Bankruptcy FAQs: Get The Answers You Need From Trusted Cleveland Lawyers
At Richard Banks & Associates, P.C., we understand you have questions about the bankruptcy process. We’re here to provide clear, direct answers.
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Q: What is a Chapter 7 bankruptcy?
A: A Chapter 7 bankruptcy is a powerful tool for discharging most unsecured debts, such as credit card debt and medical bills. If you have secured debts like a mortgage or car loan, you can either continue making payments or surrender the property. This option is generally for individuals with limited income.
Q: Who can file for Chapter 7 bankruptcy?
A: To be eligible for Chapter 7, you must pass what is known as the “means test.” This test looks at your income and expenses to determine if you have enough income to pay back your debts.
The means test has two parts:
- Your income level: It first compares your household income to the median income in Tennessee for a household of your size. If your income is below the median, you likely qualify.
- Your disposable income: If your income is above the median, the test then looks at your monthly expenses to see if you have enough money left over to make meaningful payments to your creditors.
You also cannot have filed for Chapter 7 bankruptcy within the last eight years or a Chapter 13 bankruptcy within the last six years.
Q: What is a Chapter 13 bankruptcy?
A: Often called a “wage earner” plan, Chapter 13 is a reorganization bankruptcy. You create a three to five-year repayment plan to pay off a portion of your debts. This is an ideal option if you want to keep secured property, like your house or car, and catch up on missed payments.
Q: Who can file for Chapter 13 bankruptcy?
A: Chapter 13 is designed for individuals with regular income who want to keep their property. You can file for Chapter 13 even if you are self-employed or run an unincorporated business.
To qualify, you must have:
- Regular income that is sufficient to make your plan payments
- Secured debts (like mortgages and car loans) under $1,580,125
- Unsecured debts (like credit cards and medical bills) under $526,700
If you are a corporation or a partnership, you are not eligible to file for Chapter 13.
Q: Will I lose my house or car?
A: No, not necessarily. In most cases, you can keep your home and car by filing for bankruptcy. Exemption laws are designed to protect essential property. If you have secured debt on your home or car, you can typically keep the property as long as you continue to make the scheduled payments.
Q: How quickly does the automatic stay stop collections?
A: The automatic stay goes into effect the moment your bankruptcy case is filed. This is a federal injunction that immediately stops all collection activities, including harassing phone calls, collection letters, lawsuits and repossession efforts.
Q: Do I have to appear in court before a judge?
A: For most bankruptcy cases, you will not have to appear before a judge. You will attend a brief §341 Meeting of Creditors, which is a meeting with the bankruptcy trustee and your attorney. This meeting is typically quick and straightforward.
Q: What debts can be discharged?
A: Generally, most unsecured debts can be discharged in bankruptcy. This includes credit card debt, medical bills, personal loans and past due utility bills. Some debts, such as certain taxes, student loans, child support and alimony, are typically not dischargeable.
Q: Can bankruptcy stop wage garnishment?
A: Yes, the automatic stay immediately stops all wage garnishments the moment your case is filed. This is one of the most immediate and significant benefits of filing for bankruptcy.
Q: How long does bankruptcy take?
A: A Chapter 7 bankruptcy case is typically a quick process, lasting about four to six months from filing to discharge. A Chapter 13 case, being a repayment plan, lasts three to five years.
Q: How much does it cost to file for bankruptcy?
A: The cost of bankruptcy varies significantly based on the type of bankruptcy (Chapter 7 versus 13), the complexity of the case and attorney fees. There’s no one-size-fits-all answer on this. To get an accurate, personalized estimate, we suggest you talk to our knowledgeable lawyers. There is no cost for your initial visit, so you have nothing to lose.
Q: Can I keep my retirement accounts?
A: Yes. Most retirement accounts, including 401(k)s, 403(b)s and traditional IRAs, are protected under federal law, allowing you to keep these assets during and after your bankruptcy.
Q: Can taxes be discharged?
A: Some taxes can be discharged, but this depends on several factors, including the type of tax and how old it is. Generally, recent income tax debt is not dischargeable, but older tax debts may be. We can help you determine whether your tax debt qualifies for a discharge.
Q: How long does bankruptcy stay on my credit report?
A: A Chapter 7 bankruptcy stays on your credit report for 10 years, while a Chapter 13 stays for seven years. It’s important to remember that you can begin rebuilding your credit almost immediately after your case is discharged.
Q: What are the most common mistakes people make when filing for bankruptcy?
A: Filing for bankruptcy can provide powerful relief from overwhelming debt, but certain mistakes can complicate the process or delay your discharge. Some of the most common mistakes include failing to list all creditors, hiding assets, repaying family members before filing, making large purchases on credit shortly before filing, and waiting too long to seek help.
Working with an experienced bankruptcy attorney can help you avoid these pitfalls and ensure your case proceeds smoothly.
Q: Do I have to list all of my creditors when I file for bankruptcy?
A: Yes. You are required to list every creditor when filing for bankruptcy, even if you intend to keep paying a particular debt or believe the balance is small.
Failing to include a creditor can create problems in your case and may prevent that debt from being discharged. Providing a complete and accurate list helps ensure your bankruptcy filing is legally compliant and effective.
Q: What happens if I forget to disclose assets in bankruptcy?
A: You must disclose all assets when filing for bankruptcy. This includes bank accounts, vehicles, property, investments, and valuable personal items.
Failing to disclose assets—or attempting to transfer property to someone else to protect it—can be considered bankruptcy fraud. This can result in serious consequences, including fines, dismissal of your case, or other legal penalties.
Full transparency is essential to successfully completing the bankruptcy process.
Q: Can I repay a family member before filing for bankruptcy?
A: Repaying a family member shortly before filing for bankruptcy can create legal complications.
In many cases, the bankruptcy trustee may treat that payment as a “preferential transfer.” If this happens, the trustee may require the family member to return the money so it can be distributed fairly among all creditors.
Before making payments to relatives or friends, it is important to speak with a bankruptcy attorney to understand how the timing of those payments could affect your case.
Q: Can I use my credit cards right before filing for bankruptcy?
A: Using credit cards shortly before filing for bankruptcy can be risky, especially if you make large purchases or cash advances.
Creditors may argue that these charges were made without the intention to repay them. If the court agrees, those debts may not be discharged in your bankruptcy case.
As a general rule, once you begin considering bankruptcy, it is wise to limit or stop using credit cards and seek legal guidance about your next steps.
Q: Is it a mistake to wait too long to file for bankruptcy?
A: Delaying a bankruptcy filing can make your financial situation more difficult. As time passes, interest and penalties may continue to grow, and creditors may pursue collection actions such as lawsuits, wage garnishment, or bank levies.
Filing for bankruptcy can stop many of these actions through the automatic stay, which provides immediate legal protection from most collection efforts.
Seeking advice early can help you preserve more options and reduce financial stress.
Q: How can I avoid problems during the bankruptcy process?
A: The best way to avoid problems when filing for bankruptcy is to seek legal guidance as soon as possible. An experienced attorney can help you prepare accurate financial disclosures, understand your rights, and develop a strategy tailored to your situation.
Taking proactive steps early in the process can help you achieve a smoother path toward financial stability and a fresh start.
Get Answers In A Free Consultation
Ready to learn which chapter is right for you? Talk to our experienced bankruptcy attorneys through a free, confidential discussion. Call us at 423-219-3299 or fill out our online form to schedule your consultation today.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.