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Bankruptcy Frequently Asked Questions

Are There Tax Consequences for Filing Bankruptcy?

Usually, no, simply because you are insolvent and you are removing yourself from the debt, rather than having it go into a judgment or being forgiven by the company. In some instances, for example, even with the IRS, if you owe a certain amount of money to the IRS and you file bankruptcy and you are insolvent, then sometimes they will reduce the amount that you owe to them.

Can I NOT be Approved for Bankruptcy?

If you have significant disposable income, you may not be eligible for a Chapter 7. If you have debt in excess of about 1.5 million dollars, you may not be able to file under Chapter 13, but instead you may have to file under Chapter 11. But, for the most part, anybody can file bankruptcy, and the only reason it would not be “approved” would be if the debts originated from some fraudulent activity or the debt would not be discharged.

When Will I Be Discharged from Bankruptcy?

Discharge from bankruptcy essentially means that the court has entered an order removing your legal obligation to repay the debt. Under Chapter 7, that occurs approximately sixty days after your Meeting with Creditors. In a Chapter 13, it occurs once your payment plan has been completed.

Can Creditors Sue Me after I File for Bankruptcy?

Assuming that that particular creditor was listed in your bankruptcy petitions, they could sue but they would not be able to obtain a judgment. As a matter of fact, you would be able to sue them for violating what’s call the “discharge stay.” There’s an injunction put in place for your previous creditors. Now, if you reaffirmed a debt with that creditor and then defaulted on that debt, then yes, that creditor can turn around and sue, or if you obtained a new creditor after your bankruptcy was filed, then that creditor could sue you as well.

Can I Discharge My Student Loans in Bankruptcy?

In very extreme cases, yes you can. For example, the current standard is if you are disabled and unable to make an income sufficient to take care of your basic needs for the next ten years, then yes, your student loans can be discharged. Otherwise, unfortunately, you get to keep those loans until you die.

Can I File Personal Bankruptcy and Not Have It Affect My Business?

No, not exactly, it depends on the nature of your business. For example, if you’re an LLC or sole proprietorship, then it’s going to effect your business. Only because most LLC’s and sole proprietorships are owned by one person: meaning you. If you file bankruptcy while you have those businesses in operation, then it’s possible for the trustee to invade the business in order to help you pay some of those debts that you are trying to get discharged.

Can I Get Credit after Bankruptcy?

Yes. You may not get the premiere interest rates that you may have once enjoyed like 2% or 3% on a credit card, but the credit card % would be somewhere in the neighborhood of about 30%. And, you will be surprised at how many credit card offers you get before you are even discharged. Like I said, credit is still available. Obviously, it will depend on certain factors like your income to debt ratio, which right now is going to be very high (post discharge), and your ability to pay bills on time, which obviously in bankruptcy, a lot of people haven’t paid their bills on time. It is recoverable. It doesn’t take as long as seven years, and yes, your bankruptcy will stay on your credit score for seven years. But, once people get a credit score after their bankruptcy, they see it increase.

Can I Lose My IRA, 401 K, or Other Retirement Account in Bankruptcy?

Usually, no. Those are protected assets under Florida law. The only potential issue is if you have committed fraud using those accounts by depositing large assets into those accounts or large amounts of money. But, for the most part, they are protected and they are often used by debtors in order to advance them a fresh start after bankruptcy.

Can I Use Chapter 7 Bankruptcy to Get Rid of All My Debts?

In a word, “no.” There are some debts that are not dischargeable through bankruptcy. Two of them are student loans and federal income taxes. There are some that are not dischargeable based on the reason why you have the debt. For example, if you incurred the debt through fraud, that would not be dischargeable. If you incurred the debt through a divorce, where you took on a debt from the former spouse during the divorce process, that might not be dischargeable.

In the latter two examples, the person against whom you have this debt would have to file something to the court to object to you discharging this debt. Whereas in the former two examples, neither of those entities need to file anything to protect themselves from having you discharge the debt owed to them.

Can Lose My Job if I File for Bankruptcy?

It would depend on what your job is. For example, if you’re a financial planner, then the employer may not want somebody who is helping others plan their finances having been bankrupt themselves. In general, it is not a protected class, so an employer could fire you for filing bankruptcy. Tread carefully.

Can My Landlord Evict Me after I File for Bankruptcy?

In general, all of your creditors including your land lord are whats under an “automatic stay” which means they cannot enforce any debt that is owed to them. Some creditors will file with the court what’s called a “relief from the automatic stay.” Once they file that, and they are given the permission to enforce their debt, then yes, they could potentially evict you.

