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Chapter 7 Frequently Asked Questions
1. What is Chapter 7 Bankruptcy?
2. Do I need an attorney to file for bankruptcy?
3. What Property is Exempt, what can I keep?
4. Who can file a Chapter 7 Bankruptcy?
5. Is it true that I can wipe out all of my bills?
6. What are the most common causes of Chapter 7 Bankruptcy?
7. Can I stop the bill collectors from calling?
8. How long after I file will the creditors stop calling?
9. I am married; does my spouse also have to file bankruptcy?
10. Will I Lose my job?
11. Can I go to jail if I file bankruptcy?
12. Will my employer find out about my bankruptcy?
13. What happens to my real property and other assets?
14. Can I keep my home and personal property?
15. Can I keep my Apartment or Rental Home?
16. Can I keep my car after Bankruptcy?
17. Can I keep my credit cards after bankruptcy?
18. Will Bankruptcy stop a wage garnishment?
19. Will Bankruptcy stop a foreclosure?
20. Will Bankruptcy stop an eviction action?
21. Will Bankruptcy stop a judgment?
22. Will a Bankruptcy remove a lien?
23. I am divorced. Will Bankruptcy wipe-out my obligation to pay joint debts?
24. I am a co-signer for a debt. How does Bankruptcy affect my obligation?
25. Who notifies the creditor and bill collection?
26. Do I have to fill out forms?
27. Do I have to go to court?
28. What happens after I file my Bankruptcy?
29. Who deals with the creditors and bill collectors during the bankruptcy?
30. What if I forget to list a creditor on my bankruptcy papers?
31. What happens to my credit rating after Bankruptcy?
32. After Bankruptcy, can I get credit?
33. How do I re-establish my credit after Bankruptcy?
34. Is there any thing I should not do if I am contemplating bankruptcy?
35. If I need to file Bankruptcy again, how long do I have to wait?
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What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a liquidation proceeding. The debtor turns over all property that is not exempt to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts. New Bankruptcy Law taking effect on October 17, 2005:
The major intent of bankruptcy reform is to require people, who can afford to make some payments towards their debt, to make these payments, while still affording them the right to have the rest of their debt erased. These people MUST file Chapter 13.
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No. You do not need to use a lawyer to file Chapter 7 yourself or Chapter 13.
However, we advise that you use the services of our experienced bankruptcy attorney as bankruptcy is now much more complex after the changes under the NEW LAW. A bankruptcy lawyer is well worth the cost. You will save the cost of the legal fees many times over through peace of mind, release of stress and probably actual money saved in following your bankruptcy attorney's advice.
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What Property is Exempt, what can I keep?
Bankruptcy exemptions are covered by Federal or state non-bankruptcy law. Ask your attorney about this.
New Bankruptcy Law taking effect on April 20, 2005:
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- Who can file a Chapter 7 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 8 years or completed a Chapter 13 plan and paid at least 70% of your your unsecured debt. 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. New Bankruptcy Law taking effect on October 17, 2005: You must have finished an approved counseling course within the 6 months prior to filing. We will be able to set up this course and see you receive the your certification to file with your petition. In certain "emergency circumstances we can request a wavier and allow you to file with out approved counseling course however you must still take the course with the time allowed under the wavier. Under the new means test, if the your combined gross income is greater than the median family income in our state, the law may require you to file a Chapter 13 plan and pay off some of those debts. Debtors filing Chapter 7 or Chapter 13 bankruptcy, must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due. You must also have finished an instructional course concerning personal financial management in order to be eligible for a discharge (completion of you case). We will be able to set up this course and see you receive the your certification and file the appropriate paperwork with the court
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- Is it true that I can wipe out all of my bills?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his or her ability to repay the debt should be given a "fresh start" through the discharge of debts in a bankruptcy proceeding. However, not all debts are dischargeable. Generally speaking, the following debts will not be discharged: - Debts which have are determined by the Bankruptcy Court to be non-dischargeable as the result of debts created through false pretenses, misrepresentations, for money or property obtained by fraud, or for damages arising for willful and malicious injury to property;
- Certain taxes are also non-dischargeable, for example: Income taxes for three (3) taxable years before filing of petition; Property taxes payable within 1 year before filing of petition; Withholding taxes; Employment taxes for which a return is due within three (3) years before filing of petition; Excise taxes for which a return is due within 3 years before filing of petition; Customs duties on merchandise entered into the country within one (1) year before filing of petition;
- Unscheduled debts, that is, debts that you fail to list on the schedules;
- Debts owed to a spouse, former spouse, or child for alimony, maintenance and support or incurred as the result of a property settlement agreement;
- Debts for fines, penalties, restitution or forfeitures payable to a governmental unit or as the result of a conviction in a criminal case;
- Debts because of damages, injuries or death resulting from driving while intoxicated;
- Debts for certain educational or student loans guaranteed by a governmental unity, and now private for profit educational lenders unless the repayment will impose an undue hardship as determined by this Court;
- Debts which you owed before a previous bankruptcy case in which you were denied a discharge.
