Common Bankruptcy Questions

During a free initial consultation at Bryan P. Keenan & Associates, P.C., in Pittsburgh, clients frequently ask the similar questions. To help you determine if bankruptcy is right for you, we compiled a list of common questions below.

What Is Bankruptcy?

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or organize a plan to repay them.

How do I know what type of bankruptcy to file?

Choosing which chapter of bankruptcy is best for you depend on what kind of debts you have, whether you are behind on secured debts and whether you have the regular income necessary to fund a repayment or reorganization plan.

Will I Have To Give Up All My Assets?

Generally, no. The Bankruptcy Code provides that a debtor filing for bankruptcy can keep certain assets for a "fresh start" by exempting property from the estate.

The vast majority of bankruptcy cases are "no asset" cases, in which the debtors have claimed an exemption in everything they own; there are then no assets from which to pay creditors.

Will I Lose My Retirement Savings?

Generally, no, most forms of retirement savings are unaffected by a bankruptcy filing, either because they are not property of the estate or because they may be claimed exempt from the claims of creditors. The Supreme Court has held that an employee's interests in pension plans that are qualified under ERISA (the federal law on pensions) are not property of the estate: The debtor doesn't even have to exempt them in bankruptcy. If an asset is not property of the estate, the trustee can't cash it in for the benefit of creditors.

Retirement savings that are property of the estate can be claimed as exempt property to the extent the funds are presently being received and are necessary to support the debtor and the debtor's dependents (under the federal exemptions) or as provided by state exemption laws.

Can I Save My House From Foreclosure?

The filing of bankruptcy triggers the automatic stay, which stops all creditors from any action to collect their claim, including foreclosure.

In Chapter 7, the stay lasts only as long as the property is not abandoned by the trustee as either valueless to the estate or as exempt, or until the case is closed. A creditor secured by the house can seek relief from the stay to complete the foreclosure if there is danger that the security will lose value during the bankruptcy. Since the creditor's lien is not eliminated by the bankruptcy, Chapter 7 provides temporary relief from foreclosure, but no lasting solution.

In contrast, Chapter 13 is designed to allow debtors to cure defaults in their home mortgages by paying the arrearage over as long as three to five years.

Can I Keep My Car?

Generally, yes. What you must do to keep the car varies depending on whether there is nonexempt equity in the car.

If there is no equity in the car, after subtracting any car loan and exemption from the car's present value, the bankruptcy trustee will not take the car. If there is equity in the car over and above the value of the exemptions available, a debtor can usually buy any unprotected equity from the Chapter 7 trustee.

When you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car and continue paying under the existing terms; or you can buy the car from the secured creditor in a single payment for its present value (redemption). In some jurisdictions, like Pennsylvania, you don't even have to reaffirm the debt: You can keep the car if you continue to make the payments called for in the contract. If you choose, you can surrender the car and be free of any obligation to pay for it.

Can You Stop Auto Repossession?

With a Chapter 7 bankruptcy, the bank cannot repossess your car once you file bankruptcy. You must, however, get the payments current before the case is finished or before the bank receives permission from the bankruptcy judge to repossess the vehicle. Through a Chapter 13 you can cure defaults on your car loan or even lower the payments on your car loan.

Alternatively, if the bank has repossessed your vehicle prior to filing bankruptcy, then if you are able to pay your arrears and storage fees to bring your obligation current, you may retain your vehicle.

Will Bankruptcy Stop Wage Garnishments?

Yes. Once your case is filed, creditors are no longer entitled to garnish your wages for debts that existed at the beginning of the case. The only exception may be for on-going child or family support ordered by a court. The discharge of a debt will forever eliminate a creditor's right to garnish your wages for that debt.

Will Bankruptcy Discharge Tax Debt?

The IRS must cease collection actions after a bankruptcy is filed, just like all other creditors. The automatic stay protects the debtor and the debtor's property. Whether the tax claim will survive the bankruptcy, (that is, whether it is nondischargeable) depends on many variables.

  • In Chapter 13 debt consolidation, you pay back taxes without interest, in your payment plan.
  • In Chapter 7 Bankruptcy, secured taxes, such as property taxes, cannot be discharged. Unsecured taxes, such as income taxes, may be discharged if the taxes are three years old, you filed timely and you have not been assessed in the prior 240 days.

Can I Discharge My Student Loans?

Student loans are no longer dischargeable in any chapter of bankruptcy unless you can prove that repaying the loan creates a hardship on you or your family. Prior law allowed their discharge once they had been in pay status for seven years. The law changed in the fall of 1998.

