Bankruptcy - Frequently Asked Questions
What is a bankruptcy discharge?
A bankruptcy discharge is a court order that makes a debt (or debts) forever unenforceable. When a debt is discharged it is no longer valid against a debtor.
What is the difference in Chapter 7 and Chapter 13?
With a Chapter 7 a debtor generally doesn't have to pay any money to creditors to get a discharge. With a Chapter 13 a debtor has to make regular payments into a bankruptcy plan over a period of time which is usually 60 months. You wind up in the same place (with a few exceptions) through either type of bankruptcy, but its going to be quicker and cheaper to get there through a Chapter 7 than a Chapter 13. Why file a 13 then? There are times when a person needs to file a bankruptcy but they are not eligible to file a 7 because maybe they have too much income, or they need to file a 13 to protect certain property that can't be protected in a 7.
Will people find out I filed a Bankruptcy?
Probably not, unless you tell them. Bankruptcy filings are considered public record, but in practice no one sees them except your creditors, the court, and the attorneys.
What happens to my credit cards?
They will be canceled by the credit card companies when you file for bankruptcy. People ask sometimes if they can leave a particular card out of the bankruptcy but everything has to be listed in the bankruptcy petition.
Can I get credit again?
Yes. There are things like secured credit cards available that help you begin to rebuild your credit after a bankruptcy discharge.
Are student loans discharged?
Generally no. However there is a provision in the Bankruptcy Code that allows for an undue hardship discharge if the debtor can demonstrate he or she can't make the payments now or in the future.
Are all debts discharged in bankruptcy?
No. The following types of debts generally do not get a discharge:
- Debts or creditors not properly listed in the bankruptcy petition, unless an exceptions applies
- Most student loans, but see the question above about student loans
- Recent federal, state, and local taxes
- Domestic support obligations such as child support and alimony
- Government-imposed restitution, fines or penalties
- Court fees
- Debts resulting from driving while intoxicated
- Debts not dischargeable in a previous bankruptcy due to fraud
- Debts from willful and malicious acts
- Debts from embezzlement, larceny, or breach of fiduciary duty
- Debts from the following categories are discharged unless the affected creditor requests a court hearing and the court determines that the debt is from fraud, including some debts for luxury goods or services incurred within 60 days before filing and some cash advances.
Which debts are discharged?
Generally all non priority unsecured debts (credit card debt, medical bills, judgments, etc.) are discharged. In other words, most debts for most people.
How long will a bankruptcy show up on a credit report?
A bankruptcy can stay on a credit report for up to 10 years from the date the bankruptcy is filed. The good news is that the impact of the bankruptcy will diminish over time, and it’s possible to work on rebuilding credit even before the bankruptcy falls off credit reports.
What effect does bankruptcy have on child support and alimony?
With a Chapter 7 probably nothing, the debtor will just continue making payments. With a Chapter 13 probably nothing also unless the creditor attempts to collect payment from property of the estate. But current income (after the bankruptcy is filed) is not property of the estate and is generally what is used to pay support obligations.
Do I lose my property when I file a bankruptcy?
Most debtors can keep all or most of their property. The exceptions to this rule would be things like expensive musical instruments (unless you are a professional musician), valuable collections of coins, stamps, comic books, etc, a second home or car, etc.
What can I keep?
Usually the following items can be retained by a debtor after filing a bankruptcy:
- Vehicles up to a certain value
- Clothing
- Household goods and furnishings
- Household appliances
- Jewelry, up to a certain value
- Pensions and retirement accounts as long as they have not been cashed out
- A portion of the equity in the debtor’s home
- Tools of the debtor’s trade or profession, up to a certain value
- A portion of unpaid but earned wages
- Public benefits, including public assistance, social security, and unemployment compensation, accumulated in a bank account
- Damages awarded for a personal injury
Will bankruptcy stop an eviction?
It depends. If your landlord already has a court judgment for eviction against you, filing for bankruptcy probably will not help stop the eviction. If there isn't a judgment for eviction from a court yet, both Chapter 7 and Chapter 13 will stop the eviction process at least temporarily to give you some breathing room. The eviction process happens quickly in Alabama so it is important to speak to an attorney as soon as possible.
What about credit counselors?
It will almost certainly be cheaper and you will rebuild your credit faster through bankruptcy.
Will my spouse be affected?
A spouse is not responsible for any debt he or she did not incur or or agree to.
How long does it take to get a discharge (for the bankruptcy to be over)?
With a Chapter 7, the case is usually completed in approximately four months after filing. During the majority of that time you will not have to do anything but wait.
Is bankruptcy right for you?
Bankruptcy is not always the best choice and may not be the best option for you. After looking at your specific situation we can together determine if bankruptcy is right for you.
I am always happy to answer any other questions you might have.
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