Chapter 7 – Frequently Asked Questions

Frequently Asked Questions – General

1. Where can I find detailed information about a Chapter 7 filing?

Chapter 7 bankruptcy laws can be very detailed and confusing.  During your consultation we will explore your specific situation and discuss with you all the applicable benefits.  You can visit our Chapter 7 Overview page.  If you still want more details, then you can visit our very detailed page.

2. What is a chapter 7 bankruptcy?

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien

3. What happens when I file a chapter 7 bankruptcy?

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

4. Why do people file a chapter 7 bankruptcy?

Generally people file chapter 7 bankruptcy if they have a large amount of unsecured debt such as credit card debt or medical expenses that they are no longer able to pay. Often unemployment, unexpected medical expenses, or divorce prompt the cause the debtor to seek protection from creditors by filing chapter 7 bankruptcy.

5. What is chapter 13 bankruptcy?

In a chapter 13 case you file a plan showing how you will pay off some of your past-due and current debts over a period of three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property, like your home or car, even if you are behind on payments or you have equity not covered by your exemptions. Your payments on these secured debts will generally be your regular monthly payments plus some extra amount if you need to get caught up because you are behind when you file

6. Why do people file a chapter 13 bankruptcy?

Generally, people file chapter 13 if they have valuable property not covered by an exemption, like a home or car, but want to keep this property. If a debtor is behind on secured loan payments a chapter 13 bankruptcy can allow the debtor to make up these payments over time while keeping the home or car

7. How often can I file bankruptcy?

You can file for Chapter 7 bankruptcy again after eight years has passed from the date of your last filing. A Chapter 13 bankruptcy can be filed at any time

8. How much are the Chapter 7 filing fees and costs?

Chapter 7 – $306, plus the counseling courses (approximately $70 total)

The fee is the same when filing a joint petition with a spouse

9. What property can I keep after I file bankruptcy?

In a chapter 7 case, you can keep all the property which is exempt from the claims of creditors. 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. Generally the trustee is interested in the resale value of your property so for most personal effects this is the garage sale value of your property.

You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you 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 equity you have in the home. 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 the property to cover the debt if you are behind. If you are behind in payments and can afford to make the loan payment and to make the amount you are behind over a period of three to five years you should consider a chapter 13 bankruptcy.

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 didn’t file bankruptcy.

10 .Can I keep my home and/or car after I file bankruptcy?

You will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt you may still be able to keep your property by filing a chapter 13 bankruptcy instead of a chapter 13 bankruptcy. In a chapter 13 plan you will be required to pay at least the equivalent of the non-exempt equity you have in your home or car and any amount you are behind on your home or car loan over the course of the three to five plan. You also will be required to continue making the regular monthly payments.

11. What debt will bankruptcy not erase?

•Homeowner’s or Condominium Association Dues that accrue after the bankruptcy is filed, so long as the Debtor as an ownership interest or is in possession of the property

•money owed for child support or alimony, fines, and some taxes;

•debts not listed on your bankruptcy petition;

•loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;

•debts resulting from “willful and malicious” harm;

•student loans owed to a school or government body, except if:– the court decides that payment would be an undue hardship;

•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 by the creditor).

12. Will I have to go to court?

In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” or a “341 meeting” to meet with the bankruptcy trustee and any creditor who chooses to come. This meeting will take place about 30 or 40 days after the bankruptcy filing. The trustee is not a judge but an individual appointed by the United States Trustee to oversee your case. 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 a creditor or the trustee files a motion or an adversary action 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

13. Will filing bankruptcy affect my credit?

There is no clear 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 filed bankruptcy, if properly explained, may be less damaging than a history of unpaid accounts.

The fact that you have filed a bankruptcy will appear on your credit record for ten 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. The best way to restore your credit is to obtain new credit and make the payments on the new debt on time.

14. Can I get a credit card after filing bankruptcy?

Yes, there are several options available. While technically not a credit card you could use a bank or debit card to perform activities for which you normally would use a credit card. You also may be able to keep the credit card you already have if the creditor grants approval. If these options do not work you can get secured credit card which is backed by your own bank account.

15. Will my utility services be affected?

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 your bankruptcy petition is filed.

16. Can I be discriminated against for filing bankruptcy?

Under the federal bankruptcy statute, a discharge is a release of the your debts and provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.

