Most people filing bankruptcy will want to file under
either Chapter 7 or Chapter 13. Either type of case may be
filed individually or by a married couple filing jointly.
In a bankruptcy case under chapter 7, you file a petition
asking the court to discharge your debts. The basic idea in
a chapter 7 bankruptcy is to wipe out (discharge) your debts
in exchange for your giving up property, except for "exempt"
property, which the law allows you to keep. In most cases,
if you are eligible for free Legal Services, all of your
property will likely be exempt. These types of cases are
called “No Asset” bankruptcies. However, the court appoints
a Bankruptcy Trustee to decide whether the property which is
not exempt is sold, and how the money from the sale is
distributed to creditors.
If you want to keep property like a home or a car and are
behind on the payments, a chapter 7 case probably may not be
the right choice for you. That is because chapter 7
bankruptcy does not eliminate the right of secured creditors
(mortgage holders or car loan creditors) to take back the
collateral to cover your debt.
In a chapter 13 case, you file a "plan" showing how you
will pay off some of your past-due and current debts over
three to five years. The most important thing about a
chapter 13 case is that it will allow you to keep valuable
property--especially your home and car--which might
otherwise be lost, if you can make the payments which the
bankruptcy law requires to be made to your creditors. In
most cases, these payments will be at least as much as your
regular monthly payments on your mortgage or car loan, with
some extra payment to get caught up on the amount you have
fallen behind.
(1) own your home and are in danger of losing it because
of money problems;
(3) have valuable property which is not exempt, but you
can afford to pay creditors from your income with enough
time.
You will need to have enough income in chapter 13 to pay
for your necessities and to keep up with the required
payments as they come due.
What Does It
Cost to File for Bankruptcy?
It now costs $244 ($299 beginning in February 2006) to file
for a chapter 7 bankruptcy, whether for one person or a
married couple. The court may allow you to pay this filing
fee in installments if you cannot pay all at once and a
complete waiver of the fee may be requested, although it is
not often granted. If you hire a private attorney, you will
also have to pay the attorney's fees you agree to, up front.
In a chapter 13 bankruptcy, sometimes the attorney’s fees
can be included in the plan along with the other creditors.
What Property Can I Keep?
The most common types of property protected by the
Federal bankruptcy exemption include:
$18,450 equity in your home
$2,950 equity in your car;
$475 per item in any household goods up to a total of $9,850;
$1,225 total interest in jewelry;
$1,850 in things you need for your job (tools, books, etc.);
$975 in any other property, plus part of the unused exemption in your home;
$9,850 unmatured life insurance; and,
$18,450 in personal injury claims.
Note: these exemptions are subject to change
with consumer price index increases and are current through
2005. Your right to receive certain benefits such as social
security, unemployment compensation, veteran's benefits,
public assistance, and pensions--regardless of the
amount--are also exempt. There are some other exemptions,
not included in the above list which may also apply.
Also, the amounts of the exemptions are doubled when a
married couple files together.
In determining whether property is exempt, you must keep
a few things in mind. The value of property is not the
amount you paid for it, but what it is worth now (like at a
yard sale). Especially for furniture and cars, which
depreciate quickly, this may be a lot less than what you
paid or what it would cost to buy a replacement.
You also only need to look at your equity in the
property. This means that you count your exemptions against
the full value of the property minus any money that you
still owe on mortgages or liens. For example, if you own a
$50,000 house with a $40,000 mortgage, you count your
exemptions against the $10,000 which is your equity if you
sell it.
While your exemptions allow you to keep property even in
a chapter 7 case, your exemptions do not make any difference
to the right of a mortgage holder or car loan creditor to
take back the property to cover the debt if you are behind.
In a chapter 13 case, you can keep all of your property if
your plan meets the requirements of the bankruptcy law. In
most cases, you will have to pay the mortgages or liens as
you would if you did not file bankruptcy.
What Will Happen to My Home
and Car If I File Bankruptcy?
In most cases, you will not lose your home or car while
your bankruptcy case is pending, as long as your equity in
the property is fully exempt. Even if your property is not
fully exempt, you will be able to keep it if you pay its
nonexempt value to creditors in chapter 13.
However, some of your creditors may have a "security
interest" in your home, automobile or other personal
property. This means that you gave that creditor a mortgage
on the home or put your other property up as collateral for
the debt. Bankruptcy does not mean that the government makes
the payments on your debt; the creditor may be able to take
and sell the home or the collateral property, during or
after the bankruptcy case.
There are several ways that you can keep collateral or
mortgaged property after you file bankruptcy. You can agree
to keep making your payments on the debt until it is paid in
full. Or, you can pay the creditor the amount that the
property you want to keep is worth. In some cases involving
fraud, or other improper conduct by the creditor, you may be
able to challenge the debt. If you put up your household
goods as collateral for a loan (other than a loan to buy
them), you can usually keep your property without making any
more payments on that debt.
Can I Own Anything After
Bankruptcy?
Yes! Many people believe they cannot own anything for a
period of time after filing for bankruptcy. This is not
true. You can keep your exempt property and anything you
obtain after the bankruptcy is filed. However, if you
receive an inheritance, a property settlement, or life
insurance benefits within 180 days after filing bankruptcy,
that money or property may have to be paid to your creditors
if the property or money is not exempt.
