1 CHARLES (CHUCK) JOHNSON ATTORNEY AT LAW CHERI KNIGHT SHELLY MUSTAIN 985 KK DRIVE, SUITE 104 PO BOX 1030, OSAGE BEACH, MO PHONE: TOLL FREE: FAX: CHAPTER 7 OR 13 BANKRUPTCY INFORMATION QUESTION AND ANSWERS FOR MORE THAN 30 YEARS CHARLES JOHNSON HAS REPRESENTED CLIENTS IN THOUSANDS OF BANKRUPTCY CASES AND I HAVE USED THE EXPERIENCE GAINED HANDLING THOSE CASES IN PUTTING TOGETHER THIS INFORMATION. Please remember, however, that information like this cannot be substituted for a consultation with, and the advice of, an experienced bankruptcy attorney. QUICK REFERENCE: PARAGRAPH NO: GENERAL BANRUPTCY INFORMATION What is the purpose of the bankruptcy law?... 1 What kinds of bankruptcies are there?... 2 Which bankruptcy is the best for me?... 3 What are the most common reasons for a Chapter 7 or Chapter 13 bankruptcy?... 4 Who can file a Chapter 7 or Chapter 13 Bankruptcy?... 5 What happens when I file a Chapter 7 or Chapter 13 Bankruptcy?... 6 What happens after your bankruptcy petition is filed and how long does the whole bankruptcy process take?... 7 Will I have to go to court?... 8 Who deals with my creditors and bill collectors during my bankruptcy?... 9 Will the bankruptcy stop bill collectors from calling? Will the bankruptcy stop creditors from mailing me bills? What is the Automatic Stay? My creditors ignored the Automatic Stay. What do I do? Will my employer and landlord find out about my bankruptcy? Can my employer fire me for filing bankruptcy? Can I go to jail if I file bankruptcy or don t pay my debts? Does the spouse of a married person also have to file bankruptcy? What should I do to prepare for filing bankruptcy? Can I file a bankruptcy for certain debts, but not include other debts? ASSETS/PROPERTY What is an asset? Do I have to disclose all of my assets? What property do debtors have to give up in Chapter 7 or Chapter 13 bankruptcy? Can I keep my home and automobile? What about my mobile home? What about tax refunds?... 25
2 Are pension plans and 401K plans exempt? Are IRA accounts exempt? What about life insurance policies with cash surrender value? What is a debt/liability? What is a secured debt? What is a priority debt? What is an unsecured debt? DEBTS/LIABILITIES/CREDITORS Do all creditors have to be listed on bankruptcy petition/schedules? Is it true that I can discharge all debts by filing bankruptcy? What debts are not discharged in bankruptcy? What about bad checks? If I am divorced, will bankruptcy eliminate my obligation to pay marital debts? Are alimony and child support obligations dischargeable? Can I discharge student loans? Will bankruptcy stop a creditor from taking action against me on a judgment? Will bankruptcy stop a garnishment? Will a bankruptcy remove a judgment lien? If a debtor is behind on house or car payments, can a Chapter 7 or Chapter 13 stop foreclosure or repossession from taking place? What is a Reaffirmation Agreement and how does it work? Can a Chapter 7 debtor make payments on a secured debt and keep the property that is collateral for the debt without signing a Reaffirmation Agreement? What are the consequences of signing a reaffirmation agreement?.46 Can I keep any credit cards? Can a Chapter 7 Debtor make payments on a discharged debt? What can be done if a creditor falls behind in payments after obtaining a Chapter 7 or Chapter 13 Discharge? Can another bankruptcy case be filed? If I co-signed for a debt or if another person co-signed for me, how does the bankruptcy affect the obligation (debt) and the co-signer? What should a debtor do if a creditor does demand payment of a debt that is listed in the bankruptcy schedules? What if I fail to list a creditor on the bankruptcy papers? Does a bankruptcy case automatically remove liens such as mortgages against a debtor s property?53 AFTER BANKRUPTCY/REESTABLISHING CREDIT How do I know when my bankruptcy case is completed, and I am no longer in bankruptcy? Will the fact that I filed bankruptcy appear on credit reports? Will a bankruptcy automatically clean up my credit report? How can I re-establish my credit after bankruptcy? GENERAL BANKRUPTCY INFORMATION 1. WHAT IS THE PURPOSE OF THE BANKRUPTCY LAW? It was enacted into law by Congress to help individuals who cannot pay their debts. The bankruptcy law operates to give debtors a fresh start, by canceling many of their debts, through an order of the court called a discharge. Back to top. 2. WHAT KINDS OF BANKRUPTCIES ARE THERE? Generally speaking, for individuals there are two types, Chapter 7 and Chapter 13. A Chapter 7 bankruptcy normally is over in 4 to 6 months, a Chapter 13 bankruptcy will last 3 to 5 years. Back to top.
