Bankruptcy Frequently Asked Questions
Q: What is the cause of most bankruptcies?
A: Most who file bankruptcy had every intention of repaying their debts. They are good people who accumulated debt, often due to circumstances beyond their control, who have had a sudden unexpected change in their circumstances which makes them unable to pay these debts. Often this is a result of illness, disability, job loss, failed business, divorce, or the loss of a spouse. This, coupled with enormous over limit fees, late fees, and the ridiculously high interest rates many creditors charge, can make it nearly impossible to get out of debt.
Q: What are some alternatives to filing bankruptcy?
A: Unfortunately, much of the time it is not the debtor who is unwilling to negotiate terms, but the creditor who simply refuses to agree to any reasonable conclusion. Some options include negotiating extended due dates, lower interest rates, partial debt forgiveness, or an assignment of property for the benefit of creditors (ABC) in which the debtor puts assets in the care of a neutral third party to pay the creditors. Those in debt due to loss of business often will sell their businesses to satisfy the terms of the debt. There are many creative solutions to financial misfortune, and our office can help you decide whether bankruptcy is right for you.
Q: What are the different types of bankruptcy?
A: For consumers the most common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 bankruptcy is also known as “liquidation,” because the debtor transfers any non-exempt property to a third party trustee who is in charge of liquidating the assets and paying off creditors with the proceeds. Often much of the assets will be exempt, and upon completion of the liquidation process, remaining qualified debts are cancelled. Debts which do not qualify for discharge include domestic support, taxes, student loans, and debts accumulated through fraud .
Chapter 13 is often more desirable when certain criteria are met. The debtor and creditors agree upon a revised plan for payment over a 3-5 year period in which no other means of obtaining the debts may be pursued by creditors. Upon completion of the plan, remaining eligible debt is forgiven. The plan must be approved by the bankruptcy court, and often the court will approve the plan even if some creditors do not initially agree to the terms. Those with “disposable income” as determined by a means test and non-exempt property they wish to keep will usually opt for Chapter 13, those without will usually opt for Chapter 7.
Q: Under bankruptcy, can I get rid of my student loans?
A: Under Chapter 13 often student loans can be included in a repayment plan, which in some instances can save the debtor money. In rare cases a student loan may be discharged entirely.
Q: Under bankruptcy are child support and alimony dischargeable?
A: The short answer is no in most instances. “Domestic support obligations” such as alimony and child support are not dischargeable either under Chapter 7 or Chapter 13. Also, under Chapter 7, but not always under Chapter 13, properties and other obligations to a spouse or child incurred through divorce are not dischargeable.
Q: May I stop domestic support obligations during bankruptcy proceedings?
A: Again, the short answer is no. In fact, under Chapter 7 bankruptcy, if domestic support is not met the request for bankruptcy may be dismissed by a court, or it may be converted to a Chapter 13 bankruptcy.
Q: How long may credit bureaus include bankruptcy information on a credit report?
A: For Chapter 7 bankruptcy, credit reports may reveal bankruptcies for up to 10 years after filing. They may report a bankruptcy for 7 years when Chapter 13 is filed or for 10 years if there is no discharge. After the accounts become inactive for either chapter a credit report agency may reveal bankruptcies for up to 7 years.
Q: When should I consult a lawyer about bankruptcy?
A: The easy answer is the sooner the better. As mentioned, a consultation is required within 180 days prior to filing bankruptcy in most instances, and a lawyer can be an advocate on your side to help you meet this criteria. Also an experienced bankruptcy lawyer may be able to help you determine other means of settling debts. However, more often than not, bankruptcy is the result of some unexpected circumstance, and is unavoidable. Regardless of where you are in the process, it is essential you consult a bankruptcy lawyer who understands the law, and who can help relieve both the financial and mental stress resulting from your financial situation.
**DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.