Q: What's the difference between Chapter 7 and Chapter 13 bankruptcy?

A: A Chapter 7 bankruptcy is often referred to as a liquidation bankruptcy. In Chapter 7 proceedings, you do not pay anything to unsecured creditors included in your bankruptcy petition unless the court requires a liquidation sale of your nonexempt assets. If you own assets that are nonexempt, you may be required to liquidate them. The court would then distribute the proceeds from the sale to your unsecured creditors as partial satisfaction of the debts you owe. Any remaining unpaid debt would then be discharged, and you would no longer be held responsible for it. A Chapter 13 bankruptcy does not require liquidation of nonexempt assets to satisfy your creditors. Instead, you pay some or all of your unsecured debt back through the court over a 36- to 60-month period.

Q. Will I qualify for Chapter 7 bankruptcy?

A. Qualification depends on whether you pass the means test. According to the new law, if your gross annual income falls under a certain amount, depending on the number of people in your household, you can file for a Chapter 7 Bankruptcy.

Q. How would I know if Chapter 7 is right for my situation?

A. If you have very few assets with no property and your assets can be exempted then Chapter 7 may be right for you as long as you have no other obligations such as court ordered alimony, child support payments, criminal restitution, non-dischargeable taxes, or student loans.

Q: What does bankruptcy do to my credit?

A: In the end, a bankruptcy can make your credit better. Even if all your payments have been made on time, you may owe so much money that a new credit application would be denied.

Q. How long do I have to wait to rebuild my credit?

A. You can rebuild your credit immediately with a secured loan or credit card. In fact you can even obtain these items while going through the bankruptcy process.

Q. How long does it take before my debt are discharged?

A. Chapter 7 takes between 3 to 6 months; Chapter 13 can take several months while trying to get your repayment plan approved. However, the actual discharge is not final until you've met the payment plan requirements which takes from 36 to 60 months to complete.

Q. How long until my credit gets back to the point where I might hope to get a regular credit card or mortgage?

A. Rebuilding credit depends on how aggressively you try to get back on track, but don't figure less than 1-3 years.

Q: What is the automatic stay?

A: This is an injunction that goes into effect automatically upon the filing of a bankruptcy. It strictly prohibits the commencement or continuation of any acts to collect on a debt that arose prior to filing the bankruptcy. This includes enforcement of judgments, creating or perfecting liens, and many other actions.

Q. Does the automatic stay always apply when a bankruptcy case is filed, and if so, for how long?

A: Generally, the automatic stay goes into effect immediately upon filing your case and against acts taken towards you personally until you receive your discharge. Stays against actions towards property you own may last longer or shorter depending on what happens to that property during your case (e.g. it is sold by the Trustee or not, etc.).

Q: Is it too late to file bankruptcy if I'm being sued or already have a judgment against me?
A: No. It's almost never too late to file bankruptcy. Assuming that it is a dischargeable debt, you can still get rid of the debt even if a creditor has filed a lawsuit against you and gotten a judgment.

Q: What does it mean to discharge a debt?
A: Debts are never technically eliminated. They still exist after a bankruptcy, but you no longer have the legal obligation to pay on the ones that are discharged.

Q. What are exemptions?

A: Exemptions are protected allowances for the value in certain assets. For example, a homestead exemption protects the equity you have in your home, up to a certain value.

Q. Can I pick and choose who to list in my bankruptcy case?

A: No. I don't know where people get this idea. You must list all your assets and all your debts in any chapter of bankruptcy. You may voluntarily repay anybody you want after your case is concluded (and you are required to repay any debts that are not discharged), but you are still required to list all your creditors.

Q. Can I transfer assets out of my name into someone else's before filing bankruptcy?

A. Not unless they are sold for "reasonably equivalent value". Otherwise it can be recovered as a Fraudulent Transfer.

Q. Can you be fired or denied employment because of a bankruptcy?

A: No. While an employer can usually find some reason to fire anyone, they cannot use bankruptcy as a basis for doing so. This is set forth in Section 525 of the Bankruptcy Code.

Q. Can I remove liens against my property?

A: Yes. Under certain circumstances, judicial liens and "nonpossessory, nonpurchase-money security interests" may be removed if, based on the value of the asset and the amount of senior liens and encumbrances against it on the date your bankruptcy case is filed, the fixing of the lien causes it to "impair" an exemption to which you are entitled under State (or other applicable) law.

Q: Are any and all debts dischargeable in a bankruptcy case?

A: No. There are many debts which Congress has excluded from discharge such as alimony, child support, IRS taxes, and student loans.