Can My Utility Providers Stop Service if I File for Bankruptcy?

Yes, they can. If you owe an electric bill and you do not pay the electric bill while you are in bankruptcy, they will shut off your lights.

What Are Common Bankruptcy Filing Mistakes?

The common mistakes are forgetting a debt, forgetting a certain stream of income, not disclosing to the attorney helping you anything they need to know to prosecute your bankruptcy case (I use prosecute in a very loose sense, because it’s not an adversarial proceeding), and forgetting assets they you failed to put on your schedules. Other mistakes include trying to give gifts early in order to avoid having assets show up on your bankruptcy petition. You want to try to maintain the status quo prior to filing bankruptcy.

Can I Repay Debts Owed to Relatives Before Filing for Bankruptcy?

Yes, you can, although, it’s not recommended. If you do repay a relative, the trustee will more than likely sue the relative in order to receive that money that you paid that relative. He will do that in order to apply that all your creditors evenly. Our advice is to not repay relatives prior to filing for bankruptcy without consulting an attorney first.

Do I Have to List All My Debts in a Bankruptcy Filing?

It’s usually in your best interest. That way you can make sure that all your debts are discharged. If they are not listed in your petition, then the possibility exists that those debts will not be discharged, and you will still owe those debts after the discharge has been filed.

How Do I Know Which Bankruptcy Chapter File?

There are standards that the IRS uses for such things as living expenses: rent, food, electricity. They have standards with regard to car ownership and the like. Those standards are used in order to determine which chapter you would be eligible to file. There are other circumstances as well. For example, if you’re a single person (no children, no spouse, living by yourself) your gross income can be as high as approximately $41,000. If you are especially thrifty, and you make $40,000 let’s say, and your income to your expense ratio is pretty high, then you may be required to file under Chapter 13 because you have disposable income. Because it’s based on what you’re actually making vs your actual expense. Consulting with an attorney is the best way route, but I’m sure if you Google certain engines, you could probably find something on the internet that says which chapter you would qualify for.

What Happens to Tax Liens That Survive Chapter 7 Discharge?

Most tax liens are priority debts, for example, federal income tax, in some case state income tax (not that we have one here in Florida), and certain other taxes that are required. If they survive the discharge, then you still owe on those taxes. Your best would be to find a way to negotiate with the taxing authority to either reduce your debt or find some other way of repayment.

What Are Nonexempt Assets in a Bankruptcy?

Nonexempt assets are those assets that are not exempt by law. For example, retirement is exempt. In a lot of cases, your wages are not. Money sitting in your bank account are nonexempt. If you can pick it up for the most part, it’s not exempt. If you own a house, that you are not living in or claiming as a homestead, that is nonexempt. Homesteaded property and certain equity in cars is exempt, as well as certain amount of personal property, but mostly everything else is nonexempt.

What Are the Advantages of Filing for Bankruptcy?

Just about any financial planner will tell you, that filling bankruptcy should be your last ditch effort in order to relieve yourself of debt. The advantages are that you get rid of a lot of debt. With the exception of student loans and certain taxes, all of your debt is discharged. You no longer have a legal obligation to repay those debts. It gives you a fresh start, so you can continue on with life post-bankruptcy. You can rebuild you credit and, hopefully, rebuild a life.

What Are the Most Common Reasons for Filing Chapter 7 Bankruptcy?

Medical bills are a common problem that causes people to file for bankruptcy. Also, the subprime market has become a big factor for many others as well.

What Debts Can and Cannot Be Erased by a Bankruptcy?

Debts are not necessarily erased, they are discharged. This means that the legal obligation to pay them has been removed. Of the debts that can be discharged are any unsecured debts, secured debts (the difference between an unsecured debt and a secured debt is the presence of collateral. For example, a house is a secured debt, a car is a secured debt, a credit card is NOT secured). The debts that cannot be charged are student loans, tax obligations and anything procured through fraud or theft.

What Happens after the Payment Plan Is Approved?

Under a Chapter 13, when your payment plan is approved, they call that a confirmation, meaning that your plan has been confirmed. From there, you just continue making your monthly payments, as the plan suggests. At that point, also, all the property that you owned is vested back to you as ownership. The trustee no longer has any control over that. If you want to initiate any new debt, you do have to seek permission from the Chapter 13 trustee. If you want to sell assets, get assets or anything else, you certainly can, because it’s now yours.

What if I Cannot Afford a Bankruptcy Lawyer?