Proving hardship usually requires showing that you can't provide a minimum standard of living for yourself and your dependents if you must repay the loan. Some courts will discharge part of the loan.

Student loans are sometimes unenforceable due to school closures, fraud, etc. Chapter 13 may provide a way to cure defaults on student loans or to pay them off over the course of the plan.

Will My Employer Find Out I Filed For Bankruptcy?

Unless the employer is also a creditor, generally, the employer will not know an employee has filed for Chapter 7 bankruptcy. The bankruptcy court does not notify your employer that you have filed for bankruptcy.

In a Chapter 13 bankruptcy, however, the court requires a wage attachment to be entered to fund the plan, and thus, an employer will find out about the bankruptcy.

Federal bankruptcy law specifically prohibits discrimination based on an employee's filing for protection, meaning your employer cannot fire you for filing for bankruptcy.

Must My Spouse File With Me?

If you are married, you are not required to file a joint petition. Just like you have a choice whether to file your taxes separately or jointly with your spouse, you have the same option in filing bankruptcy. However, the spouse that does not file will not receive the benefits of bankruptcy. In other words, if the nonfiling spouse is jointly liable on certain debts, he or she will remain liable for those debts if the filing spouse files for a Chapter 7 bankruptcy. He or she will also remain liable for any amount not paid for in the filing spouse's Chapter 13 plan, though the nonfiling spouse will not have bankruptcy noted on his or her credit report.

Therefore, if the debts you owe are also owed by your spouse, or co-signed by your spouse, it would probably be to your benefit to file a bankruptcy together as a married couple. If most of the debts are in your name only, you may want to consider filing a bankruptcy as the only debtor.

Will I Be Allowed To File Bankruptcy?

There are presently no income standards for filing bankruptcy. The critical question asked about those filing Chapter 7 is whether a debtor has sufficient funds after payment of his necessary future living expenses to repay his debts.

The United States Trustee or the Chapter 7 trustee can seek to have a debtor's case dismissed for "substantial abuse" if the debtor's income is sufficient to repay a significant portion of the scheduled debts. 11 U.S.C. 707(b). The real expectation is that debtors who are challenged in this way will convert their case to Chapter 13.

The law on this subject is not well developed and the attitudes of trustees and judges about what is abusive vary from district to district. This concept does not apply to Chapter 7 debtors whose debts are primarily business debts, tax debt or to those filing Chapter 13.

Does A Previous Bankruptcy Prevent Me From Filing?

It depends on:

  • What chapter you want to file now
  • What chapter you filed before
  • Whether you received a discharge in the earlier case

You can only get a Chapter 7 discharge if a previous Chapter 7 case was filed more than six years ago. If you got a Chapter 13 discharge within six years, the Chapter 13 plan must meet certain repayment requirements to permit a Chapter 7 case within six years. If your previous case was dismissed before discharge, it does not count in these considerations.

You can file a Chapter 13 case after a Chapter 7 without any statutory time restrictions. Some courts, however, question the debtor's good faith, a necessary element to confirm a Chapter 13 plan, if they have recently filed Chapter 7 and received a discharge.

You can freely convert a pending case from one chapter to another. It is the same case, even though the chapter is different, so these time considerations don't apply.

Do I Have To List All My Debts?

Yes, you must list all your debts on your bankruptcy schedules. However, you can choose to reaffirm any debt or debts you choose after the filing. Or, you can voluntarily pay a creditor after you receive a discharge, without becoming legally liable to continue paying. Thus, listing a creditor does not prevent you from paying creditors you wish to pay after bankruptcy.

Also, omitting a credit card company from your schedules, because you want to retain the use of the card, does not assure continued access to the card: Most major credit card issuers use a national database to determine who has filed bankruptcy, independently of the court's notice to them of bankruptcy filings. Thus, you can't be assured that your creditors won't find out about your bankruptcy by not listing a debt.

Will Filing Bankruptcy Stop Harassing Phone Calls?

Creditors usually stop calling as soon as you can give them the name and phone number of an attorney who you have hired to represent you in your bankruptcy proceeding. Of course, if you represent yourself, you will still need to take these calls. Once your bankruptcy is filed, creditors must stop calling.

What Happens To My Credit?

If you are currently behind in paying your bills, your credit is already adversely affected. Filing a bankruptcy may actually be your first step in repairing a bad credit situation. When a creditor finds a bankruptcy on your credit report, it shows them that all prior credit problems have been resolved. The question then becomes, are you credit worthy?