3 3. WHICH BANKRUPTCY IS BEST FOR ME? An experienced bankruptcy attorney will help you answer that question. For a majority of individuals the best bankruptcy is Chapter 7. But there are five main reasons people want to file a Chapter 13. The reasons are: (1) The debtor is behind on house or car payments and will not be able to get those payments current within 30 days after the filing of a Chapter 7 bankruptcy. Chapter 13 bankruptcy gives a person much more time to get past due payments caught up. (2) The debtor has a substantial amount of non-exempt equity in property, usually a home or vehicle. In a Chapter 7 bankruptcy a debtor could lose a home or vehicle if it has too much equity, but would be able to keep a home or vehicle in a Chapter 13 bankruptcy even if there is too much equity. (3) The debtor s income is more than the median income, set by the IRS, for a household of the same size (number of members) as yours. (4) The debtor has filed a Chapter 7 bankruptcy in the last 8 years. (5) The debtor has debts that may be eliminated/discharged in the Chapter 13 bankruptcy but not in a Chapter 7 bankruptcy. Again, which bankruptcy is best for you depend on the special circumstances existing in your particular situation? Back to top. 4. WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 OR CHAPTER 13 BANKRUPTCY? The most common reasons for consumer bankruptcy are: unemployment; decrease in wages; illness; large medical expenses; over extended credit (including credit cards); marital problems and other large unexpected expenses. Back to top. 5. WHO CAN FILE A CHAPTER 7 OR CHAPTER 13 BANKRUPTCY PETITION? Almost any individual, partnership or corporation may file a Chapter 7 bankruptcy petition if he or she resides, has a domicile, a place of business, or property in the United States. If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition. If you are granted a Chapter 7 discharge in a prior case within the last 8 years, you might not be entitled to receive a discharge in bankruptcy and probably are not a candidate for a Chapter 7 bankruptcy proceeding. But you may be eligible to file a Chapter 13 bankruptcy. Back to top. 6. WHAT HAPPENS WHEN I FILE A CHAPTER 7 OR CHAPTER 13 BANKRUPTCY? You commence a Chapter 7 bankruptcy proceeding by filing a petition with the bankruptcy court. The person filing a Chapter 7 bankruptcy is referred to as the debtor. The debtor is required to disclose to the court all his or her property and debts. The debtor then receives a discharge on all dischargeable debts. Back to top. 7. WHAT HAPPENS AFTER YOUR BANKRUPTCY PETITION IS FILED AND HOW LONG DOES THE WHOLE BANKARUPTCY PROCESS TAKE? First the bankruptcy court will send the creditors listed in your petition a Notice of Bankruptcy Case informing them that you have filed the petition. You will also receive this notice. This notice is usually mailed within a week after your bankruptcy case is filed. The notice will have your attorney s name in the return address portion of the envelope but it actually comes from the bankruptcy court. About 30 to 40 days after filing the bankruptcy petition, you will have to attend the Meeting of Creditors that is discussed below. And, under normal circumstances in a Chapter 7 bankruptcy, the Bankruptcy Court will automatically issue you a discharge (this means your case is over) 65 to 75 days after your Meeting of Creditors. As you can see, it will normally take 4 to 5 months from the time you file until you receive a discharge. A Chapter 13 bankruptcy will take 3 to 5 years and a discharge will not be issued until your case is completed. Back to top. 8. WILL I HAVE TO GO TO COURT? About 25 to 40 days after filing the bankruptcy petition, you will have to attend a hearing presided over by a bankruptcy trustee. This hearing is called the Meeting of Creditors. The trustee is not a judge, but an individual appointed by the United States Trustee to oversee bankruptcy cases. At the Meeting of Creditors the trustee will ask you questions under oath regarding the contents of your bankruptcy papers, your assets, debts and other matters. Creditors will also be permitted to ask you questions at the Meeting of Creditors, although in the majority of cases the creditors do not even appear. Back to top.
