Bankruptcy FAQ: Frequently Asked Questions

Most of these questions were received by e-mail sent to this site (edited for clarity). This document is still under construction but you're welcome to look. Do not rely on these FAQ's as legal advice. Consult an attorney for specific legal advice.

Some of your questions may be answered on our other pages...the Bankruptcy Dictionary may be helpful --it's not finished yet but it may be worth taking a look...

Some questions cover more than one category so use your web browser to FIND key words in this document.

CAUTION: Do not rely upon these answers as legally precise. The answers have been simplified for ease of understanding.

Q. I filed for bankruptcy three years ago. I'm in trouble again. Can I file another bankruptcy now?

A. If a person filed a Liquidation Chapter 7 bankruptcy and had some debts discharged, then he/she cannot receive another discharge for at least 8 years under the new 2005 law.) In simpler terms, after 8 years a new Chapter 7 bankruptcy petition can be filed. A new Wage Earner Chapter 13 bankruptcy can be filed at any time.

Q. How long is my bankruptcy listed on my credit report?

A. Depends on the credit reporting company rules. A Chapter 7 liquidation can stay on the report for up to 10 years. A Wage Earner Chapter 13 stays for up to 6 years.

Q. If the credit report shows a bankruptcy filing, does that mean I can't get a loan or a new credit card?

A. Each bank or credit card company makes its own decision about when to give new credit. Some creditors may wait until a record of steady paying appears on the report. Others may grant credit soon after a Chapter 7 bankruptcy filing because they know the debtor cannot start a new Chapter 7 for at least 6 years.

Q. After I file the bankruptcy, how long does it take for it to show up on my credit report?

A. It can be seen almost immediately after you file.

Q. Can I choose to pay one of the creditors and not others?

A. The general rule is that you cannot favor one creditor over another but there is a procedure where a debtor can choose to "Reaffirm" (continue to pay) one or more creditors with the court's approval.

Q.What happens to the rent payments on my apartment. Can I continue to pay the rent?

A. Rent payments can continue in most cases if that's what the debtor wants to do.

Q. When I file does my wife also have to file?

A. A spouse does not have to file but if some of the debts are owed by both (a credit card in both names, as an example) then the non-filing spouse is a co-debtor and will be liable to pay the debt unless the spouse also files. In a Chapter 7 case, the creditor can try to make the co-debtor pay. In a Chapter 13 case, the co-debtor cannot be required to pay while the Chapter 13 plan is in effect.

Q. Are my children involved in the bankruptcy?

A. They are listed in the papers as family members but they are not considered as filing for bankruptcy just by being listed.

Q. What does a debt counselor do?

A. A debt counselor, credit counselor, or work-out counselor gives advice and may develop a plan to consolidate debts (so one or a few payments can be made instead of many) and might be able to help plan a budget to reduce additional debt. This may work for some people who have the income to pay the fewer payments and who have the discipline to follow a budget. The fewer payments may stretch out the time to pay off the creditors and this can result in more interest charges. Debt counseling does not work for all. Bankruptcy lawyers see people who have already been to a debt counselor who now want to file a bankruptcy. The debts just did not go away.

Q. What are some signs that it may be time to file for bankruptcy?

A. Each situation is different. We believe that individual legal advice is the best way to tell if filing can help. One common sign is that the interest charges on the debts are so large that the monthly payments cover only the interest. The payments do not pay off the underlying debt amount. The person is on a kind of debt treadmill since the payments can go on indefinitely and the amount owed will never be paid off. Another sign is that the phone never stops ringing with calls from creditors who want their money, or summonses for civil court actions for non-payment are received.

Q. When I file, does this stop the phone calls and collection?

A. One of the first things the bankruptcy court does is to send a notice to all listed creditors. The notice tells the creditors to stop trying to collect the debt. If a creditor continues to ask for payment, a court can find that they are Contempt of Court and issue orders and penalties to have them stop. The lawyer will help with this.

Q. What if I lied on my credit card application?

A. If the mis-statement was significant and caused the credit card company or other lender to give credit when it would not have done so if it knew the truth, the creditor can ask that its debt not be discharged.

Q.What happens if I try to trick the bankruptcy court by hiding assets or making leaving out important information on my bankruptcy papers?

A. The court can dismiss the bankruptcy petition (throw the case out of court) or take other action against the defrauding debtor as the court sees fit. In serious cases with clear intent to defraud the court, criminal prosecution is possible.

Q.What information do I have to put on my bankruptcy papers?

A.The forms ask questions about your name, address, social security number; about your family, your income and expenses;, about each creditor. You have to give information about what you own and what you owe. The papers ask about payments you made recently to creditors, if you are owed money, if someone else is holding money for you. There are many other questions to allow the court to learn about your total financial situation.

Q. What if I inherit money or win the lottery right after I file?

A. If it's soon after the debts are discharged, some of the money may have to be used to pay the discharged debts. A lawyer can advise about this if it happens.

Q. How long does a bankruptcy case take?

A. This depends on the court schedule, the complexity of the case, if there are any objections to discharge and other factors. In New York City, an un-complicated Chapter 7 individual liquidation case with no assets available for the creditors can take about one month for the creditor meeting then another few months until the debts are discharged. Some of this time is to allow the creditors to decide if they want to object or challenge the discharge.

Q. After I file, can I keep what I earn, can I keep my salary or do I have to give it to the court?

A. You can think of the filing as drawing a line between what happened before the filing and what happens after the filing. Generally, you keep whatever you earn or save after the date of filing. The court takes kind of picture of your finances on the day you file and keeps the pre-filing events separate from the post (after)-filing events. There are exceptions to this that can be explained by your lawyer.

Q. What do I do to start the bankruptcy?

A. We suggest you find a bankruptcy lawyer to advise you about the things to do and to answer questions such as can you continue to use the credit cards, can you apply for a loan now, what happens to your car, should your spouse file also. If you decide to file on your own, learn as much as you can, get the forms, fill them in and file them with the court clerk. (We do not recommend this. Even if a friend did it, your situation may be different.)

Q. What is the Means Test in the 2005 law?

A. The Means Test is a review and analysis of the income and expenses of the Debtor. It is used when the Debtor wants to file under Chapter 7 and liquidate (wipe out) the debts. Under the 2005 law, if the Means Test shows that the income less the expenses is above a specified level considering the state of residence, the family size, and other factors, the person will not be permitted to use chapter 7 but must file under Chapter 13.

In a Chapter 13 bankruptcy, the Debtor agrees to a plan to pay off most of the debts according to a schedule. The debts are not wiped out but might be reduced and paid off entirely or partly. A Chapter 13 payoff plan might last for several years.

This is a brief and general summary of the Means Test and its affect on Debtors. An attorney can give the details applicanble to a specific debtor.

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© Richard Madison, 2005     Last edit 18 Oct 2005

Law Office of Richard Madison