is likely to happen. - Return
23. What happens after I file my bankruptcy?
Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors. - Return
24. Who deals with the creditors and bill collectors during the bankruptcy?
Your attorney deals with your creditors. It may be the only time you ever have the luxury of saying, "You'll have to talk to my lawyer." - Return
25. What if I forget to list a creditor on my bankruptcy papers?
You are permitted to file an amendment to your schedules up to a certain time before the discharge. If the amendment is timely filed, the omitted creditor is added to the bankruptcy. It is perjury to intentionally omit a creditor. However, if you do not know that a creditor exists and there are no assets for your creditors, the debt will be discharged.
This is a hassle after the fact. Be thorough and list everything when you prepare your schedules. - Return
26. What happens to my credit rating after bankruptcy?
It sucks. Plain and simple. However, you can re-establish credit and get an "A" credit mortgage three to four years after the discharge of bankruptcy. However, it may be very difficult to get a credit card until the bankruptcy falls off of your report. For more information on re-establishing your credit, please see rebuilding your credit. The bankruptcy is a judgment and will be listed for a period of up to 10 years after the discharge. - Return
27. Can I get credit after bankruptcy?
Sure. For a while though, expect to pay through the nose in interest and fees. There is a whole new mortgage industry springing into action loaning to people with less-than perfect credit. Again, see our section on rebuilding your credit. - Return
28. Is there anything I should not do if I am contemplating bankruptcy?
This is a complex question and should be discussed with your attorney. Generally, however, there are three items worth mentioning:
- Under bankruptcy law, certain luxury purchases over $1,000 within 60 days of the bankruptcy filing are presumed nondischargeable.
- Under bankruptcy law, cash advances aggregating $1,000 within 60 days of the bankruptcy filing are presumed nondischargeable.
- Debts involving materially false financial statements are nondischargeable under certain circumstances.
29. If I need to file bankruptcy again, how long do I have to wait?
You must wait six years to file again. If your bankruptcy was dismissed, you must usually wait for 180 days to refile. - Return
30. Who can help me with my bankruptcy?
We're just going to say it one more time: the best person to help is your attorney. When you discuss your situation with your attorney, you will need to be prepared to discuss all areas of your case. This includes each and every debt you owe and creditor you have. It is very important to list all your creditors in your bankruptcy. One of the best ways to know all your creditors is to get copies of your credit reports, from all three credit bureaus, so you can view you entire credit history. This should list the majority of your creditors, even ones you did not know about. You should also have a post-bankruptcy budget prepared before you go to the attorney's office. This budget should contain the income and expenses you will have after you file your bankruptcy. - Return
32. How long will a Chapter 7 bankruptcy stay on my credit report?
A Chapter 7 bankruptcy stays on your credit report for 10 years from the date the bankruptcy is discharged. However, it stays on your court records for 20 years, as public record. Return
33. Do I need to be a citizen to file bankruptcy?
No, you don't have to be a citizen. If you are a non-citizen, but have a Social Security card or a Tax ID, you can file for bankruptcy protection. If you don't have a United States ID, but own property in the U.S., you can still file bankruptcy. Return