Chapter 7 FAQ's

FREQUENTLY ASKED QUESTIONS ABOUT
CHAPTER 7 BANKRUPTCY

WHAT IS CHAPTER 7 BANKRUPTCY?

WILL MY CREDITORS STOP HARASSING ME?

WILL MY SPOUSE BE AFFECTED?

WHO WILL KNOW?

WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

CAN I KEEP ANY CREDIT CARDS?

WILL I EVER GET CREDIT AGAIN?

CAN MY BOSS FIRE ME FOR FILING BANKRUPTCY?

DOES A PERSON LOOSE ALL OF HIS OR HER PROPERTY?

WHAT DON'T I KEEP?

HOW DO I GO INTO BANKRUPTCY?

DO I HAVE TO USE A LAWYER TO GO BANKRUPT?

WHAT IS CHAPTER 7 BANKRUPTCY?

Chapter 7 bankruptcy, sometimes call a straight bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".

One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts.

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WILL MY CREDITORS STOP HARASSING ME?

Yes, they will! By law, all actions against a debtor must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments. Secured creditors such as banks holding, for example, a lien on a car, will get the stay lifted if you cannot make payments.

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WILL MY SPOUSE BE AFFECTED?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card they are probably responsible for that debt.

However, In community property states, either spouse can contract for a debt without the other spouse's signature on anything, and still obligate the marital community. There are a few exceptions to that rule, such as the purchase or sale of real estate; those few exceptions do require both spouse's signatures on contracts. But the day to day debts, such as credit cards, do NOT require both spouses to have signed.

Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Your lawyer will be able to guide you in this regard.

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WHO WILL KNOW?

Bankruptcy filings are public records. However, under normal circumstances, no one will know you went bankrupt. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years. 

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WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

The most common reasons for filing bankruptcy are:

1. Unemployment:
2. Large medical expenses;
3. Seriously overextended credit;
4. Marital problems, and;
5. Other large unexpected expenses.

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CAN I KEEP ANY CREDIT CARDS?

Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card they will cancel the card unless you reaffirm the debt. Even if you have a zero balance the credit card company might cancel the card. 

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WILL I EVER GET CREDIT AGAIN?

Yes! A number of banks now offer "secured" credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt. 

Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.

The fact you filed bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before. 

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CAN MY BOSS FIRE ME FOR FILING BANKRUPTCY?

No. U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.

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DOES A PERSON LOOSE ALL OF HIS OR HER PROPERTY?

Usually not. Certain property is exempt and cannot be taken by creditors, unless it is encumbered by a valid mortgage or lien. A debtor is usually allowed to retain his or her unencumbered (or unsecured) exempt property in a chapter 7 case. A debtor may also be allowed to retain certain encumbered (or secured) exempt property (see "What secured property may a debtor retain or redeem in a chapter 7 case?" below). Depending on the law of the local state, property that is exempt in a chapter 7 case may be either property that is exempt under state law or property that is exempt under the Bankruptcy Code.

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WHAT DON'T I KEEP?

In a bankruptcy, assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee. 

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HOW DO I GO INTO BANKRUPTCY?

There are two ways a person can become a bankrupt. The first and more common way is to have the person file a petition to voluntarily go bankrupt.

The second, and rarely used way, is for creditors to ask the Court to make an Order that a person is bankrupt. In both these cases a Bankruptcy Trustee is required to administer the bankruptcy. 

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DO I HAVE TO USE A LAWYER TO GO BANKRUPT?

No. You do not need to use a lawyer to file Chapter 7 yourself or Chapter 13.

However, we advise that you use the services of an experienced bankruptcy attorney as bankruptcy is complex. A bankruptcy lawyer is well worth the cost. You will save the cost of the legal fees many times over through peace of mind, release of stress and probably actual money saved in following your bankruptcy attorney's advice.

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