Will Bankruptcy Wipe Out All
My Debts?
Yes, with some exceptions. Bankruptcy will not
normally wipe out:
(1) money owed for child support or alimony, criminal
fines, and some taxes;
(2) debts not listed on your bankruptcy petition;
(3) loans you got by knowingly giving false information to a
creditor, who reasonably relied on that information in
making you the loan;
(4) debts resulting from "willful and malicious" harm;
(5) student loans owed to a school or government body,
except if:
the court decides that payment would be an undue hardship;
(6) mortgages and other liens which are not paid in the
bankruptcy case (but bankruptcy will wipe out your
obligation to pay any additional money if the property is
sold at a loss by the creditor).
Will I Have to Go to Court?
In most bankruptcy cases, you only have to go to a
proceeding called the "meeting of creditors" to meet with
the bankruptcy trustee and any creditor who chooses to come.
Most of the time, this meeting will be a short and simple
procedure where you are asked a few questions about your
bankruptcy forms and your financial situation.
Occasionally, if complications arise, or if you choose to
dispute a debt, you may have to appear before a judge at a
hearing. If you need to go to court, you will receive notice
of the court date and time from the court and/or from your
attorney.
Will Bankruptcy Affect My
Credit?
There is no one answer to this question. Unfortunately, if
you are behind on your bills, your credit
may already be bad. Bankruptcy will probably not make things
any worse. The fact that you have filed a bankruptcy can
appear on your credit record for 10 years. (Bad debts can
appear on your credit history for 7 years.) But since
bankruptcy wipes out your old debts, you are likely to be in
a better position to pay your current bills, and you may be
able to get new credit immediately. (Although you would
probably not qualify for a mortgage for a few years.)
What Else Should I Know?
Utility services - Public utilities, such as the
electric company, cannot refuse or cut off service because
you have filed for bankruptcy. However, the utility can
require a deposit for future service, and you do have to pay
bills which arise after bankruptcy is filed.
Discrimination - An employer or government agency
cannot discriminate against you because you filed for
bankruptcy.
Driver's license - If you lost your license solely
because you could not pay court-ordered damages caused by an
accident, bankruptcy will allow you to get your license back
(unless the accident was alcohol related).
Cosigners - If someone cosigned a loan with you
and you file for bankruptcy, the cosigner may have to pay
your debt.
Additional important 2005 Bankruptcy law changes -
You must complete bankruptcy court approved credit
counseling sessions before you file for bankruptcy and to
get a discharge. The bankruptcy stay might not apply or be
time limited if you file for bankruptcy more than once
within a 12 month period and your previous filing is
dismissed. You can only get a bankruptcy discharge once
every eight years from the date you previously filed for a
bankruptcy that resulted in a discharge of your debts.
How Do I Find a Bankruptcy
Attorney?
Assuming that you do not currently qualify for a Legal
Services or pro bono attorney, but you still want to file
bankruptcy, you will need to hire a private attorney. As
with any area of the law, it is important to carefully
select an attorney who will respond to your personal
situation. The attorney should not be too busy to meet with
you individually and to answer questions as neccessary.
Please note that your attorney will need much help from you
in order to properly represent you in bankruptcy. If you do
not fully and promptly cooperate with your attorney’s
requests or you hide or give bad information to your
attorney, your bankruptcy may be dismissed, some of your
debts might not be discharged and/or you and your attorney
could face
sanctions (punishment) from the bankruptcy court.
The best way to find a trustworthy bankruptcy attorney is
to seek recommendations from family, friends or other
members of the community, especially any attorney you know
and respect. You should carefully read retainers and other
documents the attorney asks you to sign. You should not
hire an attorney unless he or she agrees to represent you
throughout the case.
Remember that the person advertising the most expensive
or the cheapest rate is not necessarily the best. Many of
the best bankruptcy lawyers do not advertise at all.
When first meeting a bankruptcy attorney, you should be
prepared to answer the following questions:
What types of debt are causing you the most trouble?
What are your significant assets?
How and when did your debts arise and are they secured?
Is any action about to occur to foreclose or repossess
property or to shut off utility service?
What are your goals in filing the case?
Can I File Bankruptcy
Without an Attorney?
Although it may be possible for some people to file a
bankruptcy case without an attorney, it is not a step to be
taken lightly. The process is difficult and you may lose
property or other rights if you do not know the law. It
takes patience and careful preparation. The 2005 changes in
the bankruptcy law make properly preparing and completing a
Chapter 7 (straight bankruptcy) case even more difficult
than previously. Very few people have been able to
successfully file chapter 13 (debt adjustment) cases on
their own.
Can I Get a Free Attorney?
Many Legal Services programs offer assistance with
bankruptcy cases. As well, there are pro bono programs where
private attorneys are willing to take bankruptcy cases for
low income people at no charge. To find out more, contact the
local Legal Services Program in your area.
DISCLAIMER:
We have attempted to insure the accuracy of the information in this pamphlet at the time
it was created or revised. However, the law does change, sometimes quickly and
unexpectedly. Therefore, you should consult an attorney before taking or refraining from
any action based on the information in this pamphlet.
Last Reviewed:
November 2006