4 9. WHO DEALS WITH MY CREDITORS AND BILL COLLECTIONS DURING THE BANKRUPTCY? Usually, your attorney deals with all creditors. Back to top. WILL THE BANKRUPTCY STOP BILL COLLECTORS FROM CALLING? Yes. The automatic stay prevents bill collectors from calling you or taking any action to collect a debt. Back to top WILL THE BANKRUPTCY STOP CREDITORS FROM MAILING ME BILLS? Eventually, but they will stop quicker if you will write on your bill the following: (1) I have filed bankruptcy, (2) My case number is ; (3) It was filed (date) ; (4) Your attorney s name and his phone number. Back to top. 12. WHAT IS THE AUTOMATIC STAY? When you file a bankruptcy petition, your creditors are automatically barred from taking any action to collect the debts owed them or to seize your property. However, the bankruptcy law does provide some exceptions. For example, a bankruptcy petition does not stay the commencement or continuation of a criminal action (unless brought to collect a debt), an action to collect alimony, maintenance or child support from certain assets or income, or an action to enforce a government s police or regulatory power. Back to top. 13. MY CREDITORS IGNORE THE AUTOMATIC STAY. WHAT DO I DO? First make sure the creditor is aware that you have filed bankruptcy and ask them to stop collection efforts. If the creditor does not respond, you should notify your attorney so the appropriate action can be taken. Back to top. 14. WILL MY EMPLOYER AND LANDLORD FIND OUT ABOUT MY BANKRUPTCY? Bankruptcy petitions are public records. However, under normal circumstances, unless your employer or landlord is a creditor, they will not know you filed a bankruptcy petition. If your employer or landlord is a creditor, they must be listed on the schedules and will receive notice of the bankruptcy proceeding. Back to top. CAN MY EMPLOYER FIRE ME FOR FILING BANKRUPTCY? Federal Bankruptcy Law prohibits governmental units and private employers from discrimination against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt. Back to top. 16. CAN I GO TO JAIL IF I FILE BANKRUPTCY OR DON T PAY MY DEBTS? No. Back to top. 17. DOES THE SPOUSE OF A MARRIED PERSON ALSO HAVE TO FILE BANKRUPTCY? No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file. Back to top. 18. WHAT SHOULD I DO TO PREPARE FOR FILING BANKRUPTCY? First, you should consult with an attorney. An attorney can help you plan for the bankruptcy and decide when to file a bankruptcy petition. A few specific items are worth mentioning. (1) Do not pay any money to friends or relatives. (2) Do not transfer any property. (3) If you intend to file bankruptcy you should stop using your credit cards. If you borrow money with the specific intent of discharging the debt in bankruptcy instead of paying it back, the debt is not dischargeable. In addition, three specific circumstances are worth mentioning: (a) certain luxury purchases of more than $500 within 90 days of the bankruptcy filing are presumed non-dischargeable; (b) cash advances aggregating $750 within 70 days of the bankruptcy filing are presumed non-dischargeable; and (c) debts involving materially false statements are non-dischargeable under certain circumstances. Back to top.
