What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy is called a Liquidation bankruptcy and one can only file under it if his income is low enough (according to the Means Test). Chapter 7 bankruptcy writes off all debts instantly and at once, leaving the debtor “clean”. His bank cards cancel and his property is sold out in favor of his creditors.
Chapter 13 bankruptcy is called reorganization bankruptcy and is applied to those individuals who have enough monthly income to pay back at least a tiny part of the debt. A debtor must develop a reorganization plan and approve it with his creditors who agree to postpone the repayment of the loan (for a period of 3-5 years).
Should I hire a bankruptcy attorney or file “pro se”?
It’s the matter of your preferences and, of course, money. If you have enough money (usually $1.500-$2.000) to hire a professional bankruptcy lawyer, you will make a whole procedure easier for yourself. Besides, chances that your petition will be approved are much higher if a bankruptcy attorney is involved.
On the other hand, you may file on your own (pro se) to save money, but in this case, you will need to do a lot of work, starting from filling in all forms and tests (like Means test) to arranging the coordination between you and a bankruptcy court.
What types of debts could be discharged under Chapter 7?
Only unsecured loans can be a subject of “straight bankruptcy” which Chapter 7 is. That means all loans that were not backed by any collateral from your side (side of a borrower) could be written on under the liquidation bankruptcy. However, there are some exceptions – loans that cannot be discharged under any circumstances: taxes, alimonies, child support, student loans. Find the full list of loans that cannot be wiped out on the website of U.S. Bankruptcy Court. Secured loans cannot be discharged as well, as the lender just repossesses the property of a borrower.
If you have a co-signer on one or several loans, they will not be cleared of financial obligations to creditors, even if the primary borrower (you) receives the bankrupt status.
What is Automatic Stay Protection?
It is the protection that goes into effect the moment a debtor sends a bankruptcy petition to a court and the court accepts it. Since that very moment, all creditors and collectors are legally prohibited to disturb a debtor in any way. A debtor is now under the protection of the government, regardless of whether the petition is approved or not approved yet.
What is exempt and non-exempt property?
Exempt property in bankruptcy is the property the debtor may keep for himself after the bankruptcy petition is approved (related only to Chapter 7). It could be some daily necessities, a cheap car (under 2K dollars), and clothes (the list can be extended, depending on the debtor’s case).
A Non-exempt property is a property and all assets that will be foreclosed in accordance with the decision of the court. The property will be sold and money distributed among creditors.
Can I file multiple times at once?
It is strongly not recommended to file multiple time at once. Although it is not a crime, it causes some complications with the bankruptcy court system and therefore is considered a form of a bankruptcy fraud.
File only in the state you live in and make sure you file in accordance with the rules of bankruptcy procedure of that particular state as some aspects of filing differ in different states.
Who is Chapter 12 is designed for?
Chapter 12 bankruptcy is specifically designed for family fisheries and farms that experience financial hardship and cannot bear the debts. Moreover, the loss these farms are facing has to be a direct result of an unsuccessful farm’s business performance.
Chapter 12 implies the debt reorganization for financially distressed family farms and fisheries that are willing to get back on track rather than to give up on their property and close the business.
In a case of my petition denial, will I get my fees back?
No, the fees you pay to a bankruptcy court are non-refundable. If your petition is denied the fee is lost. Moreover, if your petition is denied due to fraudulent information that a debtor intentionally stated in the forms, he could be charged and restricted from the filing for up to several years.
Will the record about my bankruptcy be available for public?
All records about your bankrupt status will be available to anyone during 10 years after the bankruptcy petition approval. Lenders, potential employers, and business partners will have an access to that record and you have to be ready for that.
Does it make sense to file under Chapter 13 if I don’t foresee any improvements in my financial status?
It is not the question of your choice to opt for Chapter 7 or Chapter 13, but a matter of your monthly income and financial capability to repay a part of the debt. If you experience the lack of money and you don’t foresee any financial improvement in the future, but still your income is higher the required (for Chapter 7) ceiling, you will anyway be offered Chapter 13 to file under.
What does a Trustee do?
An appointed by the U.S bankruptcy court Trustee is, in fact, a manager that takes care of your process, including managing your property and arranging the meeting with creditors (the meeting that is mandatory for a debtor before the court’s hearing). A Trustee is also an investigator who is dedicated to finding a debtor’s hidden assets or sources of income.
This person will oversee the whole bankruptcy case from the beginning till the final court’s decision.
What is a Bankruptcy Proof of Claim?
This Claim should be filed by a creditor in order to prove to a bankruptcy court that a debtor has certain liabilities to this creditor. As soon as the creditor is informed about the debtor’s bankruptcy process, he should take the form from the court’s website and fill it with mentioning the type, size, and terms of the loan that is failed by the debtor.
What are the most common mistakes to avoid during filing for bankruptcy?
Statistically, the most often reason of petition denial is inaccurate or fraudulent data stated in bankruptcy forms. One should include all loans he has and mention each source of income (whether from the full- or part-time job).
The worst thing is that not only you will receive a denial but also you will be allowed to apply again not earlier than in 6 or 8 months.
Some people make a mistake by not listing all loans they have (intentionally or unintentionally). Keep in mind that loans that were not listed in the petition will not be discharged, even if a bankruptcy is approved. That means you will still have financial liabilities to creditors, while you are broke and have no means to pay.
How to avoid bankruptcy?
There are some preventive measures, or, rather, pre-bankruptcy steps that could be taken in the attempt to avoid the bankruptcy. The most common way is a consolidated loan that allows a debtor to unite all loans into the single one with the significantly lower interest rate and milder repayment terms. Consolidated loan is a great solution for those who don’t want to have a bankruptcy record in a personal history and are willing (and capable) to repay the debt.