Bankruptcy Frequently Asked Questions
If you’re considering filing for bankruptcy, you may have many questions about types of bankruptcy, pros and cons, and how to decide if it’s right for you. First America Law offers free evaluations for people considering bankruptcy, and we are happy to answer your questions and help you find the right choice for your financial situation.
Chapter 7 Bankruptcy
What is Chapter 7 bankruptcy?
Also called liquidation, a Chapter 7 bankruptcy is a proceeding in which your property is liquidated or sold to pay your creditors. During the process, you will be required to surrender any nonexempt property, and once the property has been liquidated and your creditors paid, your debt is discharged.
Who is eligible for Chapter 7 bankruptcy?
If you live, do business in or own property in the United States, you may be eligible for Chapter 7 bankruptcy as long as you qualify under the means test. However, if you have dismissed a prior bankruptcy case in the previous 180 days, you may not qualify.
What’s the means test?
The means test is used to determine if you are eligible to file for Chapter 7 bankruptcy. This test evaluates whether or not you can repay some or all of your debts based on your earnings. If your income is lower than your state’s median income for households of similar sizes, you likely qualify for Chapter 7 bankruptcy.
What do I need to do to file for Chapter 7 bankruptcy?
Within 180 days of filing, you must complete an approved credit counseling class, and the certificate of completion must be filed with the court. You will also need to work with our bankruptcy attorney to complete all necessary paperwork and the Chapter 7 petition so that it can be filed with the bankruptcy court.
Will all my debts be discharged?
No. Although most unsecured debts can be discharged through Chapter 7 bankruptcy, some cannot, including:
- Most tax debts
- Debts associated with child support, spousal maintenance or alimony
- Most student loans
- Debts incurred due to fraudulent activity
- Debts that are not listed on the Chapter 7 forms
Will I lose all my property?
There are both federal and state exemptions that determine what kind and how much of your property can be liquidated. Anything that is exempt is typically yours to keep. This might even include your home and a vehicle.
How will my credit be affected?
By the time debts are so numerous and cumbersome that a person is considering bankruptcy, their credit scores are usually already adversely affected. However, bankruptcy can affect scores further and will also remain on your credit report for up to a decade.
The good news is that once your debts have been discharged, you can immediately begin working to improve your score.
Chapter 13 Bankruptcy
What is Chapter 13 bankruptcy?
This is a proceeding in which you can seek relief from creditors under federal law. When you file for Chapter 13 bankruptcy, you will be able to repay all or some of your debts under court supervision and protection. In other words, this type of bankruptcy is a court-authorized repayment plan.
You will make regular payments over the next three to five years to a court trustee. These funds are then paid to creditors according to the Chapter 13 plan. You will have no added fees or interest as long as the plan is in effect. Once your repayment plan has concluded, any remaining debts are discharged, and you are released from liability.
How is Chapter 13 different from Chapter 7 bankruptcy?
In Chapter 7 bankruptcy, your nonexempt property will be sold to pay as much of your debt as possible before it is discharged. In Chapter 13 bankruptcy, a percentage of your disposable income is used to make payments to your creditors for up to five years. You may be able to retain your nonexempt property. Chapter 7 cases are simpler, faster and tend to be less expensive. Chapter 13 cases enable people who earn more than the median for their area to keep their property and still benefit from the protection that bankruptcy can offer.
What is a Chapter 13 bankruptcy plan?
You will present your Chapter 13 plan to the bankruptcy court. This plan covers the next three to five years and states the amount of money that you plan to pay your Chapter 13 trustee, how long the plan will be, how much you will pay each creditor and other essential information. You must begin to make regular payments within 30 days of filing your plan.
Who will be the trustee?
An attorney will be appointed by the United States Trustee. This attorney will be the trustee for each person who files a bankruptcy petition. The trustee will collect your payments, pay your creditors, ensure you are following your plan and administer your case.
Can I choose between Chapter 7 and Chapter 13 bankruptcy?
It depends. If your income is higher than the median income for a similarly sized household in your state, then you will not be eligible for Chapter 7 bankruptcy. If your debt exceeds $394,725 for unsecured debts and $1,184,200 for secured debts, you may not be eligible for Chapter 13 relief.
Some people meet the eligibility requirements for both chapters. If you do, you can choose which type to file. Many people in this position choose Chapter 7 bankruptcy because it will discharge virtually all of their debts and is much faster to complete. For those with significant assets and more income, Chapter 13 may be a better option.
Bankruptcy is a big decision, and you likely have a lot of questions. The team at First America Law can answer those questions and provide you with all the information you need to make a choice. Contact us today at 1-800-695-7674 to schedule a free evaluation. We can help you find the best solution for your financial situation.