To declare bankruptcy or not is a dilemma to some who are considering both its gains and consequences. Filing for bankruptcy is one way of getting rid of piles after piles of debt. It can also be one option for financial freedom.
However, there are several important factors you may need to consider before filing one. Here are the frequently asked questions to look into if you are considering declaring bankruptcy.
Declare Bankruptcy FAQs You Need to Know
In this article:
- Basic Queries
- Chapter 7 & 13 Explained
- Getting Rid of Debt in Bankruptcy
- Income & Property Status in Bankruptcy
- How to Prepare for Bankruptcy
- What Goes on After Bankruptcy Filing
- What to Expect After Bankruptcy
1. Who can Declare Bankruptcy?
To file for bankruptcy, you need to be a permanent resident, own a property, or be a business owner with a business located in the United States. You must also complete a course on financial counseling. However, U.S. citizenship is not required as well as insolvency.
2. What Is the Minimum Debt Amount for Bankruptcy Filing?
There is no minimum debt amount required before you can file for bankruptcy. This will also depend on a case by case basis and your ability to repay. The ability to repay lies on the income percentage to pay for your expenses on basic needs and daily living.
3. How Many Times Can I Declare Bankruptcy?
There is no time limit when it comes to a bankruptcy filing. But in order to have discharge eligibility, there must be certain time amount lapses between filings. Also, a discharge means the elimination of any qualifying debt.
For individuals who received a Chapter 7 discharge previously, they are still eligible to get another Chapter 7 discharge after 6 years from initial filing. 4 years after filing, they can also receive a Chapter 13 discharge.
Meanwhile, for Chapter 13 discharge, individuals who filed this previously can get another one 2 years after filing. They will receive an eligibility for a Chapter 7 discharge 6 years after filing.
4. Will the Creditor Contact Me Even after Filing?
There is no need for your creditors to contact you after you filed for bankruptcy. They also won’t send letters, call you or make deductions from your paycheck. Bankruptcy has the power to stall any collection efforts.
Chapter 7 & 13 Explained
5. Which Type of Bankruptcy Should I Declare?
The most common types of bankruptcy are Chapter 7 or Chapter 13.
Chapter 7 Qualifications
Chapter 7 is the faster between the two, it is also called the “liquidation bankruptcy.”
For your debt to be completely eliminated, you need to qualify. Qualification for this type involves having an income which is below specified limits. Also, it only takes 4 to 5 months to wipe out your debt without having to pay for the monthly repayment plan.
You can also keep property essential for you to live such as home furnishings, clothes, and a car.
This type works best for individuals who can’t make mortgage or car payments and those with debts that are dischargeable. Dischargeable debts include utility bills, balances on credit cards, medical and hospital bills, and personal loans.
Chapter 13 Qualifications
Also called “reorganization bankruptcy,” Chapter 13 works best for individuals who can’t pass the test to qualify for Chapter 7 bankruptcy. It also applies best to individuals who have a particular amount of debt which cannot be eliminated through bankruptcy.
They call this nondischargeable debt and includes child support and other domestic support as well as taxes that are past due. The filer makes payments for the disposable income to the trustee between 3 to 5 years. It is also the trustee who makes the payments to the creditors.
6. Is there a Possibility to Switch Chapters after Filing?
Yes, you may switch chapters after filing for bankruptcy given that you meet the eligibility requirements of the new chapter you are switching to. You will need to file a motion with the court and ask the judge to grant you the conversion.
7. What does a Petition for Joint Bankruptcy Mean?
This means filing for the joint petition when you declare bankruptcy along with your spouse. It is an official form which you must fill out when you declare bankruptcy. It is most likely applicable to couples who both have debt issues. This will help both of you save money for filing fees.
8. What Happens When Only One Spouse Files for Bankruptcy?
It is common for only one spouse to file for bankruptcy. But this will depend on a case by case basis. If the couple lives in the same house, the spouse who will file should declare the income of the spouse who will not file for bankruptcy.
What is important is that the non-filing spouse will need to sign a waiver acknowledging the plans of the filing spouse to declare bankruptcy.
Getting Rid of Debt in Bankruptcy
9. Is it Required to File for Bankruptcy on All Accounts I Owe?
Yes, you must list down all your creditors. You may do this in the bankruptcy petition. Not being able to list down all will result in non-discharge of the debt on your bankruptcy. Most likely, you will also pay the debt after the case is closed if you skip listing a creditor.
10. Is it Possible to Eliminate Debts by Discharging them through Bankruptcy?
This depends if the debt qualifies under dischargeable and nondischargeable debts. Dischargeable debts include the following:
- Hospital and medical bills
- Gym or book club memberships
- Balances on credit cards
- Car or mortgage loans (if the property is returned to the bank by the borrower)
- Payday loans and other personal loans
- Any lease contract for equipment and cars
- Other debts borrowed from the government including overpayment for unemployment benefit
For nondischargeable debts, they include the following:
- Taxes that are past due
- Obligations for student loan
- Car or mortgage payment if the borrower chooses to keep the car or the house
- A domestic support which includes spousal or child support
11. Do I Still Need to Pay every Single Debt after I Declare Bankruptcy?
Yes, it is possible to still pay a certain amount of debt even after the case is over. This is due to some obligations you need to fulfill even if you have filed for bankruptcy.
