Bankruptcy is a process created by federal law that provides relief for debtors, who can either eliminate their debts or repay their debts under the protection of the bankruptcy court. Bankruptcies can be described as either "liquidations," the process by which debtors "wipe out" many of their debts, or "reorganizations," the process by which an individual or a business prepares a plan for the repayment of creditors.
No. Bankruptcy does not get rid of all debts; in general, a debtor is still liable for alimony, child support, fraudulent debts, penalties or fines of the government agencies, student loans, large purchases of more than $550 within 90 days of filing for bankruptcy, and cash advances of $825 within 70 days of filing.
An "automatic stay" is granted once the bankruptcy petition is filed. The stay prevents creditors from continuing collection activity, such as foreclosures, repossessions, harassing letters and phone calls. Generally, within 30 days of your filing, the bankruptcy court will send out a notice to your creditors regarding the automatic stay and such notice makes it illegal for the creditors to continue to attempt to collect from you. However, if the debtor had a previously dismissed bankruptcy petition within one year of the current filing, the automatic stay can be lifted as to secured or leased property.
Consumers now must qualify under the "means test" before they may file for Chapter 7 bankruptcy. Debtors may be eligible for Chapter 7 bankruptcy if their income is lower than the median state income for the debtor's family size. If the debtor's income is greater than that median level, then the debtor's income and allowable expenses will need to be calculated to determine the debtor's eligibility for Chapter 7. If a debtor does not meet the Chapter 7 means test, he or she still may be able to file for Chapter 13 bankruptcy.
Most major credit card companies access national credit report agency databases to determine who has filed for bankruptcy protection. A bankruptcy petitioner's credit report will probably include information regarding Chapter 7 and Chapter 13 bankruptcies for up to ten years. While some credit reporting agencies might remove the information after seven years, they are not required to do so.
While it could be possible, losing your house does not always result from a bankruptcy filing. If you file under Chapter 7, and you are behind on your house payments, it is possible that your home could be lost. In such a situation, it usually depends on how much equity you have in your home, as well as the amount of the homestead exemption (if available in your state). In many situations, if you are not behind on your house payment, you can "reaffirm" the debt on the house and continue to make payment. In that case, the interests in your home will not be affected.
Generally, the trustee will conduct a "meeting of creditors" between the debtor and any creditors who elect to attend. This is also called a "341 meeting/hearing" and the debtor is required to be sworn in and answer any questions that the creditors might have. Unless a creditor or potential creditor wants to object to the discharge of your debts, the 341 hearing will probably be the only court appearance you will need to make.
A secured debt is one in which the creditor has an interest in real or personal property. When a creditor has an interest in the property and the debtor stops making payment, the creditor can then repossess the property or, in the case or homes, foreclose on the property. The two most common types of secured debts are car loans and home mortgages.
If you want to keep certain secured property, such as your home or a car, after your bankruptcy, you can "reaffirm" that debt. This is where the debtor agrees to pay all or part of a dischargeable debt and the creditor agrees not to repossess the property as long as the debtor continues to make timely payments. Such agreements must be in writing and filed with the bankruptcy court.
"Discharge" is an order by the bankruptcy court that releases the debtor from certain debts. When filing under Chapter 7, the debtors is usually discharged within three to six months from the filing of the petition. When filing under Chapter 13, the discharge occurs after the creditors are paid pursuant to the plan.
Chapter 13 generally applies to consumers with smaller debts. Partnerships and corporations cannot file under Chapter 13. However, sole proprietors and unincorporated businesses are eligible for Chapter 13. A consumer is eligible to file under Chapter 13 if he or she wants to repay at least some of the debt and the debtor must have a steady income. The debtor must provide a schedule of assets, income, debts and expenditures with the bankruptcy court. After filing the petition, the debtor must then file a plan with the court that sets out how the debts are to be paid.
