Frequently Asked Questions about Bankruptcy

Q. Should I hire an attorney?

A. It is definitely not advisable for an individual inexperienced in bankruptcy law to prepare and file a Chapter 7 petition. Chapter 7 can be done without an attorney, but there are risks, especially when the debtor has assets that can be lost if wrong decisions are made. Chapter 13 can be even more complicated because it has numerous unwritten rules and local customs that just are not easily discoverable to the average person or even the lawyer who does not have enough experience in dealing with bankruptcy cases. Most individuals tend to seek the advice of a competent and experienced bankruptcy lawyer like the lawyers at the Law Offices of N.M. Gehi.

Q. Do I have to go to court?

A. In most bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" or a "341 meeting" to meet with the bankruptcy trustee and any creditor who chooses to come. This meeting will take place about 30 or 40 days after the bankruptcy filing. The trustee is not a judge but an individual appointed by the United States Trustee to oversee your case. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Occasionally, if a creditor or the trustee files a motion or an adversary action or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

Q. How much does it cost to file for bankruptcy?

A. Currently, the court filing fees are $299 for Chapter 7 and $274 for Chapter 13. Attorney’s fees vary depending on the attorney. The Law Offices of N.M. Gehi promises reasonable fees.

Q. How often can I file bankruptcy?

A. A Chapter 7 bankruptcy can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13 can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing.

Q. Is filing Chapter 7 right for me?

A. In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. Generally, Chapter 7 bankruptcy discharges your debts in exchange for your giving up property, except for "exempt" property which the law allows you to keep. Property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. It is highly advisable to consult with an experienced bankruptcy lawyer before filing.

Q. Is filing Chapter 13 right for me?

A. Generally, in a chapter 13 case, you file a payment plan showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property, which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required payments as they come due. It is highly advisable to consult with an experienced bankruptcy lawyer before filing.

Q. What is a joint petition?

A. A joint petition is the filing of a single bankruptcy petition by an individual and the individual's spouse. Only people who are married on the date they file may file a joint petition. Unmarried partners must each file cases separately.

Q. What happens if I file for bankruptcy and my spouse does not?

A. If one spouse files and the other does not, the spouse who does not file could possibly be responsible for the debts. It is highly advisable to consult with a bankruptcy lawyer before filing.

Q. What disclosures must a collection agency provide to a debtor?

A. Typically, a collection agency begins its efforts with an introductory letter. This letter usually contains the required legal disclosures, which include:

In the original correspondence, the collection agency must also inform the debtor that it is attempting to collect a debt and that any information it gathers from the debtor or other sources will be used for that purpose. If this information is not included in the initial contact letter, the collection agency must provide it within five days.

Most lawyers recommend that debtors request verification of the debt because, in that case, a collection agency may not resume collection efforts until the information is confirmed with the original creditor. The collection agency may not, whether by threatening to destroy the debtor's credit rating or by threatening to sue if payment is not received immediately, make a statement in the initial correspondence that overshadows the debtor's right to dispute the debt for thirty days.

Q. What actions must a collection agency avoid?

A. Under the Fair Debt Collection Practices Act, a collection agency may not act in the following ways:

Q. Can a creditor come after a co-signor if the principal signor on a loan filed bankruptcy?

A. Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. That is precisely why it is extremely important that those considering co-signing for a loan for another be ready, and able, to pay the loan in the event that the principal signor defaults.

Q. Does a bankruptcy discharge eliminate all debts?

A. In Chapter 7, most debts are dischargeable including medical bills, loans, credit card purchases and cash advances, and many judgments. However, there are exceptions. An individual contemplating Chapter 7 must know what is dischargeable and what is not; otherwise valuable assets can be lost.

Generally, certain debts cannot be discharged. These include taxes (in many cases), alimony, child support, student loans, criminal fines, debts related to drunk driving, debts not listed in the bankruptcy petition, and certain debts incurred within 60 days of filing the petition.

Q. How much property does the debtor have to give up in a bankruptcy proceeding?

A. Items that the debtor usually has to give up include:

Certain types of property are exempt, however, which means that the debtor can keep them. Please look at the New York Bankruptcy Exemptions for more information.

Q. Are student loans discharged in a bankruptcy proceeding?

A. Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 bankruptcy. They may be dischargeable; however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.

In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income-if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration-the financial circumstances that satisfy the income test in part (1) will continue for a significant portion of the repayment period; and (3) good faith-the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.

Q. What effect does a bankruptcy filing have on the collection of alimony and child support?

A. A Chapter 7 filing should have no effect on such collections.

Although filing bankruptcy stops, or stays, all efforts to collect debts, the Bankruptcy Code excludes actions to collect child support or spousal maintenance from the stay unless the creditor attempts to collect from the property of the estate. In a Chapter 7 proceeding, property of the estate includes all possessions, money, and interests the debtor owns at the time of filing. Money earned after the bankruptcy is filed, however, is not property of the estate. Since most child and spousal support is paid out of the debtor's current income, the bankruptcy should have little impact.

A debtor under Chapter 13 must pay all domestic support obligations that fall due after the petition is filed. Failure to do so could result in dismissal of the case.