17. What is the effect of bankruptcy on co-signers?

If someone has co-signed a loan with you and you file for bankruptcy, the co-signer will still have to pay the debt. You should list the co-signer as a creditor in your bankruptcy petition since they may have a contingent claim against you.

18. Can a married debt file without the other spouse?

Yes, but your spouse will still be liable for any joint debts. If you file together you will be able to double your exemptions. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.

Also, if you are married, you must still provide financial information (such as income and expenses) of your non-filing spouse

19. Can filing bankruptcy stop bill collectors from calling?

Yes. The automatic stay prevents bill collectors from taking any action to collect debts

20. How long after filing bankruptcy will the creditors stop calling?

Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with your case number. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a law suit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct

21. Can I erase my student loans by filing bankruptcy?

Generally, student loans are not discharged in bankruptcy. In 11 U.S.C. sec. 523(a)(8) there are two exceptions to this general rule:

1. The student loan may be discharged if it is neither “insured or guaranteed by a governmental unit” nor “made under any program funded in whole or in part by a governmental unit or nonprofit institution.”

2. The student loan may be discharged if paying the loan will “impose an undue hardship on the debtor and the debtor’s dependents.”

It is usually difficult to have student loans erased under the undue hardship standard. Whether an exception applies under this law depends on the facts of the particular case and may also depend on local court decisions. Even if a student loan falls into one of the two exceptions, discharge of the loan may not be automatic. You may have to file an adversary proceeding in the bankruptcy court to obtain a court order declaring the debt discharged

Frequently Asked Questions – Discharge

21. What is a discharge in bankruptcy?

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

22. When does the discharge occur?

The timing of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 (liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting). Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court. In chapter 11 (reorganization) cases, the discharge occurs upon confirmation of a chapter 11 plan. In cases under chapter 12 (adjustment of debts of a family farmer) and 13 (adjustment of debts of an individual with regular income), the court grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years after the date of filing

23. How does the debtor get a discharge?

Unless there is litigation involving objections to the discharge, the debtor will automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the United States trustee, the trustee in the case, and the trustee’s attorney, if any. The debtor and the debtor’s attorney also receive copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge

24. Does the debtor have a right to a discharge or can creditors object to the discharge?

In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the United States trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. A creditor who desires to object to the debtor’s discharge must do so by filing a complaint in the bankruptcy court before the deadline set out in the notice. Filing of a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding.” A chapter 7 discharge may be denied for any of the reasons described in section 727(a) of the Bankruptcy Code, including the transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order; or an earlier discharge in a chapter 7 or 11 case commenced within six years before the date the petition was filed. If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.

In chapter 12 and chapter 13 cases, the debtor is entitled to a discharge upon completion of all payments under the plan. The Bankruptcy Code does not provide grounds for objecting to the discharge of a chapter 12 or chapter 13 debtor. Creditors can object to confirmation of the repayment plan, but cannot object to the discharge if the debtor has completed making plan payments.

25. Can the debtor receive a second discharge in a later chapter 7 case?

A discharge will be denied in a later chapter 7 case if the debtor has been granted a discharge under chapter 7 or chapter 11 in a case filed within eight years before the second petition is filed. In other words, you must wait 8 years from the time of filing the previous Chapter 7 case.

The debtor will also be denied a chapter 7 discharge if he or she previously was granted a discharge in a chapter 12 or chapter 13 case filed within six years before the date of the filing of the second case unless (1) all the “allowed unsecured” claims in the earlier case were paid in full, or (2) payments under the plan in the earlier case totaled at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort.

26. Can the discharge be revoked?

A discharge can be revoked under certain circumstances. For instance, a trustee, creditor, or the United States trustee may request that the court revoke the debtor’s discharge in a chapter 7 case based on allegations that the debtor obtained the discharge fraudulently; the debtor failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate; or the debtor committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code. Typically, a request to revoke the debtor’s discharge must be filed within one year after the granting of the discharge or, in some cases, before the date that the case is closed. It is up to the court to determine whether such allegations are true and, if so, to revoke the discharge. In a chapter 13 case, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.

27. May the debtor pay a discharged debt after the bankruptcy case has been concluded?

A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.