5 CAN I FILE A BANKRUTPCY FOR CERTAIN DEBTS, BUT NOT INCLUDE OTHER DEBTS? You must list all your debts, but you can keep some of your debts. Back to top. 19. ASSETS/PROPERTY WHAT IS AN ASSET? Everything you have or have a right to receive is an asset (property). Assets are divided into two categories, real property and personal property. Real property is land/real estate and includes houses, buildings, and condominiums and in most cases mobile homes that are located on the land/real estate you own, Personal property is everything else. Back to top. 21. DO I HAVE TO DISCLOSE ALL OF MY ASSETS? Yes. If you knowingly and fraudulently conceal an asset you may be guilty of a crime. In addition, the Court can deny your discharge. Back to top. 22. WHAT PROPERTY DO DEBTORS HAVE TO GIVE UP IN CHAPTER 7 OR CHAPTER 13 BANKRUPTCY? Debtors in Chapter 7 are required to give up non-exempt property they own at the time of the filing; they are allowed to keep both exempt property they own at the time of filing and any property they receive a right to own after the bankruptcy is filing. You have the following exemptions: General household goods and wearing apparel - $3,000 (single), $6,000 (joint) in value; Jewelry, not to exceed $500 in value plus $1,500 for wedding rings; Professional books or tools of the trade, $3,000 value; Any other property not exceeding $600 per debtor. If you have dependents, you will also get an additional general exemption for being head of a family in the amount of $1,250 plus $350 per child. If all of a debtor s property is exempt, which is normally the situation, then the debtor does not have to give up any property in a Chapter 7, and may still obtain a discharge. Debtors in a Chapter 13 bankruptcy can keep all the property they want to keep. Back to top. 23. CAN I KEEP MY HOME AND AUTOMOBILE? In many cases you can retain your home and automobile in a Chapter 7 bankruptcy proceeding. You will lose your home or automobile in a Chapter 7 if (1) your are behind in making payments on a loan secured by the home or automobile and cannot get current on your payments within 30 days of filing the bankruptcy, or (2) the home or automobile has equity (i.e., a liquidation value in excess of the amount owed to creditors with liens against the property) in excess of $15,000 for your home and $3,000 per person for your vehicle. However, as a practical matter, the amount can be more than this. It is very important that you discuss this with your attorney. And if there is a possibility that you could lose your home or automobile for either of the above reasons, you may be able to file a Chapter 13 bankruptcy and keep your home and/or automobile. Back to top. 24. WHAT ABOUT MY MOBILE HOME? If you own the real estate the mobile home is on it will normally be treated just like that mentioned above for a home. However, if you do not own the real estate the mobile home is on, the exemption is $5,000 per person. Back to top. 25. WHAT ABOUT TAX REFUNDS? Tax refunds and income tax credits that you will be eligible to receive or do receive during your bankruptcy are an asset and may become part of the bankruptcy estate. The amount of the refund or tax credit you will be allowed to keep will depend on the exemptions available to you. And, in many case, depending on the amount of the potential tax refund, we may advise you to wait until after the refund has been received to file a bankruptcy. Back to top.
