In the Bankruptcy Quick Chart below we have answered your questions in an easy format making your filing process easier. Find out which bankruptcy is right for you in our Chapter 13 vs Chapter 7 table. Learn the subtle, but important, distinctions between Chapter 7 and Chapter 13 bankruptcy. If you feel this chart does not answer your specific questions regarding filing bankruptcy, please complete our Free Confidential Evaluation Form for a no obligation chat with a local attorney.
BANKRUPTCY QUICK CHART
Bankruptcy Questions Explained
Can it immediately discharge credit card debts?
Chapter 7 Bankruptcy allows the bankruptcy court to liquidate your nonexempt assets and use the proceeds from the sale to repay your creditors. Chapter 7 Bankruptcy can generally be completed 90 days from the date of the 341 Meeting of the Creditors. Debts which are immediately discharged under Chapter 7 Bankruptcy can include credit card debt.
Under Chapter 13 Bankruptcy the debtor creates a 3 to 5 year debt bankruptcy repayment plan to repay creditors; payment amounts are based on a strict expense-to-income formula. After the debt repayment plan is complete, all debts included in the plan are discharged. Debts not included in the plan and non-qualifying debts (i.e. student loans, child support, and spousal support) are not discharged. Liability for the debt ceases when the plan is completed and the court enters a discharge order.
Can it immediately discharge personal unsecured loans?
Chapter 7 Bankruptcy will discharge personal, unsecured loans if they are for credit extensions which were based on the creditor's evaluation of the debtor's ability to pay and there is no collateral which can be seized by the creditor if the debtor defaults on the loan due to their inability to pay.
Chapter 13 Bankruptcy is a repayment plan and unsecured debts, such as personal loans, will be included in the plan. A Chapter 13 Bankruptcy trustee is assigned to enforce the 3 to 5 year bankruptcy plan and will pay the creditors according to the plan. General unsecured debt (credit cards, medical bills, personal loans, utilities, payday loans and personal signature loans) may not be paid in full. If the unsecured credit balance was not paid in full by the end of the plan, generally, the remaining balance is eliminated or discharged.
Can it stop a home foreclosure?
For both bankruptcy chapters, the automatic stay stops the foreclosure process as soon as the bankruptcy petition is filed. Past due payments must be made current. If the mortgage company completes the foreclosure sale before the debtor files their Chapter 7 or Chapter 13 Bankruptcy petition, the debtor may lose their home.
Homes may be preserved under Chapter 7 Bankruptcy by using the state or federal allowable homestead exemption if there is not substantial non-exempt equity. Chapter 13 Bankruptcy may also allow the debtor to protect and exempt a portion of the equity in their home from the bankruptcy process and repay late mortgage payments over a 3 to 5 year period. New law provides for a maximum homestead exemption of $125,000 if home acquired 40 months before filing or if debtor engaged in certain fraudulent conduct.
Can I keep my car?
For Chapter 7 Bankruptcy state or federal exemptions may protect a vehicle, but under certain conditions, the vehicle may be liquidated by the trustee unless arrangements are made to either redeem (pay the secured creditor the value of the collateral in exchange for a release by the creditor of their lien) or reaffirm the debt (sign a reaffirmation agreement and continue to make car payments).
For Chapter 13 Bankruptcy, vehicles may be kept as long as the debtor makes the necessary payments under their bankruptcy payment plan.
Does it discharge all debts?
Filing Chapter 7 or Chapter 13 Bankruptcy does not discharge all debts including student loans, current tax obligations, debts from willful and malicious injuries to persons or property, debts for personal injuries caused from the debtor's operation of a motor vehicle while under the influence of alcohol or drugs, debts from fraudulent actions, Debts that were not included in the bankruptcy schedules in time to allow creditors to file proofs of claim (unscheduled debts), and child support or spousal support.
Can bankruptcy remove a lien?
Bankruptcy does not discharge tax liens which have been attached to the debtor's property by the government. If the IRS has attached a tax lien to the debtor's property they can seize the debtor's property or wait until the property is sold and get payment from the proceeds of the sale.
Bankruptcy also does not automatically remove other types of liens from property, although a bankruptcy discharge voids the underlying judgment. Some debtors may be able to file a motion to cancel the lien (Section 522(f)) if the judgment impairs their ability to claim a homestead exemption. For example, in California, a homeowner can protect from $50,000 to $150,000 of the equity in a home from creditors in a bankruptcy.