- Secured debts which you agree to keep and reaffirm with the creditor. Those debts which are secured and which you do not agree to keep and reaffirm will be discharged, however, the creditor will probably take the necessary legal steps to take back the property.
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- What are the most common causes of Chapter 7 Bankruptcy?
The most common reasons for consumer bankruptcy are: - loss of a job or long-term layoffs;
- loss of overtime hours;
- lengthy illnesses and large medical expenses;
- death or disability of a spouse;
- separation, divorce and marital problems;
- seriously over extended credit;
- large unexpected expenses.
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- 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 (stopped). This means that debt collection efforts and foreclosure is halted. New Bankruptcy Law taking effect on October 17, 2005: The stay will not cover property involving either: - a transfer of real property collateral without the consent of the secured creditor or court approval; or
- multiple bankruptcy filings involving the same real property.
Debtors must perform a statement of intent as to secured property (such as a vehicle) within 30 day after the date set for the first creditors meeting. Failure to either redeem the property or reaffirm the debt within 45 days after the S. 341 meeting results in termination of the automatic stay and allows the creditor to exercise its remedies under the law, usually by taking back the asset. [Back to top]
- How long after I file will the creditors stop calling?
Once a creditor or bill collector becomes aware that you have filed for bankruptcy protection, he or she must stop all efforts to collect the debt. When your bankruptcy is filed, the court will mail a notice to all of the creditors listed in your schedules. This usually takes a week to ten days. You will receive a copy of the same notice that goes out to creditors. If this is not soon enough to stop a garnishment or repossession, then you should have your attorney or you may 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.
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- 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.
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- Will I Lose my job?
No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws. U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.
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- Can I go to jail if I file bankruptcy?
ABSOLUTELY NOT. There are no debtor's prisons in the United States. As a matter of fact, the right of bankruptcy is governed by the U. S. Constitution in Article I, Sec. 8, cl.4. HOWEVER YOU MAY GO TO JAIL IF YOU CONCEAL ASSETS, FAIL TO DISCLOSE CREDITORS, PERJURE YOURSELF AT THE HEARING OR LIE ON YOUR SCHEDULES AND/OR STATEMENTS.
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- Will my employer find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not know that you have filed bankruptcy. However some local newspapers do print your name and case details.
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- What happens to my 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 all non-exempt property for purposes of satisfying the creditors. However, there is certain property, which is either excluded or is exempt and you will be able to keep it.
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- Can I keep my home and personal property?
In most cases, the debtor does not give up any property. As for your home, in Washington, the homestead exemption amount generally may not exceed the lesser of (1) the total net value of the lands, mobile home, improvements, and other personal property, as described in RCW 6.13.010, or (2) the sum of $40,000.00 in the case of lands, mobile home, and improvements, or the sum of fifteen thousand dollars ($15,000.00) in the case of other personal property described in RCW 6.13.010. Equity is the difference between the value of you home and the mortgage or mortgages which you owe, and the costs of selling the home. When calculating your equity you should use a value that is based upon a forced liquidation (sale) as opposed to the best selling conditions to arrive at a value for your home. Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. Generally, very few debtors risk losing their home to the bankruptcy court. In most cases, if there is any equity left after calculating mortgage pay off, reasonable transfer costs and expenses, and debtor's exemptions, the trustee is willing to discuss a sale of the excess back to the debtor and, in many cases, will work out a short-term repayment plan. If you own real property which is not your home, that property may not be exempt and probably will be subject to sale by the trustee. The debtor, of course, can buy the property back from the trustee. Your personal property is subject to a number of exemptions, including a blanket or lump sum (amount is determined by a number of factors and the selection of state or federal exemptions) exemption for items that are not specifically exempted. You will keep all property which is exempt. New Bankruptcy Law taking effect on October 17, 2005: Debtors must perform a statement of intent as to secured property (such as a vehicle) within 30 day after the date set for the first creditors meeting. Failure to either redeem the property or reaffirm the debt within 45 days after the S. 341 meeting results in termination of the automatic stay and allows the creditor to exercise its remedies under the law, usually by taking back the asset. We will advise you on this and will prepare the required form.
