FAQsBankruptcy is (primarily) federal law. Only the exemptions, how you keep your property, are state law. "Chapter" refers to the sections of Title 11 of the U.S. Code that governs the procedure followed in each bankruptcy. The Department of Justice is responsible for overseeing all bankruptcies.
- In a bankruptcy, what does Chapter mean? How does it apply to me?
- What is a Chapter 13 and how does it work?
- What is a Chapter 7? I have heard it is impossible to get a chapter 7 now.
- Is there any debt that does not qualify for a discharge in bankruptcy?
- What/Who is a trustee?
- How long is a bankruptcy on your credit report?
- My friends in another state had to file for bankruptcy and they lost their cars and a lot of their other property. Would that happen to me? What are "exemptions"?
- Doesn't the homestead exemption apply to property taxes?
- What about my 401K and my company pension plan?
- I am afraid that everyone will know and that I will be labeled a deadbeat.
- What does secured mean What does unsecured mean?
- Can I keep my car, the baby's furniture? What is a reaffirmation agreement?
- How do I know it is time to give up and file for bankruptcy?
- Will I ever get credit again? Will I ever be able to own a home?
- I had a credit card with X company, but I am getting collection calls from someone I've never heard of before now. How can they be calling about the card with X company?
- What about those companies that advertise that they will reduce your debt and put you on a payment plan that (supposedly) will pay all of it?
In a bankruptcy, what does Chapter mean? How does it apply to me?
Bankruptcy is (primarily) federal law. Chapter refers to the sections of title 11 of the U.S. Code that govern the procedure followed in each bankruptcy. The Department of Justice is responsible for overseeing all bankruptcies.
There are a number of different chapters; the most common are Chapters 7, 11 and 13. We frequently hear that a major corporation or organization has filed a Chapter 11 in order to reorganize its debt. Chapter 11 is primarily for a businesses or organization; the size of the business is not an issue; it can last for years, or just a couple of months. Personal bankruptcy is governed by Chapters 7 and 13.
What is a Chapter 13 and how does it work?
A Chapter 13 is a personal reorganization. The main reasons for filing a Chapter 13 are that you make too much money to be in a Chapter 7 or you are behind on a house or a car that you want to keep AND you can AFFORD to keep it. In a Chapter 13 you have to pay the trustee a certain amount every month, usually for 5 years (60 months). You will have to pay your unsecured creditors a percentage of what you owe them and the trustee will make the payments on things like your vehicles. Your wages are garnished by court order. Chapter 13s are tough to see through top the end; more than 75% of them fail for any number of reasons.
What is a Chapter 7? I have heard it is impossible to get a chapter 7 now.
If you qualify for a Chapter 7, it is usually over 90 days after the case is filed (as opposed to the 5 years for a Chapter 13). Qualifying is a complicated process and is based entirely on your income and allowed expenses. You may have heard or read about the 'Means Test.' After entering all income and expense information, the bottom line on the means test decides whether you are in a Chapter 13 or 7.
Is there any debt that does not qualify for a discharge in bankruptcy?
YES! This is a partial list of debts that are non-dischargeable:
- Student loans (though Congress may change that);
- Some IRS debt;
- Back child-support or alimony (also called a 'domestic support' obligation);
- Most debt you were ordered to pay in a divorce decree;
- Debts for willful or malicious injury or drunk driving; and
- HOA fees that were assessed after you filed your case.
What/Who is a trustee?
The Department of Justice is responsible for overseeing all bankruptcies. The trustee is the person appointed by the department to protect your creditors. Your attorney protects you.
In a Chapter 7, the trustee's job is to ensure you do not have any money available to pay your creditors.
In a Chapter 13, the trustee's job is to collect the monthly payments and disburse that money to your creditors.
How long is a bankruptcy on your credit report?
Ten years. Most unpaid debt is listed on your credit report for 7 years; but if it is sold, new creditors usually report that they own it which renews that 7 year period.
My friends in another state had to file for bankruptcy and they lost their cars and a lot of their other property. Would that happen to me? What are "exemptions"?
Although bankruptcy law is federal, there is one crucial part of it that is federal/state: the part that determines what property you can keep, called exemptions. Under all state and federal law, you are allowed a certain amount of property that you can keep, or exempt. Your attorney decides which set of exemptions to use for you.
You may have heard that Texas is a debtor friendly state. That is because Texas law allows the use of either federal or state exemptions and our homestead exemption is very generous. As long as you have lived in Texas more than two years, either set of exemptions may be used. Many states allow only state exemptions, and some of those states are very mean when it comes to the property that you can exempt. If your friend was in one of those states, then they may have lost property.
In Texas, most likely you would keep all of your personal belongings, furniture, tools, etc. If you own something that cannot be exempted, for instance you inherited an interest in your grandmother's farm in South Texas and it is worth a lot of money, that is probably not going to be exempt property. If you have non-exempt property, you either give the property to the trustee or pay him/her the value of that property.
Doesn't the homestead exemption apply to property taxes?
Homestead exemption can mean two different things: in terms of your property taxes, it applies to how much you pay in taxes. In terms of a bankruptcy, it means how much of the value of a home can be protected from creditors.
What about my 401K and my company pension plan?
Those are exempt property, whether we use federal or state law. It does not matter how much is in the account.
I am afraid that everyone will know and that I will be labeled a deadbeat.
The popular perception is that people who file for bankruptcy are people who spend large amounts of money on vacations, vehicles, toys, homes, etc. and then find themselves in trouble. The sad fact is that the large majority of people are barely hanging on from week to week. All it takes is one thing: a medical problem; divorce; job loss...
- The number one reason people come to see me is job loss, a serious reduction in hours/income, or underemployment. (If you are 50+ and lose your job, the outlook is terribly bleak.)
- The second reason is medical: someone got sick or had an accident and the hospital bills are unimaginable; someone has to quit a job to stay home with an aging or ill family member; or a variety of other medically related reasons.
- The third reason is divorce.
What does secured mean What does unsecured mean?
Generally, secured debt is something that a creditor can point to and say: I gave you the money to buy that, therefore it belongs to me until you have paid for it. The thing you bought with the money is called collateral. Secured debt is a car, a house, furniture, a boat, etc.
Unsecured debt is debt on a credit card, a signature loan with no collateral, etc. Despite their claims that they have collateral interest in the TV, tools or home furnishings you listed on a loan application at one of those pay-day loan places, they really do not have a collateral interest in your things; in my experience it is not true secured debt, none of them have ever been able to come and get the things listed in their loan agreement.
Can I keep my car, the baby's furniture? What is a reaffirmation agreement?
In a Chapter 13, the trustee will pay all of your secured debt, except the mortgage, debt over the course of your bankruptcy.
In a Chapter 7, a creditor will send your attorney a reaffirmation agreement. You sign it, the creditor signs it, and it must be filed with the bankruptcy court before the case is discharged. Basically, a reaffirmation agreement says: I WANT to keep the item (car, furniture); I WILL make the rest of the payments; I can AFFORD to make the rest of the payments.
A reaffirmation agreement means the debt survives the bankruptcy. If you default on payments after the case is discharged, you are obligated for the balance owed the creditor.
How do I know it is time to give up and file for bankruptcy?
If you are living on your credit cards because there is no money left after paying the minimum amount due each month, spinning your wheels with no hope of ever seeing the balances paid, then perhaps you should consult a bankruptcy attorney.
If it is not that bad and you think you can survive, I highly recommend that you check out the Dave Ramsey program. (I disagree with his approach on only one point, I think it best to concentrate on paying off the debt with the highest interest rate first.) He has helped millions find their way out of debt. (Interestingly, years ago Mr. Ramsey had to file for bankruptcy; he knows what debt can do to you.)
Will I ever get credit again? Will I ever be able to own a home?
It will be tough for a couple of years. It will be very hard to rent an apartment. But, 2 years out of bankruptcy, with a good income, you can qualify for a mortgage. (Some companies will not consider you until 4 years after your discharge. But, usually it is 2 years from the day you file.)
As for credit cards . . . WHY would you do that to yourself again? MAKE yourself save some money every month for the 'emergencies' that you think you need a credit card to cover. It will be tough to reestablish credit without a credit card; therefore, I suggest that you ONLY get a card that you put X amount of money into and you can charge up to that limit. That will help you to reestablish credit.
I had a credit card with X company, but I am getting collection calls from someone I've never heard of before now. How can they be calling about the card with X company?
Creditors sell their debt constantly; you would think it was all in a giant blender it changes hands so frequently. It is a credit food chain: a major company gives you credit; when they cannot collect they sell it to a debt collection company. After several years of trying to collect, they in turn sell it to another company, and then another. . . Your debt can change hands so quickly you cannot keep track of it.
What about those companies that advertise that they will reduce your debt and put you on a payment plan that (supposedly) will pay all of it?
Some of them are good, legitimate companies; some are not. Most are owned by the big credit card companies. If this would work for you, then I advise looking for a non-profit AND check out their reputation. How? Just google the company and look for positive and negative comments.