Often people don’t know what to expect when they consider bankruptcy as an option. The following is designed to give a very general overview of bankruptcy and is not a substitute for customized advice and consultation with an attorney.
What is bankruptcy?
Bankruptcy is a legal, court-approved way to eliminate and reorganize debt.
Do you lose everything you own when you file bankruptcy?
Do your creditors get nothing back when you file bankruptcy?
Not necessarily. Some debts are wiped out completely, and some are just restructured. Some stay the same – for example, child support obligations. Creditors generally receive more if you have higher income or assets of high value.
Do you have to file with your spouse?
If you file without your spouse, do you still have to provide information about your spouse’s income and assets?
Can you file bankruptcy without an attorney?
Yes, but it is not a good idea. Bankruptcy law is complex, and it takes a lot of effort and knowledge of the federal bankruptcy laws, local rules, and the judge’s and trustee’s preferences to ensure successful outcome.
Do all bankruptcy lawyers offer the same services, and do the same work?
Think of it this way: are all doctors or accountants alike? There are varying degrees of competency, compassion, and attention to details. The lawyer who is the flashiest or the most aggressive, or has the most staff or the most expensive suit may not be the best lawyer for you – or the best lawyer, period.
Do you have to appear before a judge?
Can your creditors confront you and harass you because you file bankruptcy?
No. Creditors may request information or request some action to be taken with respect to their debt, but they may not harass you. In fact, one of the main goals of bankruptcy is to stop harassment by creditors and give you a peace of mind.
Will your creditors, the judge or the trustee ask you to justify why you decided to file bankruptcy?
It’s unlikely. They may be trying to understand your financial situation better, but they would not berate or question your choice to file a bankruptcy petition.
Do you need to have certain minimum amount of debt to be able to file bankruptcy?
Is there a maximum amount of debt?
Actually, yes. There is no debt floor, but there is a debt ceiling to qualify for some types of bankruptcy relief.
Do you have to be in default on your loans or credit cards to be able to file bankruptcy?
Do you have to attend credit counseling classes in person, if you decide to file bankruptcy?
No, there are no classes you have to attend in person. There are two required financial management courses, but you can take them over the phone or the Internet.
Will your mortgage payments be modified through bankruptcy?
Generally, no. However, it’s possible to catch up on mortgage payments at no interest, and sometimes it’s possible to get rid of junior liens altogether.
Is it okay to pay off some creditors before filing bankruptcy?
Is it okay to transfer some of your property or money to someone else before filing bankruptcy?
No, this is a bad idea. It may suggest fraud and will put you in a worse position that you would be in, had the transfer not occurred.
Can you ignore calls and letters from creditors, if you have decided to file bankruptcy?
No. It’s important to keep track of all the creditors and collection agents, and have their contact information – most importantly, names and addresses. If the court does not receive this information, the creditors may still be contacting you, or worse yet, it’s possible the debt would not get discharged.
Should you run your credit report before filing bankruptcy, if you know who all the creditors are in any case?
Yes. A credit report may not be a perfect or the most updated list of creditors, but it is very helpful. It may bring to your attention some information not available elsewhere, or expose creditors’ mistakes or even identity theft.
Will you ever have good credit again, if you file bankruptcy?
Yes. Probably faster than you think, too, if you take active steps to build up your credit.
Can you obtain new financing, if your bankruptcy case is still open?
Yes, although it would require approval by the bankruptcy trustee.
Can you obtain a discharge in the bankruptcy case, if you or your spouse die or become disabled before the case is completed?
What happens if you file the case, but do not receive the discharge?
The fact that you filed bankruptcy would still be on your credit report, yet the debts would stay the same and creditors can resume their collection efforts. It’s important to get the case right from the get-go and comply with all the requirements of the court and the trustee to ensure a successful outcome.
If something changes in your situation – for example, you no longer have the income to pay for the car that you were initially planning to keep, you can often adjust the case accordingly and not compromise the discharge.
How soon are your debts discharged?
As soon as three to four months after filing, if it’s a basic case. Keep in mind that once the petition is filed, even if you don’t have the discharge yet, creditors have to stop collection activities.
What do people usually feel, after they decide to file the bankruptcy petition?
Relief. Many people say they wish they had considered bankruptcy sooner, before depleting their retirement savings, forgoing insurance or other basic needs, or being chronically stressed out and losing sleep.
Bankruptcy is not by itself a problem or a reflection on your abilities, potential for success, morals, or intelligence. It’s a powerful financial solution.