Neither a Chapter 7 nor a Chapter 13 discharge affects future child or spousal support obligations. In other words, even at the conclusion of the bankruptcy proceeding, these on-going obligations remain.

Q. Will a debtor lose his or her home by filing bankruptcy?

A. One of the debtor's major concerns in a consumer bankruptcy is the thought of losing the family home. Although that is possible in some cases, loss of the debtor's home need not always result from a bankruptcy filing.

If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt. Whether a debtor who is not behind on mortgage payments will lose his or her house depends on how much equity the debtor has in the property and the amount of the state homestead exemption. If the amount of debt owed on the home is less than the home's market value, the debtor could lose the house unless the homestead exemption entitles the debtor to most of the equity.

In a Chapter 13 proceeding, however, even if the debtor is behind on mortgage payments, if the wage-earner plan includes paying back any missed mortgage payments and current payments are paid when due as well, the debtor should not lose his or her home. If the debtor is current on his or her house payments, the home will not be lost if the debtor continues to make payments when due.

If the debtor is a renter rather than a homeowner, and if the debtor is current in his or her rent payments, it is unlikely that the lessor would even become aware of the bankruptcy proceeding. If the debtor is behind, however, he or she could be evicted. Even after the automatic stay is triggered by the bankruptcy filing, the landlord is likely to ask the court to lift the stay on its behalf, and the court is likely to grant that request.

Q. How are the utility services affected?

A.Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Q. How long are bankruptcy and other credit information included on the debtor's credit report?

A. A consumer credit report may include Chapter 7 and Chapter 13 bankruptcy information for up to ten years from the time the case is filed. One major consumer credit reporting agency is said to remove Chapter 13 information after only seven years, but it is not legally required to do so.

Most other credit information can be included in a consumer credit report for seven years. Civil suits, civil judgments, and arrest records, however, can be reported for at least seven years, and longer if the information is relevant for a longer time period. For example, if the civil judgment against the debtor is valid for ten years, it can be reported for credit-rating purposes for the same time period.

Q. Will I ever get credit again?

A. Even though the bankruptcy information may remain on your credit report for up ten years possibly, it does not mean you cannot get a credit card or any type of credit. Most people are able to resume normal credit activity again after receiving their discharge. The interest rates offered may not be the most favorable; however, you can begin to re-establish your credit immediately, as long as you stay current on your payments

Q. What happens if the debtor's salary increases after filing a Chapter 13 wage-earner plan?

A. The Bankruptcy Code requires that the debtor contribute his or her projected disposable income toward the plan payments for the duration of the plan. Although the code imposes this requirement only when the trustee or a creditor demands it, in reality the trustee always requires it, at least at the beginning of the plan. Whether changes in salary will change the payment plan depends on a complete consideration of all of the circumstances.

If the debtor's income changes after the case has been filed but before the court has confirmed the plan, making it binding on the creditors (which can take as much as six months), the trustee will closely scrutinize the debtor's disposable income to make sure that the payments and the income are consistent and will incorporate any necessary changes into the plan. If the debtor's income changes during the duration of the repayment plan, changes in income may not necessitate any changes in payments. However, the trustee may ask that payments be adjusted if the debtor's income increases significantly. The trustee does not closely monitor the debtor's income, and it may actually be outside the scope of a trustee's duties to do so.

The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income, on which the payments are based. Disposable income is the amount of the debtor's salary that is left after deducting all reasonable living expenses. If the debtor's salary increases but so do his or her expenses, there may be no increase in disposable income and therefore no change in the payment plan. If there is a significant increase in disposable income, the trustee may ask for an increase in payments. In cases in which the plan extends over more than thirty-six months, the increased payments may actually reduce the length of the plan's term, so that the debtor has paid off the debts and receives a discharge sooner.

Q. Are there any alternatives to filing bankruptcy?

A. Debtors who have faced obstacles to paying off their debts when due have no doubt received more than their fair share of demanding letters and phone calls, and the thought of getting rid of their debts, and thus the constant demands, through bankruptcy can be quite appealing. Before making a decision to pursue that route, which can have long-term effects on credit rating and the ability to make large purchases, like a home, debtors should consider other, less drastic alternatives.

If the debtor's financial problems are only temporary, he or she may want to ask creditors to accept lower payments or that payments are scheduled over a longer period of time. Creditors may be receptive to these ideas if the debtor has been a prompt payer in the past, or if the specter of bankruptcy is raised, since creditors know that once a bankruptcy proceeding is initiated they will probably collect only a portion of what is owed. In addition, creditors may wish to avoid the difficulties of a court proceeding to collect on the debt, which can be time-consuming and expensive.

Consumer credit counselors can also help creditors work out a repayment plan. Some of these advisors work for non-profit agencies, so they charge no fees. Many credit-counseling services charge a fee for their guidance, however, and it may not appeal to an already over-stressed debtor to add another debt to the stockpile.

If the debtor's financial troubles are long-term or if the creditors will not agree to an alternative payment plan informally, bankruptcy may be the best way for the debtor to get out from under an insurmountable debt load. Although it is not without its adverse consequences, bankruptcy can be the right option to enable debtors to make a fresh start.