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Can I keep My apartment or Rental home? Landlords seeking to evict tenants are allowed to continue the eviction process if: - the landlord obtained a judgment of possession prior to the filing of the bankruptcy petition; or
- if there is endangerment to the property or illegal use of controlled substance on the property which occurred within the 30 days before the bankruptcy filing. NOTE: The landlord would be required to file with the court and serve on the debtor a certificate setting out he facts giving rise to the exception.
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Can I keep my car after Bankruptcy?
YES. If a creditor properly secures your car, you will be expected to keep your payments up. In very few instances, your attorney can re-negotiate your debt so that you will be current and you might be able to get more favorable repayment terms. If you car is not pledged as collateral for a debt, your ability to keep your car will depend upon its value and whether or not you have enough room in your exemptions. New Bankruptcy Law taking effect on October 17, 2005: Debtors must perform a statement of intent as to secured property (such as a vehicle) within 30 day after the date set for the first creditors meeting. Failure to either redeem the property or reaffirm the debt within 45 days after the S. 341 meeting results in termination of the automatic stay and allows the creditor to exercise its remedies under the law, usually by taking back the asset. We will advise you on this and will prepare the required form. [Back to top]
- Can I keep my credit cards after bankruptcy?
Under some circumstances you may keep your credit cards. There are many factors which 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. In most cases the answer is no.
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- Will Bankruptcy stop a wage garnishment?
Yes.
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- Will Bankruptcy stop a foreclosure?
Yes. However, a home is an asset usually secured by a mortgage. The lender is entitled 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. Usually, to keep a home that is in foreclosure you will have to make a deal with the lender. NEW LAW: The stay (the injunction which prevents you mortgage company from foreclosure) will not cover property involving either: - a transfer of real property collateral without the consent of the secured creditor or court approval; or
- multiple bankruptcy filings involving the same real property.
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- Will Bankruptcy stop an eviction action?
For a while. 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 then this might be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.
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- Will Bankruptcy stop a judgment?
Yes. Most civil judgments are stopped by bankruptcy.
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- Will a 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.
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- I am divorced. Will Bankruptcy wipe-out my obligation to pay joint debts?
In general, you will be discharged from all dischargeable joint debts. However, since October of 1994, you are not discharged from obligations which arise from a divorce decree or property settlement agreement between you and your former spouse. If you were ordered by a divorce court, or if you entered into a written agreement, to pay certain debts, those obligations probably will not be discharged and you may still have to pay them. You should discuss this with your attorney to understand the other implications of the filing of a bankruptcy during the pendency of a divorce case.
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- I am a co-signer for a debt. How does Bankruptcy affect my obligation?
If the debt is a dischargeable debt then you will not have to pay it. However, the co-signer will become primarily responsible for the debt. Be sure to list the co-signer as a creditor in your schedules as they have a contingent claim against you.
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- Who notifies the creditor and bill collection?
After your bankruptcy is filed, the Bankruptcy Court mails a notice to all the creditors listed in your schedules. This usually takes a week to ten days. If this is not soon enough, then you should have your attorney inform the creditors immediately or you may inform them yourself.
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- Do I have to fill out forms?
