Commonly Asked Bankruptcy Questions

Below you will find answers to some of the most commonly asked bankruptcy questions.
  Please understand that these answers are general in nature and are not specific to your case.
Always consult your attorney for specific direction regarding your case.
 
  1. What is Chapter 7?
  2. What are the requirements to file Chapter 7?
  3. Can I keep my home in Chapter 7?
  4. What if my Chapter 7 fails?
  5. What is Chapter 13?
  6. What is the difference between Chapter 13 and Chapter 7?
  7. What are the requirements to file Chapter 13?
  8. When do I start making Chapter 13 payments?
  9. Can I wait for the automatic deduction for the bankruptcy to hit my check?
  10. My bankruptcy petition was filed, but my case has not been confirmed – do I have to make payments?
  11. Will my Chapter 13 payment ever go up?
  12. Can I lower my Chapter 13 payment during a case if I feel it is too restrictive?
  13. Can I keep my home in Chapter 13?
  14. Can I keep a leased car in my Chapter 13?
  15. My bankruptcy petition was filed, but my case has not yet been Confirmed by the Court – Am I   in an active bankruptcy case?
  16. What will happen to my tax refund during my Chapter 13?
  17. What happens to my 401(k) loan during my Chapter 13?
  18. What if I get behind on my Chapter 13 plan payments?
  19. What if I get behind on my mortgage payments during a Chapter 13?
  20. What if I change jobs during my Chapter 13 bankruptcy?
  21. What if I get an additional job during my Chapter 13 bankruptcy?
  22. What if I lose my job during my Chapter 13?
  23. What if I get divorced during my Chapter 13?
  24. What if my Chapter 13 fails?
  25. What is Chapter 11?
  26. What is a Trustee?
  27. How long do I have to be in bankruptcy?
  28. Do I have to go to court?
  29. What is credit counseling?
  30. Can I leave certain debts out of my bankruptcy if I want?
  31. What if I accidently left an old bill (one that occurred before I filed) out of my case…can I add it?
  32. I am an authorized user on someone else’s credit card – do I have to include that debt?
  33. What if I have unexpected expenses during my bankruptcy – can I add those bills?
  34. Do I have to include property or assets that I own jointly with someone else?
  35. Can I file bankruptcy by myself if I’m married?
  36. If I do so, will my spouse have a bankruptcy on his/her credit report?
  37. How does a bankruptcy affect a person that co-signed for my debts if that person did not file with me?
  38. Can collectors still call me during a bankruptcy?
  39. What happens to all the collectors that were bothering me before I filed?
  40. I haven’t filed my taxes in a few years – can I still file bankruptcy?
  41. Do I file taxes during my bankruptcy?
  42. Can bankruptcy wipe out my tax debt?
  43. What if I get a tax refund, bonus from work, or inheritance in the mail during my case…is it o.k. to spend it?
  44. My income is “under-the-table”…do I have to report it to the Court?
  45. If I do, will the IRS take action against me?
  46. How will a bankruptcy affect my credit report?
  47. Will I be able to use credit after my bankruptcy is finished?
  48. Can bankruptcy protect me from getting sued?
  49. Can I be sued during my bankruptcy?
  50. Can I sue someone else during my bankruptcy?
  51. Can bankruptcy stop a garnishment?
  52. Can bankruptcy wipe out my student loan debt?
  53. Can I get new student loans during a bankruptcy?
  54. Can bankruptcy wipe out my child support or alimony debt?
  55. Can bankruptcy alter the terms of my mortgage? (fix my interest rate or lower my payments?)
  56. Can I buy a new home during a bankruptcy?
  57. Can I refinance my mortgage during a bankruptcy?
  58. Can I sell a home during a bankruptcy?
  59. Can bankruptcy alter the terms of my car note?
  60. Can I buy a new car during a bankruptcy?
  61. What if my car is wrecked during a bankruptcy?
  62. If I wreck my car and the insurance company sends me a payoff, is it o.k. if I spend it?
  63. Can I sell a car during a bankruptcy?
  64. Can I give my home or car away during a bankruptcy?
  65. Can I give property back to the lender in a bankruptcy?
  66. If I surrender property in a bankruptcy, can I change my mind?
  67. How long do I have to move out of my home if it is surrendered or lost during my case?
  68. How long do I have to clear out my car if I surrender it during a bankruptcy?
  69. What if I get an inheritance during a bankruptcy?
  70. What if I get a bonus from work during a bankruptcy?
  71. What if I win the lottery during a bankruptcy?
  72. What happens to my 401(k) / IRA / Pension during a bankruptcy?
  73. Can I cash out my 401(k) during a bankruptcy?
  74. If my case fails, how quickly can I re-file?
  75. What is the difference between a discharge and a dismissal?
  76. What happens to my debt after the bankruptcy is over?

