- What should I not do before filing?
- What kinds of debt are dischargeable in a Chapter 7 Bankruptcy?
- What are the benefits of filing bankruptcy?
- Will bankruptcy stop garnishments?
- How will a bankruptcy affect my credit?
- What property will I have to sell in a bankruptcy?
- Can I declare bankruptcy if I have a job?
Q. What should I not do before filing?
A. Avoid these common bankruptcy mistakes
For most people, even just the thought of filing for bankruptcy protection can create a lot of fear and anxiety. Unfortunately, too many people let their fears get the better of them and they often make the kinds of mistakes that get bankruptcy cases dismissed, or worse.
By talking to a bankruptcy attorney before doing anything that might cost you big-time later, you can avoid these common mistakes:
- Don't try to handle your bankruptcy without legal help. Bankruptcy is a much more complicated area of the law than you might think — especially if making the most of this opportunity is the goal for you.
- Don't sell assets or borrow against your equity or retirement funds just to fall a little less behind each month — not until you've talked to an attorney about your financial situation and debt relief options.
- Don't begin paying off certain creditors, especially family members, or close friends, before you discuss your bankruptcy options. Also avoid other major financial transactions, ownership changes or transfers of assets that have significant value.
- Don't lie in any of your bankruptcy filings or to the bankruptcy trustee overseeing your case. This is one of the worst mistakes you can make, as it can not only cause you to lose assets and have your bankruptcy case dismissed — it may also lead to criminal charges being filed against you.
Q. What kinds of debt are dischargeable in a Chapter 7 Bankruptcy?
A. Chapter 7 Bankruptcy can discharge most consumer debts, including:
- Credit card debt
- Medical debt
- Personal loan debt
- Deficiency debts after repossession or foreclosure
- Certain tax debts (Please note: many tax debts are non-dischargeable. An experienced bankruptcy attorney can tell you more about what tax debt is dischargeable)
- Judgments on dischargeable debt
Q. What are the benefits of filing bankruptcy?
A. Chapter 7 Bankruptcy provides two major benefits:
Immediate protection from creditors. Immediately after you file for chapter 7 bankruptcy, you will be protected from creditors by what is known as the automatic stay. The automatic stay is a broad and powerful concept. Generally creditors must immediately halt debt collection activities (including wage garnishments, bank levies, vehicle repossessions, foreclosures, and harassing phone calls or letters). Similarly, all lawsuits against you must stop.
There are some limits to the automatic stay, of course. The automatic stay usually does not postpone criminal actions against the debtor, divorce proceedings, or eviction actions. Nevertheless, the exceptions to the automatic stay are quite limited. Generally, when you file for chapter 7 bankruptcy, you are granted immediate protection from your creditors.
Discharge of debts.
A. A chapter 7 bankruptcy eliminates certain debts. Debts in bankruptcy are considered either dischargeable or non-dischargeable. Most debts in bankruptcy are dischargeable. Dischargeable debts often include credit card debts, medical bills, and judgments against you.
Some debts, however, are non-dischargeable. These include domestic support obligations, some tax debts (talk with an experienced bankruptcy attorney to determine whether your tax debts are dischargeable), and fraudulent debts. In addition, some liens survive bankruptcy, even if the personal debt does not.
Generally, however, when you receive a discharge in chapter 7 bankruptcy, your unsecured debts (credit card debt, medical debt, personal loans, and debt following repossessions) is eliminated.
Q. Will bankruptcy stop garnishments?
A. Almost without exception, the answer is yes. Creditors generally must stop all collection activities (including garnishment) because an automatic stay is imposed when you file for bankruptcy. The biggest exception is for child support payments. For most other types of garnishment, bankruptcy will provide immediate relief.
Q. How will a bankruptcy affect my credit?
A. A bankruptcy will appear on your credit report and may initially make it difficult to establish new credit or obtain favorable interest rates and other terms if you do get a loan or other credit. A Chapter 13 bankruptcy stays on your credit report for seven years, while a Chapter 7 bankruptcy remains on your report for ten years. However, it is possible to begin rebuilding your credit immediately after a discharge in bankruptcy, and new credit can usually be established within a couple of years, or even as early as six months. Once you begin establishing new credit and paying your bills, it becomes easier to get more credit on better terms.
Q. What property will I have to sell in a bankruptcy?
A. In a Chapter 7 proceeding, commonly referred to as a liquidation, a great deal of your assets will likely be sold in order to pay off your debts. However, certain property can be exempted. This includes necessary living items, such as clothing and personal effects, as well as household furnishings and appliances. You are also able to exempt the equity you have built up in your home, so depending upon where you stand in relation to your mortgage, it may be possible to keep your home. Under the same analysis, you may be able to keep your car as well. In some cases, retirement accounts may also be retained.
Chapter 13 does not involve a general discharge of debts like Chapter 7, so there is no corresponding liquidation of assets required. Even if your home is in foreclosure, a Chapter 13 proceeding will allow you to stop the foreclosure, catch up on past due payments, and stay in your home if you can keep your mortgage current after the bankruptcy.
Q. Can I declare bankruptcy if I have a job?
A. There is no requirement that you be destitute or jobless in order to file for bankruptcy debt relief. It is possible to have a regular job and still become overwhelmed with debt. If you have a steady paycheck coming in and can afford to pay off your debts a little at a time each month, then a Chapter 13 wage earner's plan may be the best solution for you.
You do not have to be jobless to file for Chapter 7 either, although you must pass a means test in order to be eligible to file. Whether you are eligible for Chapter 7 depends upon your income in relation to the median income in your state, as well as a more complicated formula involving your disposable income (income less allowable expenses) and the amount of unsecured debt you are carrying. If you are ineligible for Chapter 7, you may still be able to file under Chapter 13.
An attorney can help you perform the means test for Chapter 7 eligibility and advise you on your possible options. For a free consultation regarding bankruptcy and related matters, contact the Shakopee law office Ross & Associates, P.A. to speak with a qualified and experienced bankruptcy lawyer in the Southwest Twin Cities Metro area.
We are a debt relief agency pursuant to Federal Law §524 of Title 11 of the U.S. Code. We provide legal assistance and help people file for bankruptcy relief under the Bankruptcy Code.