6 26. ARE PENSION PLANS AND 401(K) PLANS EXEMPT? The United State Supreme Court has held that pension plans, 401(K) plans, and other ERISA-qualified plans are generally excluded from the bankruptcy estate. Back to top. 27. ARE IRA ACCOUNTS EXEMPT? Most IRA accounts are qualified plans and you will be allowed to keep them. Back to top. 28. WHAT ABOUT LIFE INSURANCE POLICIES WITH A CASH SURRENDER VALUE? Life insurance policies with a cash surrender value are exempt up to a certain amount. Back to top. DEBTS/LIABILITIES/CREDITORS 29. WHAT IS A DEBT/LIABILITY? It is money owed to another person or company. Debts and liabilities are also referred to as loans, claims and obligations. Debts are divided into three categories: secured debts, priority debts and unsecured debts. Back to top. 30. WHAT IS A SECURED DEBT? A secured debt (loan) is one when the lender/creditor has a security interest in your property. A secured debt is also referred to as a mortgage or a lien and the property (asset) that is the security for the debt is referred to as collateral. Common examples of secured debts are home loans, vehicle loans and mobile home loans. Back to top. 31. WHAT IS A PRIORITY DEBT? Unpaid taxes owed to any Federal, State or local government. Back to top. 32. WHAT IS AN UNSECURED DEBT? This is a debt (loan) when the lender/creditor does not have a security interest in any of your property/assets. Common examples of unsecured are credit cards, medical bills, signature loans and deficiencies on cars and homes that have previously been repossessed or foreclosed. (A deficiency resulting from a foreclosure or repossession is the amount of the debt plus expenses of sale less the amount the asset is sold for.) Back to top. 33. DO ALL CREDITORS HAVE TO BE LISTED ON THE BANKRUPTCY PETITION/SCHEDULES? Yes. All of the debts have to be scheduled (listed on your petition), with the names and address of the creditors. This is so they can receive notice of the bankruptcy. Sometimes debtors think that they should omit a creditor because they want to continue to pay the debt. This would violate the law, and it is unnecessary, because a debtor can always choose to pay a debt voluntarily, even though the debt has been discharged and there is no legal obligation to make the payment. However, creditors are prohibited from taking any action to collect a discharged debt. Back to top. 34. IS IT TRUE THAT I CAN DISCHARGE (CANCEL/ELIMINATE) ALL DEBTS BY FILING BANKRUPTCY? The underlying policy of the bankruptcy law is that the honest debtor, who is in debt beyond the ability to repay the debt, should receive a fresh start through the discharge of debts. Normally all unsecured debts and those secured debts where you are giving up (surrendering) the collateral are discharged. However, there may be some debts that are not discharged in bankruptcy. Back to top. 35. WHAT DEBTS ARE NOT DISCHARGED (CANCELLED/ELIMINATED) IN BANKRUPTCY? Generally speaking, the following debts will not be discharged: taxes, spousal (alimony) and child support; debts arising out
7 of willful misconduct and/or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; non-dischargeable debts from a prior bankruptcy; student loans; criminal fines and penalties and forfeitures. And any debts incurred after the filing date of the bankruptcy will not be discharged. Also, if you have decided to keep property (collateral) that is security for loan/debt, and sign a reaffirmation agreement, that debt will not be discharged. Back to top. 36. WHAT ABOUT BAD CHECKS? A bad check is not a debt but it may be an insufficient funds check that could be considered a criminal offense. You should plan on paying any outstanding debt (insufficient funds) checks with few exceptions. Back to top. 37. IF I AM DIVORCED, WILL BANKRUPTCY ELIMINATE MY OBLIGATION TO PAY MARITAL DEBTS? If at the time of the dissolution you and your ex-spouse entered into a property settlement agreement and you agreed to assume and/or pay certain debts of the marriage (marital debts), then these debts will not be eliminated in a Chapter 7 bankrutpcy. Also, if the Court in the dissolution case ordered you to pay marital debts, they will not be eliminated in a Chapter 7 bankruptcy. But these kinds of debts may be eliminated in a Chapter 13 bankrutpcy. Back to top. 38. IS ALIMONY AND/OR CHILD SUPPORT DISCHARGEABLE? Alimony, maintenance and child support payments are generally not dischargeable. Back to top. 39. CAN I DISCHARGE STUDENT LOANS? Generally, student