 

QUESTION #1: What is a Chapter 7?
ANSWER:  Chapter 7 is what most people think of when they hear the word “bankruptcy.” Chapter 7 is designed to help people who have simply become overwhelmed by debt by giving them a quick fresh start. Chapter 7 (in brief) allows you to inform the Court of your assets, liabilities and debts, and (if you meet the criteria for filing a Chapter 7) all debts you no longer wish to repay are simply wiped-out.


QUESTION #2: What are the requirements to file Chapter 7?
ANSWER:  You must be eighteen years old and a legal resident of the U.S. You must have a certificate from a federally approved credit counseling agency. There are no debt limits in Chapter 7.  You cannot file Chapter 7 if you have successfully completed a prior Chapter 7 within the past eight (8) years.


QUESTION #3: Can I keep my home in Chapter 7?
ANSWER:  Possibly. Remember that Chapter 7 is not designed to stop a foreclosure and provides no guarantees like you might find in Chapter 13. In Chapter 7, you may ask to keep a home and continue making mortgage payments following the case – BUT- it is always the mortgage company’s decision.  Despite what you wish to do (keep the home or give it back), the mortgage company can veto your request and take the home. Make no mistake – people routinely file Chapter 7 under the appropriate circumstances and successfully reaffirm their mortgage debt and keep their homes.  Consider the following scenarios to determine the likelihood that you will be able to keep a home in a Chapter 7:

  • Has your home already been sold at a foreclosure auction?  If so, then no chapter of bankruptcy will be able to get your home back. It is too late.
  • Is your home scheduled for sale at a future foreclosure auction?  If so, then it is extremely unlikely that your mortgage company would allow you to keep your home. If your mortgage company has already gone to the trouble and expense of starting formal foreclosure proceedings, then they are not likely to give you another chance to catch-up.  You should strongly consider Chapter 13.
  • Are you barely behind on your mortgage (no foreclosure is scheduled yet)? If so, then there is an even chance your mortgage company will let you keep your home. To maximize this chance, you MUST catch your mortgage up before filing the case. 
  • Do you owe less than your home is worth (meaning you have equity in the home)?  If so, then you cannot keep your home in Chapter 7.  The Court has the power to sell any asset that contains equity and use the proceeds to pay back a portion of your creditors. 
  • Are you current on your mortgage?  If so, then it is extremely likely that your mortgage company will allow you to keep your home.  Again – very likely, but not absolutely guaranteed. Contact your mortgage company before filing and ask if they will allow you to keep the home.  Although they may not be bound (legally) to what they tell you over the phone, it is a very strong indicator of how they will react to your case. 

QUESTION #4: What if my Chapter 7 fails?
ANSWER:  If your case fails, then none of your debt is wiped out by the Court.  Contact your attorney to discuss the potential and practicality of re-filing the case.


