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Common Bankruptcy Questions
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How much debt do you need to file a Chapter 7 or Chapter 13?
There are no minimum amounts of debt you must have in order to file either a Chapter 7 or a Chapter 13 bankruptcy. Chapter 7 bankruptcies are sometimes filed for as little as $1,000.00 of debt. Although there are no minimum amounts to file Chapter 7 or Chapter 13 bankruptcy, there is a maximum amount for a Chapter 13 bankruptcy. A Chapter 13 bankruptcy, or more commonly referred to as a “wage earner’s plan,” is limited to a debtor who owes less than $307,675.00 of noncontingent, liquidated, unsecured debts and not more than $922,975.00 of noncontingent, liquidated, secured debts. As this restriction does not normally come into play, it need not be worried about.
Does the bankruptcy have to go in the newspaper?
Yes. Although we would like to be able to avoid having the bankruptcy appear in the newspaper; there is no way we can do so. Once a bankruptcy is filed with the Bankruptcy Court, the information is public information and the newspapers have equal and unlimited access to the bankruptcy papers. The newspapers, not the Court, have decided that Chapter 7 petitions are newsworthy and that Chapter 13 petitions are not. Ordinarily, a Chapter 7 is reported in the newspaper, a Chapter 13 is not.
Does your employer get notified of a bankruptcy?
Your employer does not get notified through the bankruptcy proceedings. Your employer may get notice through the newspaper or through a letter from our office if your wages are currently being garnished and we need to take steps to stop the garnishment. The employer will, however, be notified if you file a Chapter 13 bankruptcy because the monthly payment to the Bankruptcy Trustee will be deducted from your wages.
How does a Chapter 13 work?
A Chapter 13 Bankruptcy is more commonly referred to as a “wage earner’s plan.” Under a Chapter 13 plan, you make regular payments to the Bankruptcy Court and a Bankruptcy Trustee appointed by the court distributes the payments to your creditors. The typical length of a Chapter 13 Bankruptcy is 3 years, but can be extended to 5 years if necessary. Ordinarily all of your excess income over your monthly expenses is paid to the Bankruptcy Court. The typical situation in which a Chapter 13 Bankruptcy is utilized is that where a person’s residence has a mortgage which is about to be foreclosed upon. In such a case, a Chapter 13 Bankruptcy can be filed to stop the foreclosure action. The Chapter 13 then provides that the arrearage amount on the mortgage is caught up over 3 to 5 years and the regular mortgage payment is paid by you outside of the Chapter 13 plan as part or your regular monthly expenses. This example also applies to where a person is behind in their car payments. Another situation where the Chapter 13 plan is used is where a person has previously filed a Chapter 7 Bankruptcy preceding within the last 8 years. In that case, another Chapter 7 cannot be filed until after 8 years; however, a Chapter 13 can be filed to protect you even though 8 years have not elapsed.
How are the attorneys’ fees paid?
In a Chapter 7 Bankruptcy, the attorneys’ fees and court filing fee have to be paid in full prior to filing the bankruptcy.
In a Chapter 13 Bankruptcy, the court filing fee has to be paid prior to filing the bankruptcy; however, you are not required to pay the attorneys fees prior to the bankruptcy. Attorneys fees will be paid as part of the Chapter 13 Plan.
Can a student loan be discharged in a bankruptcy?
Student loans are generally NOT discharged unless the debtor can prove a severe undue hardship. This is extremely difficult to prove. Moreover, the definition of a student loan includes any debt owed to an educational institution, whether there is a loan agreement in place or not.
Can I keep my car and/or home?
The Bankruptcy Law allow a single person filing bankruptcy to keep up to $15,000.00 in equity in a house. For a husband and wife filing a joint bankruptcy, they are allowed to keep up to $30,000.00 in equity in a house. Equity is that amount of value in the house that is in excess of all debts owed on the house.