Well, there are some people that will do bankruptcy preparation for you. I do not recommend them, not because they aren’t skilled in anyway in preparing your petition, but because they can’t give you legal advice. You may want to try borrowing money from friends or family. I always caution people against filing bankruptcy on your own. It just does not make a lot of sense if you are your own lawyer.

What is a 341 Hearing?

A 341 is what’s called a Meeting of Creditors. 341 is that particular section of the bankruptcy code that talks about how a Meeting of Creditors is conducted and when it takes place. So when you hear the term 341 Meeting or 341 Hearing is really just a Meeting of Creditors, where the creditors can come by and ask you about your finances.

What is a Lien Strip?

Lien stripping occurs usually in Chapter 13s, but due to recent law interpretation it is available under Chapter 7s as well. It’s a process by which the assets has a lien on it or more than one lien, and that particular lien is outweighed by the first lien that is on it. For example, it occurs oftentimes in mortgages. There is a first mortgage and a second mortgage. The first mortgage far outweighs the value of the house, so the second mortgage can be stripped and essentially discharged in bankruptcy.

What Is Bankruptcy?

Bankruptcy is a legal process where a person is seeking court approval to be removed from the legal obligation to repay debt.

What Is Chapter 20 Bankruptcy?

Chapter 20 is, actually, a tongue-in-cheek way of talking about a Chapter 7 that has converted to a Chpater 13 or a Chapter 13 that has converted to a Chapter 7. 13 plus 7 is equal to 20. Often times, it goes form Chapter 7 to Chapter 13 because you may file under a Chapter 7 but there’s some reason you have disposable income. The court will dismiss your Chapter 7 and give you an opportunity to convert. To go in the reverse, some file a Chapter 13 to save a house or other assets. Then, an event occurs where they lose their job and they don’t have the disposable income any longer. Then, they convert it to a Chapter 7.

What Is the “Means Test” in Bankruptcy?

The means test is the test that was initiated during the change in bankruptcy law back in 2005 that provided an objective standard as to whether a person qualified under Chapter 13 or under Chapter 7. Essentially, it is your gross income compared to IRS standards nationwide and regional as to whether or not you could qualify for a particular chapter in bankruptcy.

What Is the Trustee?

The trustee is the person who is hired by the Department of Justice to oversee and administer what is called a bankruptcy estate. A bankruptcy estate is created once somebody files bankruptcy. A bankruptcy estate encompasses all of your assets. Through certain laws in the state of Florida, as well as, Federal law, there are certain assets that may be exempt from that process, but as it stands, the trustee’s job is to administer the estate and, in some cases, they stand in the shoes of the creditors when enforcing the bankruptcy rules.

What Steps Do I Need to Take before Filing for Bankruptcy?

You want to start gathering all your income information. You want to gather all your tax returns. You want to consult with an attorney, and discuss, first off, if bankruptcy is even right for your situation. Then, as you gather those documents, keep them in a nice organized file, so they attorney can work on your case quickly.

Who Will Know about My Bankruptcy?

In general, all your creditors will know about your bankruptcy, and anyone who wants to take the time to take a look at the public records in the federal courthouse. It is a matter of public record. It is not like they advertise it on the front page of the newspaper or anything, but it can be discovered by anyone who wants to take the time to look.

Will Bankruptcy Stop a Judgement?

The judgement, if it is in place already, would be a judgement that can be discharged. Usually for credit card debt or any other kind of debt, with the exception of family debt, like alimony or child support. If there is a judgement on its way, for example you’re in the midst of a foreclosure, then that particular proceeding will be stayed pending the outcome of the bankruptcy. If you have discharged your debt on a house, then the foreclosure could proceed after your bankruptcy is complete, but it would only be to secure the house and clear the title. It would not impact you personally.

Will Bankruptcy Stop Wage Garnishments?

Yes. When you file for bankruptcy, there is what is called an automatic stay. And, absent from a creditor asking for relief from that stay, it last for 30 days. All enforcement action to collect a debt is stopped. Garnishments are stopped, any foreclosure processes are stopped, repossessions are stopped, but it’s only for those 30 days. Afterwards, some creditors may go to the courts to ask for relief, so they can continue the repossessions, foreclosure, garnishments, etc.

Will the Bankruptcy Trustee Come to My House?

Usually, no, the bankruptcy trustee will not go to your house. The bankruptcy trustee could potentially hire a professional to appraise your personal property or to appraise your house or any other property that you may have. He would do this to see if what you put in the petition is equal to what it actually is.

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