QUESTION #5:  What is a Chapter 13?
ANSWER:  Think of Chapter 13 as a debt consolidation / repayment plan. It is designed to help people save a home from foreclosure or a car from repossession.  Chapter 13 (in brief) establishes a monthly payment-plan that will catch up your mortgage and/or pay off your car note. Chapter 13 also prevents your creditors from taking any action against you while you complete the payment plan.   At the end of the case, after having completed the payment-plan successfully, your mortgage will be current and your car paid-in-full.  Chapter 13 may also wipe out all or a portion of your unsecured debt (depending upon your income and other factors).


QUESTION #6:  What is the difference between Chapter 13 and Chapter 7?
ANSWER:  Chapter 13 is designed to help you stop a foreclosure or repossession (so that you can keep your house and car) and Chapter 7 is not.  Chapter 13 gives you the added benefit of stopping a foreclosure and repossession in return for additional responsibility during the case – namely you must be able to service the monthly payment plan established by Chapter 13 and you must commit to the case for three to five years. Chapter 7 neither provides such a benefit nor requires such responsibility, and is therefore relatively short by comparison.   Chapter 7 cases only last four to six months and do not require monthly payments to the Court.


QUESTION #7:  What are the requirements to file Chapter 13?
ANSWER:  You must be eighteen years old and a legal resident of the U.S.  You must have a certificate from a federally approved credit counseling agency.  Your debt must fall within a certain range.  This range is adjusted periodically.  In general, you cannot have more than approximately $1 million in secured debt (debts for which you have pledged collateral) and you cannot have more than approximately $330,000 in unsecured debt (debts for which you did not pledge collateral…credit cards, medical bills, etc).


QUESTION #8:  When do I start making Chapter 13 payments?
ANSWER:  You begin immediately.  Although it may take several weeks for the payments to be automatically deducted from your check, you must begin sending the portion required from each paycheck to the Court starting with the very first paycheck you receive following the filing of the petition.


QUESTION #9:  Can I wait for the automatic deduction for the bankruptcy to hit my check?
ANSWER:  No.  You are expected to begin making payments starting with the first check you receive after your case is filed. 

  
QUESTION #10:  My bankruptcy petition was filed, but my case has not been confirmed – do I have to make payments?
ANSWER:  Yes, you do.


QUESTION #11: Will my Chapter 13 payment ever go up?
ANSWER:  Possibly.  As I mentioned above, your plan payment is simply the amount of debt you expect to service spread out over a 5-year period.  When your case is filed, your attorney projects your plan payment using his/her best approximation of your debt (examining credit reports and your most recent statements). After the case is filed, your creditors are required to file their accounting of your present debt. If their accounting of your debt is greater than what was reflected on your credit report and statements, then your plan payment will have to increase to mathematically cover the difference. The best method to prevent this type of surprise is to provide your attorney with the most recent statements and figures you can regarding your debt.


QUESTION #12: Can I lower my Chapter 13 payment during a case if I feel it is too restrictive?
ANSWER:  No, your Chapter 13 plan payment is based completely upon the amount of debt you are attempting to service spread over a 5-year period.  It can only mathematically be lowered if (a) some of the debts it was designed to service turned out to be less than anticipated; or (b) you decide to surrender some of the property it was designed to service. Do not let this scare you! You and you are attorney will go over your plan payment long before any final decisions are made, and it will ultimately be up to you if you want to proceed given the plan payment required in your case.


QUESTION #13: Can I keep my home in Chapter 13?
ANSWER:  Generally, yes you can. But the answer really depends on your answer to the following questions:

