What is Bankruptcy?
Bankruptcy allows individuals or businesses (debtors) who owe others (creditors) more money than they're able to pay to either work out a plan to repay the money over time or completely eliminate (discharge) most of the bills.
What's the difference between secured and unsecured debt?
Secured debt is a claim that's secured by some type of property, either by an agreement or involuntarily with a court judgment or taxes. Creditors can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any type of property, and the creditor doesn't have a claim to their property. A mortgage is a secured debt on your property.
Bankruptcy Frequently Asked Questions
Which kind of bankruptcy should I file?
Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or Chapter 7 where the debts are dismissed. Each chapter of bankruptcy spells out: what bills can be eliminated, how long payments can be stretched out, and what possessions you can keep. The type depends on your circumstances and if you have assets available to repay all or part of your debts. Bankruptcy laws can be tricky and involved, so determining if, when and which type of bankruptcy you need should be made with careful thought or the input of a bankruptcy lawyer.
Can I change from one chapter of bankruptcy to another?
Generally, you can convert a case one time to any other chapter you're eligible for. The request to convert can be a simple one-sentence document. Watch out for issues, such as moving from a Chapter 13 to a Chapter 7, you'll need to review whether you have acquired items that are now be considered property of the estate under Chapter 7 that weren't part of the previous filing. Ask the trustee or a bankruptcy lawyer for additional issues.
What happens at the 341 Creditor's Meeting?
See our Creditor Meeting Information Page for a detailed discussion of what to expect.
Do you have to have a certain amount of debt to file?
No. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If you have little property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.
What is a reaffirmation agreement?
A reaffirmation agreement is a contract between a Creditor and Debtor stating that a debt will survive bankruptcy. This is usually done for a home mortgage or vehicle loan. They can be a good thing because when a debt is reaffirmed and paid on time, it will report well on your credit report. But, a reaffirmation agreement can be bad, because if you later default on a debt that you reaffirmed, you will still be liable for the debt and your bankruptcy will have no effect on the reaffirmed debt. This why a lot of people don't reaffirm mobile homes.
What is a Discharge Order?
At the end of a successful bankruptcy the Court will enter an Order stating that all the debts eligible for discharge are eliminated and that creditors are prohibited from collecting on a discharged debts. The Discharge Order is the main reason you file bankruptcy. In order to receive your bankruptcy discharge and have your debts wiped out you must take a Debtor Education Course - which is separate from the first credit counseling course you take before you file. Like the Credit Counseling Class, you can take the Debtor Education course on-line by clicking on the following link Debtor Education
How does Bankruptcy effect my credit?
The bankruptcy will show on your credit report for 10 years, but potential creditors will also see that since you filed bankruptcy and no longer owe any debts, your ability to repay a new loan should be great. See the Establishing Credit After Bankruptcy page for information on how to get your credit score back on track within months of your bankruptcy.
What happens if one spouse files for bankruptcy and not the other?
If one spouse files and the other doesn't, the one who doesn't file could be responsible for the debts. Review this carefully before filing.
Does my divorce decree protect me from creditors if my ex files for bankruptcy?
No. If you are a co-signor with your ex-spouse on a debt acquired while married, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the full debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he default on the loan obligations.
Can a co-signor of a loan be responsible for a debt if the other person has declared bankruptcy?
Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This makes it extremely important when considering co-signing a loan: Be ready, and able, to pay the loan in the event that the principal signor defaults.
Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by "reaffirming" the specific debt, but they still have to be listed in your bankruptcy.
Will I lose my retirement accounts or payments from social security?
Generally, no. Retirement accounts that are ERISA-qualified aren't considered property of an estate and aren't taken into consideration as assets. Social Security benefits are protected from assignment or garnishment for debts in bankruptcy. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the "only" deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.
How often can you file for bankruptcy?
Chapter 7: Can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13: Can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing.