Bankruptcy Basics

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Common Questions

What does the automatic stay do?

Answer

It temporarily stops most creditors from doing anything to try to collect their debts, meaning no more lawsuits, collection calls or threatening letters. It also stops any efforts to garnish wages. It happens automatically when either a Chapter 7 or Chapter 13 petition is filed.

Though it is in effect as soon as you file for bankruptcy, your creditors may not know about it immediately. The court will send out a notice to your creditors that you have filed. If, in the meantime, a creditor contacts you, tell them that you have filed for bankruptcy and to contact your attorney. You do not need to talk to them or answer their letters at this point and your attorney will probably advise you not to.

Will filing for bankruptcy keep my car from being repossessed or my beach house foreclosed upon?

In many cases, it can stop any repossessions, at least in the short-term, because the automatic stay prevents creditors from moving to recover the assets used to secure a loan.  
What does the trustee do?

Answer

In Chapter 7, the trustee oversees the liquidation of the assets and the payment of the creditors. He or she will preside over the creditors’ meeting and determine if there are any assets that are eligible to be sold. Certain assets are exempt.

In Chapter 13, the trustee receives the payments you make under the payment plan and pays your creditors. The trustee also presides over the Chapter 13 creditors’ meeting.

The court will appoint an impartial trustee in either type of bankruptcy case.
What happens at the creditors’ meeting?

Answer

This depends somewhat on the type of bankruptcy case but it’s required in both Chapter 7 and Chapter 13 and gives the trustee and the creditors a chance to ask you questions about your assets and your ability to pay your debts.

Generally, the creditors’ meeting is scheduled for between four and six weeks after you have filed for bankruptcy. Unless there is something unusual about your case, this will mostly likely be a brief meeting. Often, the creditors don’t even attend, though some credit card companies routinely send representatives. If no creditors attend, the trustee will most likely just ask you a few standard questions.

In a Chapter 7 case, this is often the last step in a bankruptcy before you receive a discharge notice. The notice will generally come about six weeks after the creditors’ meeting.

In a Chapter 13 case, you and your attorney will work out a payment plan before the creditors’ meeting.  
Can my creditors oppose my bankruptcy?

Answer

Yes. Creditors can request what’s called an adversary proceeding in an effort to get certain debts removed from the bankruptcy case. They have a fixed amount of time to request this proceeding. Creditors don’t do this as a general rule, but often will in cases involving alleged fraud.

For example, if the debt is to pay back money that was stolen, the creditor may demand an adversary proceeding. If any of your creditors ask for an adversary proceeding, the case will go into litigation and can take months or years to resolve. Any debts caught up in an adversary proceeding can’t be discharged until the litigation is concluded.

The debts to creditors who don’t request an adversary proceeding can be included in the bankruptcy and discharged as part of it.
What happens at the confirmation hearing?

Answer

This the hearing in a Chapter 13 case in which the judge reviews and approves the payment plan. It is usually scheduled about a month after the creditors’ meeting. After the plan is confirmed, the trustee will begin paying the creditors and you must begin making the agreed-upon payments to the trustee.
What does it mean if my debts are discharged?

Answer

Discharge is the conclusion of a bankruptcy case. Discharged debts are cleared from the debtor’s obligations – he or she is no longer responsible to pay them. After a debt has been discharged, the creditor can’t continue to try to collect the money. A discharge permanently stops all phone calls, letters, lawsuits and any other effort to collect a debt.

For secured loans, the debtor still may have the right to claim the property or asset that was used as collateral for the loan – for example, the holder of a boat loan may still repossess the boat if the loan is in arrears.  
How long will it take to conclude my case?

Answer

A bankruptcy concludes when the discharge order is issued. The timing depends on the type of case and the complexity of it. In a typical Chapter 7 case, discharge generally happens in about four months.

There are legal requirements that force the debtor to wait a certain period of time to allow the creditors the opportunity to object to the bankruptcy filing. Once this time has elapsed and all other requirements are met, the court can discharge the debts. 

A Chapter 13 case will necessarily take longer. In that type of case, the debts are discharged only after the debtor has paid all of them according to the plan.

Unlike most types of litigation, bankruptcy cases generally move more quickly in major urban areas, and more slowly in rural areas.  

What happens after a bankruptcy?

Will all my friends find out I filed for bankruptcy?

Answer

Like most other court records, bankruptcy files are public record. However, they’re not easy for the average person to look up. Do you really think your friends are checking up on you like that? Local newspapers rarely list bankruptcies anymore. Most likely, the only people who will know are your creditors and the people you tell.  
Will I lose everything I own?

Answer

No. Laws vary from state to state, but bankruptcy is generally designed to help you keep your important possessions, like your home. Outside of bankruptcy, your creditors could force you to sell your possessions. It’s called bankruptcy protection because it allows you to protect certain things from your creditors. You will need to continue paying any loan on your home, however.  
Will a bankruptcy on my record prevent me from ever buying a home or car again?

Answer

No. After bankruptcy, you will be able to take out a loan for a home or car again, if you can afford one. There are even credit card companies that may offer you credit while you are in bankruptcy.  
Will bankruptcy ruin my credit forever?

Answer

No. It will affect your credit for several years to come. A bankruptcy stays on your credit record from seven to ten years. However, some lenders view people who have recently been in bankruptcy as better credit risks because they don’t have any debts and because they won’t be able to file for bankruptcy again in the near future. Lenders may insist on secured debt for someone who has been in bankruptcy, but there is credit out there for people who have declared bankruptcy.  
Can filing for bankruptcy keep me out of foreclosure?

Answer

That depends on your specific circumstances, but a Chapter 13 bankruptcy can often be used to restructure mortgage payments.
Can I pay a debt, even after it was discharged in bankruptcy court?

Answer

Yes, and some people opt to do this. Usually, they do so in cases where they feel morally obligated to pay the debt, or because not doing so would cause family problems with say an in-law who tried to help the debtor out in a time of need. Some debtors also do this to protect their reputation in the community.  
Can I get fired for filing for bankruptcy?

Answer

No. Federal law prohibits an employer from firing someone for filing for bankruptcy. Your employer, whether public or private, is also prohibited from discriminating against you because of your bankruptcy case, because you are in debt or because you did not fully pay your debts before they were discharged. Additionally, the government isn’t allowed to discriminate against you when it comes to hiring or the granting or renewing of things like licenses or franchises.  

Introduction

An individual, partnership or corporation can file for Chapter 7 bankruptcy. Chapter 13 is only for individuals and is restricted to individuals who have less than a certain amount unsecured debts – currently $290,525 – and less than a certain amount of secured debts – currently $871,550. Congress may change these limits. It’s important to talk to a qualified attorney to know if you are eligible for bankruptcy and which chapter best fits your needs.

Need more help?

An individual, partnership or corporation is prohibited from filing for bankruptcy under either chapter if a previous bankruptcy petition was dismissed within the past 180 days for certain reasons, including because the petitioner failed to show up for required court hearings or violated court orders. Similarly, if the debtor dismissed a previous bankruptcy petition within the past 180 days because creditors had filed paperwork trying to recover secured property, a new bankruptcy petition is prohibited.
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