  • Has your home already been sold at a foreclosure auction?  If so, then no chapter of bankruptcy will be able to get your home back.  It is too late.
  • Is your home scheduled for sale at a future foreclosure auction AND do you owe more than your home is worth?  If so, then Chapter 13 provides a guarantee that you can keep your home as long as you can afford to make both the monthly mortgage payments that come due during the case and the monthly Chapter 13 plan payments (which cover what you owed in late mortgage payments as of the day you filed the case).
  • Is your home scheduled for sale at a future foreclosure auction AND do you owe less than what your home is worth (meaning you have equity in the home)?  If so, then you can have the same guarantee as described in the paragraph directly above – with one extra requirement. If you have equity in a home, then the Court has the power to sell the home, recover the equity (meaning pay off the mortgage and take whatever is left over) and use it to pay off any creditors that stand to be wiped out without payment in your case. To prevent this from happening, your Chapter 13 plan must pay your creditors what they would receive if your home were sold. 
  • Are you barely behind on your mortgage (no foreclosure is scheduled yet) AND do you owe more than your home is worth?  If so, then Chapter 13 provides a guarantee that you can keep your home as long as you can afford to make both the monthly mortgage payments that come due during the case and the monthly Chapter 13 plan payments (which cover what you owed in late mortgage payments as of the day you filed the case).
  • Are you barely behind on your mortgage (no foreclosure is scheduled yet) AND do you owe less than the home is worth (meaning you have equity)?  If so, then you can have the same guarantee as described in the paragraph directly above – with one extra requirement.  If you have equity in a home, then the Court has the power to sell the home, recover the equity (meaning pay off the mortgage and take whatever is left over) and use it to pay off any creditors that stand to be wiped out without payment in your case. To prevent this from happening, your Chapter 13 plan must pay your creditors what they would receive if your home were sold.
  • Are you current on your mortgage AND do you owe more than your home is worth?  If so, then Chapter 13 provides a guarantee that you can keep your home during the case as long as you can afford to make the monthly mortgage payments that come due during the case. 
  • Are you current on your mortgage AND do you owe less than your home is worth (meaning you have equity)  If so, then you can have the same guarantee as described in the paragraph directly above – with one extra requirement.  If you have equity in a home, then the Court has the power to sell the home, recover the equity (meaning pay off the mortgage and take whatever is left over) and use it to pay off any creditors that stand to be wiped out without payment in your case.  To prevent this from happening, your Chapter 13 plan must pay your creditors what they would receive if your home were sold. 
  • Do you own your home outright? If so, then you can keep your home only if you can afford a monthly plan payment that would pay your creditors the same amount they would receive if the Court were to sell your home and use the profits to pay offset their claims.  It is usually not feasible to keep your home in this scenario because the plan payment mathematically required to cover the value of your home is generally too high for most people to afford.

QUESTION #14: Can I keep a leased car in my Chapter 13?
ANSWER:  Generally you can, but a car lease is treated very differently than a car purchase. Keep the following points in mind:

  • There is no guarantee that you can keep a leased car. It is ultimately the Court’s decision.  Generally, if you can show the Court that you can afford to pay the lease with your other obligations (your Chapter 13 plan payment, your mortgage, and your household expenses), then you will be allowed to keep the lease.
  • The balance of the lease does not become part of your Chapter 13 plan payment. You must be able to afford the lease payments on top of your other obligations under the case.
  • Chapter 13 will not be able to reduce the terms of your lease. Usually car leases will end before your 3-to-5-year Chapter 13 completes.  If so, you must return the vehicle as required by the lease. If you wish to lease another vehicle, you must first get permission from the Court. If the new lease is reasonable (not a luxury car) and necessary (required to maintain your employment), and if your budget can support the payments, then the Court will usually grant permission. 

QUESTION #15: My bankruptcy petition was filed, but my case has not yet been Confirmed by the Court – Am I in an active bankruptcy case?
ANSWER:  Yes! You are in an active case the day your petition is filed with the Court.


QUESTION #16: What will happen to my tax refund during my Chapter 13?
ANSWER:  That depends upon the specifics of your case. If your Chapter 13 plan proposes to pay back all of your unsecured debt, then you generally will be allowed to keep your tax refund. If your Chapter 13 plan proposes to wipe out all or a portion of your unsecured debt, then the Court may take your tax refund and make it available to the creditors who will be wiped out at the end of your case.