12. What is a Secured Debt and What is Unsecured Debt?
The unsecured debt is not guaranteed by a property while a secured debt works the other way around. If there is a collateral for the debt, it is a secured debt. Examples of unsecured debts include the following:
- Balances on credit cards
- Personal loans
- Medical bills
Income & Property Status in Bankruptcy
13. If I File for Bankruptcy, What am I Allowed to Keep?
After you declare bankruptcy, you can keep the property you will need to keep a job or maintain your house. The type of assets you can protect is under the state’s exemption statute. The property which most states allow include the following:
- Some jewelry
- Home furnishings
- Home goods such as cooking ware, dishes, and towels
- Vehicle equity
- Pension and retirement accounts
14. Is it Possible to Lose my Home after Filing for Bankruptcy?
Yes, you may when you meet certain criteria. For Chapter 7 bankruptcy, the requirements are the following:
- You are on your current house payment
- Ability to pay for your home even after bankruptcy
- Exemption of home’s equity is under the state’s exemption statute
For Chapter 13 bankruptcy, you can keep your home if you have the ability to pay for the following through a 3-5 year repayment plan:
- House payment per month
- Balance for any past-due owed
- A portion of equity not included for exemption
15. Is it Possible to Lose my Retirement Account or Payments for Social Security after a Bankruptcy Filing?
No, you may not lose all including your retirement and social security payments when you declare bankruptcy. However, there are certain guidelines you need to follow. The retirement account has to be in a pension plan which is ERISA-qualified. ERISA-qualified pension plans cover the following:
- IRAs (SEP, Roth, and SIMPLE)
- Benefit plans that are defined
- A couple plans that are profit-sharing
How to Prepare for Bankruptcy
16. How do I Begin the Process of Filing for Bankruptcy?
It starts after you complete the official paperwork needed to declare bankruptcy and file it with the court. You will need a credit counseling course in which the requirement is a certificate of completion. A credit counseling provider who is approved can give you this. There is also a filing fee involved.
17. When can I Stop the Use of Credit Cards if I am Considering to File for Bankruptcy?
You may disregard credit card use as soon as you decide to declare bankruptcy. You may use it to charge for items during an emergency.
However, if you charge too much, you might be accused of committing presumptive or actual fraud. This happens when you can’t afford to pay the bill for the item purchased. Also, once the creditor proves there is indeed fraud committed, there is a higher chance for denial of debt discharge.
18. Will my Filing a Bankruptcy Prevent any Civil Lawsuit?
When you declare bankruptcy, it will automatically stop a civil lawsuit. Automatic stay refers to the order that prevents your creditors from making pursuits while you’re on with the bankruptcy case. It is the responsibility of the person or the company who is suing you to inform the court regarding the automatic stay.
19. Do I Still Need to Contact my Creditor after Filing for Bankruptcy?
Yes. It is necessary to inform your creditor of the automatic stay several days or a week before. It is possible the notice will arrive late which means the lender already set up your house for auction by that time.
20. What is the Requirement for Credit Counseling When it Comes to Bankruptcy?
This enables you to have bankruptcy relief. You must take a course offered by a non-profit agency for credit counseling within 180 days before you file the petition. This course will help you in coming up with other strategies for debt payment and avoid bankruptcy. You will then receive a certificate which you will include along with other paperwork when you file for bankruptcy.
What Goes on After Bankruptcy Filing
22. How will Creditors Know I have Filed for Bankruptcy?
After listing all your creditors in a creditor matrix or mailing list, the court will then issue the automatic stay. The creditor matrix will include all the names and addresses of your creditors.
23. What are the Duties of a Bankruptcy Trustee?
The bankruptcy trustee is an official appointed by the court to oversee your bankruptcy case. Its key responsibility involves finding assets to pay your creditors. He/she will also review your petition when it comes to accuracy, verification of identity, investigation of other hidden assets and distribution of funds to your creditors.
What to Expect After Bankruptcy
24. How long will the Bankruptcy Remain on my Record?
For the Chapter 7 bankruptcy, it remains up to 10 years on your credit report.
For Chapter 13 bankruptcy, the period is shorter showing up to 7 years after you complete the 3-5-year repayment plan. Also, the bankruptcy notation may stay for a long period of time but its effect will lessen through time.
25. Is It Possible to Reopen a Case of Bankruptcy?
This only happens in particular cases. The court may close your case even before receiving your discharge in instances where you didn’t promptly file the paperwork required.
Another instance is the failure to complete the debtor education course. Also, if the bankruptcy trustee discovers additional assets to be distributed to creditors, he/she may file a motion to reopen the case.
To learn more about how to declare bankruptcy, do watch this video from CBS News:
If you need to declare bankruptcy, this guide will help you weigh its pros and cons. This is also important when considering which option is suitable for your current financial situation and need.
However, it is also a better alternative to consult with your lawyer for an in-depth assessment of your financial situation so you can select the appropriate solution.
Do you have other queries on how to declare bankruptcy? Please share your questions in the comments section below.