For example, John and Jane Doe have a house that could be sold for $140,000.00. John and Jane have a $110,000.00 mortgage outstanding on the property. Therefore, John and Jane have $30,000.00 worth of equity in the home ($140,000.00 less $110,000.00). Accordingly, they may keep their house as they are within the $30,000.00 exemption limit allowed by the Bankruptcy Law. (This assumes they are filing a joint bankruptcy.) If, however, instead of a $110,000.00 payoff balance on their mortgage on the house, John and his wife have a $90,000.00 payoff balance on their mortgage on their house, they then have $40,000.00 of equity; approximately $10,000.00 too much or in excess of the $30,000.00 bankruptcy exemption amount. In such a case, the Bankruptcy Trustee could sell the house, assuming that the house sells for $140,000.00, the first mortgage of $90,000.00 would then be paid off, John and his wife would be entitled to their $30,000.00 exemption, and the remaining $10,000.00 would then be paid to the John and Jane’s creditors in pro rata shares, minus expenses associated with the sale of the house.
With regard to vehicles, a single person filing a bankruptcy is entitled to keep up to $2,400.00 of equity in a vehicle (or vehicles). In a joint husband and wife bankruptcy, the husband and wife are allowed to keep up to $4,800.00 equity in a vehicle (or vehicles) if the vehicle(s) is titled in both names. Equity in a vehicle is the same as equity in a house.
How soon can a bankruptcy be filed?
A bankruptcy can be filed within 24 hours of your appointment. This assumes, of course, that you have supplied us with all of the necessary information to file the Bankruptcy Petition; that is, a full list of creditors, addresses, account numbers, amounts of bills, income information, asset information, attorneys’ fees and the court filing fee, and most importantly, a court approved pre-bankruptcy consumer credit counseling certification of completion issued during the prior 180 days.
How will a bankruptcy affect co-signers on my loans?
If you file a Chapter 7 bankruptcy and decide not to reaffirm and repay a loan, the lender can then go after the co-signer for payment. In a Chapter 13 bankruptcy, however, the co-signer is protected and the lender cannot go after the co-signer. There is, however, a provision which allows a creditor to file a request with the Bankruptcy Court in a Chapter 13 bankruptcy asking the Court to allow the creditor to pursue the co-signer for payment if the creditor’s property is not being adequately protected.
In the event that you reaffirm the loan and agree to repay it, the lender will most likely refrain from seeking payment from the co-signer.
Do both a husband and wife always both have to file together?
No. A husband and wife are liable for the debts incurred by the other during the marriage as long as those debts were incurred for items necessary for the two of them. All medical bills incurred during the marriage are the responsibility of both the patient and the patient’s spouse.
How will bankruptcy affect my credit?
Both a Chapter 7 and a Chapter 13 bankruptcy will affect your credit in a negative way. However, your credit is most likely already in bad shape because of your current debt problems. The length of time that your credit will be affected varies anywhere from three to six to ten years. We offer a Free CD to all of our bankruptcy clients entitled Life After Bankruptcy – 7 Simple Steps To Rebuilding Your Credit. This CD will assist you in rebuilding your credit after you file bankruptcy.
Will filing bankruptcy stop any pending wage or non-wage garnishments?
Except for divorce related and child support garnishments, filing a Chapter 7 or 13 bankruptcy will stop all pending wage and non-wage garnishments. In the event that a Turn-Over Order has been signed by a judge ordering your employer to turn over withheld wages to a creditor, then that money cannot be recovered for you. If a Turn-Over Order has not been signed by a judge, you are entitled to the amount withheld as long as it is within your bankruptcy exemption amounts.
If I sign a reaffirmation agreement and then change my mind, am I still bound by the agreement?
You may change your mind or reverse a Reaffirmation Agreement at any time prior to the date of your bankruptcy discharge. Therefore, if a Reaffirmation Agreement is signed and filed with the court, it does not prevent you from changing your mind and rescinding or getting out of the Reaffirmation Agreement. However, the time period in which to do so is limited and we must be notified of the change immediately, and notification of rescission must be in writing.
Will I get to keep my furniture and clothing?
Clothing: All clothing that is considered to be necessary wearing apparel is exempt and you are entitled to keep the clothing without having to pay anything into the Bankruptcy Court. The key term here is “necessary wearing apparel.” For example, you would not be able to keep a $5,000.00 mink coat because the Bankruptcy Court would not consider it to be necessary wearing apparel. The mink coat would have to be surrendered to the Bankruptcy Trustee to be sold and the amount recovered would be paid to your creditors.