Do I have to go to court?
Whether a debtor files Chapter 7 or Chapter 13 Bankruptcy they are required to attend the 341 Meeting of the Creditors. This meeting is generally held 30 days from the date the bankruptcy petition is filed. Creditors may or may not attend the meeting. The meeting is generally 5 to 15 minutes long and allows the trustee to ensure the debtor's paperwork is in order and they have disclosed all of their assets.
Do I have to take a credit counseling course?
As of October 17, 2005, after the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, all bankruptcy filers were required to complete credit counseling in a government-approved program. A list of approved credit counseling agencies is provided by the United States Trustee Program, which is part of the Department of Justice.
Can I stop bill collectors from calling?
Filing Chapter 7 and Chapter 13 initiates an automatic stay which stops most types of collection actions, and creditors generally may not initiate or continue lawsuits, wage garnishments, or collection activities such as letters or telephone calls demanding payments as long as the automatic stay is in effect. Creditors will be notified by the bankruptcy clerk that bankruptcy has been filed by the debtor.
Can I file by myself if I am married?
Bankruptcy petitions may be filed jointly or separately but if one spouse files, the expenses and income of the non-filing spouse are required by the court. This allows the creditors and trustees to evaluate the financial position of the household.
Will it stop wage garnishments?
Most states allow wage garnishments for unsecured debts; however, four states do not: North and South Carolina, Pennsylvania and Texas. Filing both Chapter 7 and Chapter 13 bankruptcy can stop wage garnishments. In fact, filing bankruptcy will stop most garnishments immediately through an automatic stay.
Certain types of debts are not discharged by filing Chapter 7 or Chapter 13 Bankruptcy. So filing bankruptcy (depending on the debts owed) may not prevent certain actions by the IRS, lawsuits to collect support payments, certain types of criminal restitution actions, and loans from a pension account such as an IRA.
Will it stop a judgment?
A judgment results from a ruling by a court in favor of your creditor, which states that you must pay the specified amount of money. A judgment varies from a lien. A lien allows the creditor who has obtained a judgment against a debtor to have a judgment attached to the debtor's assets, such as real estate. A judgment from a credit card company can be eliminated as a part of a bankruptcy. But a bankruptcy may not be able to eliminate a lien depending on the timing, circumstances, and location under which the lien was filed.
Can I get credit after I declare bankruptcy?
Debtors may be able to get credit after a bankruptcy but creditors are likely to charge a much higher interest rate to compensate them for the increased risk of loaning the debtor money. It may be difficult to get loans for large purchases such as a car or a home until the debtor has improved their credit rating.
Is the dischargeable debt discharged immediately?
Debt is discharged after filing a Chapter 7 Bankruptcy generally within 3 to 6 months from the Meeting of the Creditors. Debt is not discharged in Chapter 13 Bankruptcy until the debtor has completed the 3 to 5 year debt repayment plan.
Will I lose my job?
It is against the law for an employer to not hire someone because they have declared bankruptcy, but it is not uncommon for an employer to run a background check on a potential employee prior to hiring them. Proving that an employer did not hire a candidate because they declared bankruptcy is almost impossible to do. If the debtor already is employed, the Fair Credit Reporting Act does allow your current employer to access your credit reports at any time, with your permission, but unless they do a credit check, they may not ever find out.
Do I have to complete a financial management course for a bankruptcy discharge?
As of October 17, 2005, after the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, at the conclusion of bankruptcy proceedings, but before any debt can be discharged, debtors must attend a government approved financial management course. A list of approved credit counseling agencies is provided by the United States Trustee Program which is part of the Department of Justice.
Do I have to be a U.S. citizen to file bankruptcy?
Debtors do not have to be United States Citizens to file bankruptcy because the U.S. Bankruptcy Code does not have a citizenship requirement. Debtors will, however, have to establish residency which may require them to live in the state where they are filing for the greater part of 180 days or three months. Additionally, individuals must prove their identity and must have a valid photo ID and a valid Social Security Card or Individual Tax Identification Number (ITIN).
Does the bankruptcy stay on your credit report for 7 to 10 years?
The federal Fair Credit Reporting Act allows bankruptcies to remain on a debtor's credit report for 10 years, but some creditors will only leave a Chapter 13 Bankruptcy on the record for 7, rather than 10 years. Chapter 7 Bankruptcy remains for the full 10 years.
Does filing initiate an automatic stay?
