Bankruptcy Protection FAQs

What types of bankruptcy are available?

Individuals typically file either a chapter 7 or chapter 13 Bankruptcy; there many factors that will influence which chapter of the Bankruptcy code would be best for you. In general, a chapter 7 bankruptcy will quickly eliminate all unsecured debt; however, some of your assets may be at risk. Only an attorney, licensed in your state, can advise you on such matters of law. That said, not everyone can qualify to file under chapter 7. If your income exceeds a certain level (as determined by a Means Test) you may not qualify for a Chapter 7 Bankruptcy. If that were to be the case, you may be limited to filing a Chapter 13. In a Chapter 13, your debts are partially paid over a three or five-year term. These payment plans are created by your attorney and reviewed by a US Trustee. If you are successful in completing a Chapter 13 repayment plan, the remaining debt will be discharged (there are exceptions).

Can bankruptcy stop foreclosure?

Yes. Once you file bankruptcy, all foreclosure proceedings must immediately stop. Under a chapter 13 bankruptcy, you can set up a payment plan that allows you to catch up on past due mortgage payments. If your home is worth less than you owe on your first mortgage, you may even be able to discharge a second or third mortgage through a process called "lien stripping." Under a chapter 7 bankruptcy, you can also reaffirm your mortgage and keep your home; however, you will likely be required to pay all past due payment at the time of reaffirmation.

Can all debts be discharged through bankruptcy?

No. Certain debts typically cannot be discharged through bankruptcy. These debts include recent taxes (less than 3 years old), student loans, alimony, child support, and debts incurred through fraud. Although these types of debts often can't be discharged, a chapter 13 bankruptcy may allow you set up a payment plan to catch up on overdue payments.

Can bankruptcy get me out of a home I can't afford?

Yes. Many people facing foreclosure choose to simply walk away from their homes. This isn't the best course of action. After foreclosing, your bank will likely obtain a deficiency judgment against you for the amount of the difference between what you owed on your mortgage and what the bank actually recovered through the foreclosure sale of your home. This judgment can then be recorded as a lien against any other property you may own and used to garnish your wages or even your bank accounts. Even if your bank does not seek a deficiency judgment against you, the IRS will consider any mortgage debt that is forgiven to be income, which could result in a large tax liability.

Through bankruptcy, you can surrender your home to the bank and eliminate your liability for your mortgage debt without incurring tax liability.

Can one spouse file for bankruptcy without the other?

Yes. Married couples can file bankruptcy together through a joint petition, or one spouse can file individually without involving the other. If only one spouse files bankruptcy, the other will likely be held liable for any joint debts.

How long does the bankruptcy process take?

A chapter 7 case that does not involve the sale of any assets can usually be completed within four to five months of filing. A chapter 13 case will remain open until the repayment plan is completed, which usually takes three to five years.

What will I be required to do after filing bankruptcy?

Bankruptcy law requires that you make a complete and honest disclosure of all of your finances to the court. This includes your property, your debts, your income, and anything you may have recently sold or given away. You are also required to cooperate with the court and the bankruptcy trustee, who will oversee the resolution of your case. If you own any non-exempt property, you may be required to turn that property over to the trustee, who will then sell the property and distribute the proceeds to your creditors.

Approximately 30 days after filing, you will also be required to attend a meeting of creditors, where the bankruptcy trustee will place you under oath and ask you a series of questions concerning your finances.

What documents will I be required to produce?

At a minimum, you will be required to produce the following documents:

• Tax returns for the last two - four years
• Proof of your social number or Tax payer ID
• Your driver's license or state photo identification card
• Proof of income for the last six months
• Bank Account statements for the last six months