loans are not discharged in bankruptcy. But the bankruptcy law does provide that a student loan may be discharged if the borrower can prove that paying the loan will impose an undue hardship on the debtor and /or the debtor s dependents. But this is not automatic. An adversary proceeding would have to be initiated during your bankruptcy proceeding and tried in front of the Court for an Order declaring the debt discharged. However, under laws that went into effect on January 1, 1999, this is rarely successful. Back to top. 40. WILL BANKRUPTCY STOP A CREDITOR FROM TAKING ACTION AGAINST ME ON A JUDGMENT? Yes. Most actions by creditors against you as a result of civil judgments (judgments resulting from lawsuits) are stopped by bankruptcy. Back to top. WILL BANKRUPTCY STOP WAGE GARNISHMENT? Yes, but it may take 2 or 3 weeks. However, you will get back all money earned and taken out of your check after the filing date of your bankruptcy. Back to top. 42. WILL A BANKRUPTCY REMOVE A JUDGMENT LIEN? If a creditor has obtained a judgment against you and has filed the judgment with the county Circuit Clerk and Recorder s Office, this is a judgment lien and in most cases a special motion can be filed with the Bankruptcy Court to remove this lien. Back to top. 43. IF A DEBTOR IS BEHIND ON HOUSE OR VEHICLE PAYMENTS, CAN CHAPTER 7 OR CHAPTER 13 STOP A FORECLOSURE AND/OR REPOSSESSION FROM TAKING PLACE? Yes. Whenever any bankruptcy case is filed, the creditors are stopped from taking action to collect the debts that were owed at the time of the bankruptcy. This feature of bankruptcy is called the automatic stay. The automatic stay stops a foreclosure or repossession from going forward. However, no bankruptcy filing allows a debtor to keep property that is secured for a loan without making payments on the loan. For example, debtors with home mortgages and vehicle loans cannot keep their homes and vehicles without making their normal monthly payment on the mortgage/loan. As soon as the bankruptcy case is closed, the automatic stay is terminated, and the creditor can proceed with foreclosure or repossession. If there is a foreclosure, you will receive notice of the foreclosure sale (usually by certified mail) and a notice of the foreclosure will appear in the local newspaper. Moreover, if the
8 debtor is not current on payments, a creditor may ask the Court to terminate the automatic stay while the bankruptcy is still pending and, in Chapter 7, creditors are usually able to terminate the automatic stay. In order to keep property that is security for a loan, a debtor must be current on the debt, or get current within 30 days of the filing of the bankruptcy, and must stay current from that time forward with the creditor who holds the lien on that property. A Chapter 13 bankruptcy is different in that if you want to keep property and are behind on your payments, you will have 3 to 5 years to catch up. Back to top. 44. WHAT IS A REAFFIRMATION AGREEMENT AND HOW DOES IT WORK? A reaffirmation agreement is an agreement by a debtor and a creditor about how to treat a particular debt that would otherwise be discharged in the debtor s bankruptcy. Usually, the debt is secured by collateral that the creditor could repossess or foreclose on. In the reaffirmation agreement, the debtor agrees to pay all of the debt, usually, according to schedule. In exchange, the creditor agrees not to repossess or foreclose on collateral that secures the debt, as long as the debtor makes the agreed-upon payments. However, in order for a reaffirmation agreement to be valid, several requirements must be met, including, the following: (1) the agreement has to be entered into before the debtor receives a discharge; (2) the agreement has to be filed with the court and (3) the attorney has to certify that it will not create a serious financial problem for the debtor. The agreement must be voluntary; no one can force either the debtor or a creditor to enter into a reaffirmation agreement. Finally, debtors are given the right to change their minds; a debtor may cancel any reaffirmation agreement within 60 days after the agreement is filed with the Court or any time before discharge, whichever is later. If any of the requirements for a reaffirmation have not been complied with, the agreement may not be binding. In that event, the debtor would have no personal obligation to make payments under the agreement, but could lose the property that secures that debt. There are no reaffirmation agreements in