YES. You will receive a detailed questionnaire from my office to be completed. It is important that you complete all of the questions, even though many of them may not apply to you or to your situation. You will be required to list ALL of you property and ALL of your debts. At the initial court appearance, you will be asked under oath whether you have listed all of your property and all of your debts and you must be able to truthfully answer that you have. Your attorney will ask you to complete a questionnaire and then will take that questionnaire and complete the bankruptcy petition and schedules based on the information, which you have provided. 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. The forms have to be typed and a certain number of copies must be included with the filing. After your attorney has prepared the bankruptcy petition, you or you and your spouse (if filing jointly) will review them and, if they are correct, sign them. Your attorney will forward them to the Court along with the necessary filing fees.
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- Do I have to go to court?
Yes. Within about 30 to 45 days after you file the bankruptcy, you will have to attend a hearing presided over by the Trustee or by the Bankruptcy Administrator. This hearing is called the First Meeting of Creditors or Section 341 Meeting. At this hearing, the Trustee or the Bankruptcy Administrator and the trustee will ask questions to you under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will have an opportunity to ask questions to you regarding the location and condition of your property, hazard insurance coverage and matters related to your financial affairs. Under most circumstances very few if any creditors appear. Don't worry, your attorney will be there to represent you and your attorney will help you prepare for the hearing. Sometimes, after your hearing is over, your creditors will approach you through your attorney 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. After this hearing you will normally not need to return to court unless a creditor files a motion or an adversary action. This is the exception and only your attorney can determine if this is likely to happen. Generally, debtors will only need to appear in the Bankruptcy Court only once.
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- What happens after I file my Bankruptcy?
Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 67 days after the First Meeting of Creditors. Once you have received your discharge, your bankruptcy case will be complete and you will be free of the court.
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- Who deals with the creditors and bill collectors during the bankruptcy?
Your attorney deals with your creditors for you. You should refer all creditors and bill collectors to your attorney. RGS Legal will handle these matters for bill collectors in Seattle and throughout the country.
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- What if I forget to list a creditor on my bankruptcy papers?
You can file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed then 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.
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- What happens to my credit rating after Bankruptcy?
The bankruptcy is a judgment and may be listed in credit reports for a period of up to 10 years. However, by the time most debtors have filed bankruptcy, their credit rating is already damaged by late payments, repossessions, law suits, foreclosures and other debt problems which will also be reported for a period of up to 10 years. Currently the major credit reporting agencies are starting to remove the Bankruptcy from your credit report within 6 to 7 years.
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- After Bankruptcy, can I get credit?
Surprisingly to most folks -- Yes. This is up to each particular credit grantor. In my experience, it is possible to get credit if the credit grantor believes and understands your reasons for filing the bankruptcy. Also, creditors realize that you are now virtually debt free with the same income and, unlike other potential debtors who can file bankruptcy, you cannot file another Chapter 7 bankruptcy for six (6) years.
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- How do I re-establish my credit after Bankruptcy?
There are at least two ways to get credit after a bankruptcy. First, one of your existing creditors may continue to grant you credit based upon a reaffirmation agreement made during the bankruptcy. Second, today there are several banks offering a secured credit card. This means that the credit limit is based upon the amount of security given. There are professionals who specialize in the business of credit repair. You might receive several offers to repair you credit rating which are scams and may actually be illegal. Discuss this with your attorney.
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- Is there any thing I should not do if I am contemplating bankruptcy?
There are several areas related to this question. You should consult your attorney. In particular there are three items worth mentioning. - Under bankruptcy law, certain luxury purchases over $600 within 90 days prior of the bankruptcy filing are presumed non-dischargeable.
- Under bankruptcy law, cash advances aggregating $600 within 90 days prior of the bankruptcy filing are presumed non-dischargeable.
- Debts involving materially false financial statements are non-dischargeable under certain circumstances.
- Transfers of property, of substantial value, are usually voidable and recoverable by the trustee within one year prior to the filing of the bankruptcy case.
- Any and all payments made to "insiders," that is friends or relatives, within one year prior to the filing of the bankruptcy case are presumed as a "preference" and are thus voidable and recoverable by the trustee.
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- If I need to file Bankruptcy again, how long do I have to wait?
NEW LAW: You must wait eight (8) years to file Chapter 7 again or, if your bankruptcy was dismissed, you may re-file. You may file a Chapter 13 at any time.
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