While the fact that you filed bankruptcy stays on your credit report for 10 years, it becomes less significant the further in the past the bankruptcy is. In fact, you are probably a better credit risk after bankruptcy than before.

Can I Get Credit After I File For Bankruptcy?

Filing bankruptcy does not prevent you from getting new credit; an entire class of lenders targets the recently bankrupt as customers! Immediately after a bankruptcy filing, you can expect credit to be more difficult to get, more expensive and limited in amount.

Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms just as good as those with the same financial characteristics who have not filed bankruptcy. That is, in getting a home loan, the size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past. There is no "right" to credit and landlords and credit card companies are well within their rights to consider your financial history in their credit decision. However, debtors are protected from discrimination based solely on the fact that they have filed bankruptcy by provisions of the Bankruptcy Code.

What Do I Have To Do To File Bankruptcy?

A bankruptcy case is begun by filing a petition, schedules of assets and liabilities, and a statement of financial affairs with the bankruptcy court and paying the filing fee.

You will be required to attend at least one meeting of creditors (the § 341 meeting), in which the trustee and creditors who choose to come can ask you questions under oath about your financial affairs.

The process in Chapter 7 from filing to receipt of the discharge order is between three and six months, usually. During that period, the debtor generally does not have to do anything other than attend the first meeting of creditors.

What Happens After I File Bankruptcy?

After your bankruptcy petition is filed, the bankruptcy court will send a notice to all the creditors listed on your creditor's matrix (people/companies you owe money to with their complete addresses.) This notice is normally mailed out a few days after you file your petition.

If you owe any secured creditors (mortgage companies, automobiles, furniture stores, etc.) you are required to notify them yourself. This is done by making a copy of the Certificate of Service and Chapter 7 Debtor's Statement of Intention (two legal papers included in your bankruptcy petition) and mailing them directly to the creditor. The law requires you to notify these secure creditors immediately after filing your petition, hopefully before the bankruptcy court notifies them through their normal process.

The bankruptcy court will also normally mail you a notice informing you that you are eligible to file bankruptcy and what documents to bring with you to your 341 meeting of creditors. Do not become confused when you receive this notice. You don't have to do anything but read it, understand it and keep it in your personal file while you wait on the notice that tells you the date and time of your first hearing with the trustee.

The bankruptcy court will then send all your creditors, including you, a notice informing you of the hearing date when you should appear in court. This hearing is often referred to as the meeting of creditors or 341 meeting.

At your meeting of creditors, a judge is normally never present. Instead, the trustee will review your bankruptcy petition and ask you specific questions about it. You may be asked to provide him/her with copies of your tax returns, bank statements, pay check stubs, titles to motor vehicles, an appraisal of your home (if you own one) along with a recorded mortgage and deed; or the trustee may be satisfied with your detailed bankruptcy petition and not request anything at all. That decision is up to the particular trustee your case is assigned to as well as the accuracy and detail of your petition.

In most no-asset cases, creditors rarely appear at these hearings; however, a representative from one of the companies you owe, or a person you owe, may show up at this meeting. They normally only make an appearance to ask where the secure item is and if it is insured. Normally, their conversation is with the trustee only, but be prepared to answer their questions if necessary.

Note: A no-asset case means that you have no money left in your approved monthly budget to distribute among your creditors. Since there is nothing for an unsecured creditor to take, most would rather write off the debt versus spending time appearing in court and not get anything anyway. Normally, the only creditors who appear at the 341 meeting of creditors are secure creditors who have a secured interest in your real or personal property.

If your bankruptcy petition is detailed and provides all the information the trustee requires, this meeting (hearing) will normally only last a few minutes. Remember, you are not going to court because you committed a crime and must appear in front of a judge. Filing for bankruptcy was a voluntary choice you made. You have committed no crime unless you fraudulently attempt some criminal act such as hiding your assets, committed tax fraud, etc. In this case, the trustee would notify the proper authorities. Therefore, make sure you reveal every debt and asset in your bankruptcy petition or you could be answering to possible fraud charges.

How Long Will I Be In Chapter 7 Or 13?

  • Chapter 7 Bankruptcy takes about four to six months.
  • Chapter 13 debt consolidation and repayment takes three to five years.

Contact Us To Get Your Additional Questions Answered

Our firm is committed to helping individuals and businesses solve the financial challenges life brings by providing clear explanations and practical solutions at an affordable price. We offer free consultations, affordable pricing and payment plans. Schedule yours by calling 412-923-4941 or email us.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.