According to bankruptcy law, filing a bankruptcy petition initiates an "automatically stay" which stops most collection actions against the debtor or the debtor's property (11 U.S.C. & 362), although the automatic stay will not stay certain types of actions and for some situations it may only be in effect for a short time.
Do I have to pass a means test to file?
As of October 17, 2005, after the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, debtors now must meet stricter requirements to qualify for Chapter 7 Bankruptcy. To file Chapter 7 Bankruptcy a debtor's income must be less than the median income in their state. If the debtor's income is too high they must pass additional means testing to prove that their disposable income is too low to pay $100 per month (or $6,000 over a five-year period) to their unsecured creditors. Debtors with disposable income between $6,000 and $10,000 must pass an additional means test to qualify for Chapter 7 Bankruptcy.
*To file Chapter 13 Bankruptcy the individual must have unsecured debt which is less than $360,475 and secured debt which is less than $1,081,400 (11 U.S.C. & 109(e)). Chapter 13 means tests are also used to determine the amount paid under the Chapter 13 Bankruptcy repayment plan.
Can it be used to protect significant assets?
Chapter 7 Bankruptcy is considered a liquidation bankruptcy and generally liquidates a debtor's nonexempt assets, using the proceeds from the sale to repay the debtor's creditors. Under certain conditions, the debtor may choose to keep the asset and agree to continue making debt payments. For example, to keep a car the debtor may choose to redeem the debt (pay the secured creditor the value of the collateral in exchange for a release by the creditor of their lien) or reaffirm the debt (sign a reaffirmation agreement and continue to make car payments).
Chapter 13 Bankruptcy allows debtors to keep their assets and pay debt payments over a three or five year debt repayment plan.
Will I have long to catch up on delinquent payments?
Chapter 7 Bankruptcy is considered a liquidation bankruptcy and nonexempt assets are generally liquidated and qualifying unsecured debts are discharged. Chapter 13 Bankruptcy allows the debtor to make payments on the delinquent debt during their 3 or 5 year payment schedule.
Will I have contact with creditors during the bankruptcy process?
After the initiation of Chapter 7 or Chapter 13 Bankruptcy an automatic stay will stop creditor collection actions against the debtor by credit agencies. Credit agencies who continue to harass and attempt to collect debt after the automatic stay can be found in contempt. All contact by the after the bankruptcy petition has been filed must be with the trustee. Exceptions may exist for creditors who are collecting debts which are not part of the bankruptcy.
Do I have to have regular income to file?
To qualify for Chapter 13 Bankruptcy, debtors must be able to prove to the court that they can pay certain debts in full. The court must determine that you have enough disposable income to complete your repayment plan. Income can include pension payments, Social Security benefits, wages and salary, commissions, workers compensation, disability benefits, public benefits, royalties and rent, proceeds from selling property, child support and alimony.
Will filing bankruptcy negatively impact my credit score?
Filing both Chapter 7 or Chapter 13 Bankruptcy will lower a debtor's credit score and remain on their credit report for 7 to 10 years.
Will I keep my non-exempt assets?
For Chapter 7 Bankruptcy, the trustee will liquidate all nonexempt assets and use the proceeds from the sale to repay the debtor's creditors.
*Debtors may be able to keep certain assets if the value of the asset is exempt or they are able to reaffirm or redeem the debt. Talk to a bankruptcy lawyer if you are filing Chapter 7 Bankruptcy and would like to keep your property.
For Chapter 13 Bankruptcy, the non-exempt assets are not affected unless the debtor fails to complete their repayment plan.
Will there be a 341 Meeting of the Creditors?
After the bankruptcy petition is filed for Chapter 7 or Chapter 13 Bankruptcy, a meeting with the debtor's creditors is scheduled. This meeting is called a 341 meeting after the bankruptcy code section. The 341 Meeting of the Creditors can take place 20-40 days after the bankruptcy petition filing and it is mandatory that the debtor attend. This meeting allows the debtor to answer questions about their assets, income and debts.
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See Related Articles
- Can creditors garnish my wages for mortgage payments?
- Can a bankruptcy lawyer stop a judgment before the bankruptcy is filed?
- What happens if a debtor fails the Chapter 7 Bankruptcy means test?
- What Happens to the Land I Own if I File Bankruptcy?
- What property can I keep if I file bankruptcy?
- How does filing bankruptcy affect my back taxes?
- Keeping your Car in Bankruptcy
- How Filing Bankruptcy Can Protect Your Property from Repossession