a Chapter 13 bankruptcy. Back to top. 45. CAN A CHAPTER 7 DEBTOR MAKE PAYMENTS ON A SECURED DEBT AND KEEP THE PROPERTY THAT IS COLLATERAL FOR THE DEBT WITHOUT SIGNING A REAFFIRMATION AGREEMENT? Normally the answer is no, but there are exceptions in some cases. This is something you will need to discuss with your attorney because there are situations when you will be required to sign a reaffirmation agreement or may want to sign a reaffirmation agreement. Back to top. 46. WHAT ARE THE CONSEQUENCES OF SIGNING A REAFFIRMATION AGREEMENT? A valid reaffirmation agreement puts the debtor under a legal obligation to pay back the entire amount agreed upon, even if this is more than the value of the collateral the debtor is keeping. So if the debtor defaults on the payments required under the reaffirmation agreement, the creditor can repossess or foreclose, and then seek a personal judgment against the debtor if the sale of the collateral does not satisfy the debt. Back to top. 47. CAN I KEEP ANY CREDIT CARDS? Normally you would be advised not to keep any credit cards that have a balance due on them. One reason for this advice is that many credit card companies will cancel your credit card after you file bankruptcy, even if your payments are current. Also, credit cards with no balance may be cancelled. And you will have the opportunity to get credit cards after the bankruptcy. If you have any questions about whether or not to keep a credit card, you will need to ask your attorney. Back to top. 48. CAN A CHAPTER 7 DEBTOR MAKE PAYMENTS ON A DISCHARGED DEBT? Yes. Even though a debt has been discharged, the debtor can still make a voluntary payment on the debt. This often happens, for example, with debts that are owed to family members or friends. But the key to this kind of payment is that it must be entirely voluntary; the debtor has no legal obligation to pay a discharged debt, and the creditors can take no action to pressure the debtor into making payments. Back to top.
9 WHAT CAN BE DONE IF A DEBTOR FALLS BEHIND IN PAYMENTS AFTER OBTAINING A CHAPTER 7 OR CHAPTER 13 DISCHARGE? CAN ANOTHER BANKRUPTCY CASE BE FILED? The discharge in Chapter 7 and Chapter 13 cases only covers the debts that were incurred prior to the case being filed. The debts that a debtor incurs after the case is filed are not discharged. The hope is that after their old debts are canceled by the discharge, debtor will be able to pay their new obligations as they become due. But unexpected circumstances, such as illness or loss of employment, may again put debtors in a situation where they cannot pay their bills. In this situation, a debtor could file a Chapter 13 case, but might not have the right to a discharge. After a debtor receives a discharge in a Chapter 7 case, the debtor only has the right to receive a discharge in a later Chapter 7 case if the later case is filed at least eight years after the first case was filed. Four years after filing a Chapter 7 a debtor can file a Chapter 13 bankruptcy and receive a discharge. If you have previously filed a bankruptcy and are again having financial problems, you should consult with an experienced bankruptcy attorney to determine what your options are. Back to top. 50. IF I CO-SIGNED FOR A DEBT OR IF ANOTHER PERSON CO-SIGNED FOR ME, HOW DOES THE BANKRUPTCY AFFECT THE OBLIGATION (DEBT) AND THE CO-SIGNER? If the debt is a dischargeable debt then you will not have to pay it. The co-signer will become primarily responsible for the debt. If a person cosigned for you on a secured debt (home, vehicle, mobile home, etc.) and if you surrender the property, the cosigner will become responsible for any deficiency that is owed after the property is sold. If you co-signed for another person on a secured debt and if that person wants to keep the property, he or she must continue making the payments. And this is true, even if the person stops receiving payment notices. Back to top. 51. WHAT SHOULD A DEBTOR DO IF A CREDITOR DOES DEMAND PAYMENT OF A DEBT THAT IS LISTED IN THE BANKRUPTCY SCHEDULES? If a creditor who is listed in the debtor s schedules attempts in any way to collect a scheduled debt, the debtor should inform the creditor that a bankruptcy case has been filed and request that the creditor stop the collection efforts. If improper collection continues, you should contact your attorney. Back to top. 52. WHAT IF I FAIL TO LIST A CREDITOR ON THE BANKRUPTCY PAPERS? If you intentionally omit a creditor from your schedules, you have committed