Furniture: Furniture is considered a miscellaneous asset and falls within the general exemption amount of $4,000.00 for an individual person and $8,000.00 for a joint bankruptcy petition filed by a husband and wife. The way that furniture is valued is by replacement cost taking into consideration age and condition.
Can I include a personal loan from a friend?
Yes, however, if you still want to pay your friend back, you are free to do so (as is the case with all debts) after the bankruptcy. It is just that you are no longer obligated by to law pay the debt. More importantly, the law requires that you report all debts owed to all creditors, regardless of whether you want to include them or not. Failure to report any single debt could be viewed as a perpetrating a fraud on the court.
What is the difference between a secured debt and a non-secured debt?
A secured debt is one where a person, in exchange for receiving money to purchase something, says to the creditor: “If I do not pay this amount, you have a right to have this item back.” Basically, the item that was purchased is the security, meaning the creditor has some sense of security in knowing that he will either get money for the item or he will actually get the item back. This is what is referred to as a Purchase Money Security Interest (PMSI). When purchases of major ticket items are bought with credit cards, especially department store cards, a purchase money security interest is ordinarily given to the seller. A non-secured debt is one where the creditor only has the option to recover the money and not the actual item sold.
Another example of a secured debt is an automobile loan where the seller retains the title to the automobile and will transfer title when the total amount of the purchase price has been paid. An example of a non-secured debt is a personal loan which is not secured by any collateral (more commonly referred to as a “signature loan.”) Also, an unsecured debt is ordinarily any debt that has been created for purchases of gasoline, services, and miscellaneous items such as perfume, clothing and toys.
Do I have to list all my creditors or just the ones I want to discharge?
Yes, the Bankruptcy Law requires that all of your creditors be listed. However, you always have the option to go ahead and pay the debt even though the debt was included in your bankruptcy.
What happens if I forget to list a creditor and we have already filed the bankruptcy?
Your bankruptcy can be amended to include the omitted creditor. However, if your bankruptcy needs to be amended more than three days after the original filing date, an additional $26.00 court filing fee is required. Accordingly, we strongly suggest that you do your best to get us a list of all of your creditors before your bankruptcy is filed.
Can I change my mind if I have already filed the bankruptcy?
In a Chapter 13 Bankruptcy, you can always decide to dismiss your bankruptcy case. However, under a Chapter 7 Bankruptcy, you do not have the absolute right to dismiss the your bankruptcy case.
How long after I file a Chapter 7 bankruptcy can I file again?
A Chapter 7 Bankruptcy can only be filed once every eight (8) years.
Do the Chapter 13 payments have to be deducted from my wages or can I pay them directly myself?
In the Central District of Illinois, the Bankruptcy Trustee requires Chapter 13 payments to be made through direct deduction from your wages. However, you may be able to make the payments yourself if your source of income is self-employment or other non-employer sources.
What is the 341 First Meeting of Creditors and what happens there?
The Section 341 Hearing is an informal hearing conducted by a local attorney who has been assigned to your case as a Bankruptcy Case Trustee. The hearing is usually scheduled for a Wednesday or a Thursday in the Federal Court Annex Suite in the Bankruptcy Building in Peoria, Illinois. Hearings are set every half hour with approximately five to eight hearings per half hour. Therefore, each hearing ordinarily takes 5 to 7 minutes. At the 341 Hearing, the Bankruptcy Case Trustee asks you some of the same questions that we asked you prior to filing your bankruptcy case. The questions are aimed at determining if there are any assets which the trustee may be able to seize and sell to generate money for the creditors.
Your creditors also have an opportunity to attend the hearing and ask you questions. The only creditors that usually show up are those who are holding secured debts such as a car loan or a house mortgage.
How many hearings will I have to go to? Will I have to talk or will my attorney do all the talking?
In a typical case, there will only be one hearing for you to attend. You are required to answer the questions that the Bankruptcy Trustee asks you – typically, simple yes/no type questions and answers. The attorney’s job at the hearing is to attend to insure that nothing goes wrong and that if a problem does arise that it be taken care of as best as possible.
Is there any extra fee for the creditors hearing?
No, not for the Section 341 hearing. Additional hearings that may be required are billed on a need to attend and/or your desire for representation basis.
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