perjury. However, sometimes a creditor is not known to exist at the time the schedules are filed or is accidentally omitted. As soon as you realize that a creditor has been omitted, you should notify your attorney s office with the necessary information to amend the schedule (the amount of debt, the type and value of any collateral, and the name and address of the creditor). If your bankruptcy petition must be amended to add a creditor there will be an additional charge. If you do not list a creditor, and the creditor does not otherwise learn about your bankruptcy proceeding in time to participate in the proceeding, the debt owed to the creditor might not be discharged. Back to top. 53. DOES A BANKRUPTCY CASE AUTOMATICALLY REMOVE LIENS SUCH AS MORTGAGES AGAINST A DEBTOR S PROPERTY? No. Liens can be placed on a debtor s property in many different ways. Some are by agreements, like mortgages and auto liens. Others enforce judgments that have been entered against the debtor. Certain liens can never be removed in a bankruptcy case except by paying the underlying indebtedness (examples of these liens are home mortgages, most car loans and certain tax liens), and others can only be removed if special action is taken in the bankruptcy case. So if a debtor has any questions about liens on his/her property, discuss this with your attorney. Back to top. AFTER BANKRUPTCY/RE-ESTABLISHING YOUR CREDIT 54. HOW DO I KNOW WHEN MY BANKRUPTCY CASE IS COMPLETED AND I AM NO LONGER IN BANKRUTPCY? At the conclusion of an individual s bankruptcy case, the Court enters an Order of Discharge. A copy of this Order is sent to you. If the bankruptcy trustee does not have any assets to distribute to creditors and
10 no objections to discharge have been filed, your bankruptcy case will be closed at the time you receive the notice of discharge. Back to top. 55. WILL THE FACT THAT I FILED BANKRUPTCY APPEAR ON CREDIT REPORTS? The bankruptcy will be listed on credit reports for a period of 10 years. Back to top. 56. WILL A BANKRUPTCY AUTOMATICALLY CLEAN UP MY CREDIT REPORT? No. Back to top. 57. HOW CAN I RE-ESTABLISH MY CREDIT AFTER BANKRUPTCY? Back to top. FIRST, CLEAN UP YOUR CREDIT REPORT. You must order your credit report from all three of the major credit reporting agencies. Once you receive the reports look them over for mistakes. The major mistake that is normally on the reports is that certain debts that were included in your bankruptcy are shown as still outstanding. This is common and can be corrected by following the procedure each credit reporting agency sets out in the information you will receive from them. Prepare your response to the credit reporting agency s mistake and mail it to the credit-reporting agency by certified mail. To prove that a particular debt was included in you bankruptcy, you must provide the credit-reporting agency with a copy of the following: Notice of Bankruptcy; Notice of Discharge; and Schedules D, E and F from your bankruptcy petition. The credit reporting agencies have 30 days to respond to you and tell you what actions they have taken. If you are not satisfied with the response you get from a credit reporting agency and you believe you have a good case that a certain correction should be made to your credit report, you can write the Federal Trade Commission and send a copy of that letter to the credit-reporting agency. The address for the FTC will be in the credit reports. SECOND, DEVELOP A GOOD CREDIT HISTORY. The best way to obtain new credit is to make payments religiously and to have 5 good, active sources of credit. Your credit reports will tell you how many credit sources you now have. (If you elected to keep a secured debt, usually a vehicle or home during your bankruptcy, this may count as one or more of the 5 sources of credit.) Also, getting new credit cards can be very useful in developing these 5 sources of credit. WARNING, if you decide to get new credit cards to help re-establish credit, you must remember the following rules: (1) A credit card is no longer a convenience, it is now a tool, a tool to help you reestablish your credit; (2) Never carry a balance on your credit card, pay it off in full every month and pay it on time, absolutely no exceptions; (3) Do not use your credit card around the holidays, November and December. And if the new cards you get are unsecured cards instead of secured credit cards, you will have an annual fee of $40 - $60 per card. This is just a cost of re-establishing your credit. Back to top.