QUESTION #17: What happens to my 401(k) loan during my Chapter 13?
ANSWER:  You will be allowed to repay the loan just as you were before you filed the case. However, once you finish repaying your loan, you must contribute the amount you were paying on the loan each month to your Chapter 13 plan payment.  For example, if your Chapter 13 plan payment is $300 per month and you are repaying a 401(k) loan each month at $50 per month, then your Chapter 13 plan payment will become $350 per month once your 401(k) loan is complete.


QUESTION #18:  What if I get behind on my Chapter 13 plan payments?
ANSWER:  You MUST complete all payments required under you Chapter 13 plan within 5 years in order to receive your discharge.  If you fall behind, you should first contact your attorney immediately.  Generally you will have to either catch your payments up or increase your monthly Chapter 13 payment to cover the months you missed.  If you miss too many payments then your case will be dismissed.


QUESTION #19:  What if I get behind on my mortgage payments during a Chapter 13?
ANSWER:  Your ability to keep your home during a Chapter 13 depends upon your ability to make both your Chapter 13 plan payments AND all monthly mortgage payments that come due during your case. If you fall behind on your mortgage payments (even though you may be current on your Chapter 13 plan payments), your mortgage company has the right to ask the Court for permission to foreclose on your property. If your mortgage company makes such a request, it can typically be defeated – but only if you can afford to catch up on the mortgage payments you missed.


QUESTION #20: What if I change jobs during my Chapter 13 bankruptcy?
ANSWER:  That is perfectly fine and you do not have to give notice.  However, keep this in mind:  (1) Chapter 13 plan payments are deducted from your paychecks (just like taxes and insurance). If you leave the job that issues the paycheck from which your plan payments are deducted, you must let your attorney know so that they can switch the bankruptcy deduction to your new job. (2) In Chapter 13 you must be able to make your monthly Chapter 13 plan payments, your monthly mortgage payment and your monthly household expenses. Your new job must not hamper your ability to meet these obligations. If it does, your case could be in danger of failure.


QUESTION #21: What if I get an additional job during my Chapter 13 bankruptcy?
ANSWER:  That is perfectly fine.


QUESTION #22: What if I lose my job during my Chapter 13?
ANSWER:  You should contact your attorney immediately. As mentioned above, Chapter 13 depends on monthly payments.  If the loss of your job prevents you from being able to make your Chapter 13 payments or your mortgage payments (if you are keeping a home), then your case will eventually fail if you are not able to replace that income. Your case will not fail immediately – you will have time to find replacement income – but you should be as quick as possible to minimize the strain placed on your case.


QUESTION #23: What if I get divorced during my Chapter 13?
ANSWER:  You should contact your attorney immediately.  Generally, you and your spouse (as a married unit) will still be obligated to pay the Chapter 13 plan payment and the mortgage payment for any home you are keeping.  You are perfectly within your rights to continue the case despite your divorce. Your case will not automatically end just because of the divorce.  However, depending upon the specifics of the divorce, your attorney may suggest one of many options which may alter your case.


QUESTION #24: What if my Chapter 13 fails?
ANSWER:  If your Chapter 13 fails then there are several key points to understand:

  • No debts will be wiped out by the Court
  • You will receive credit for any money paid to creditors through your Chapter 13 plan, but you will be responsible for the balance
  • Any foreclosure, repossession or garnishment stopped by the Chapter 13 may be resumed
  • If your car note was being treated through your Chapter 13 plan, then (as discussed above) it was likely being repaid at reduced terms. Further, the monthly amount your car creditor received varied during the Chapter 13 plan and may be well below your contract payment.  If your case had completed successfully, repayment under those reduced terms would be final.  If your case fails before completion, then your original contract terms snap back into place and you can be held responsible for the difference between what the car creditor received during your Chapter 13 and what it was due under the original contract.

QUESTION #25: What is Chapter 11?
ANSWER:  Chapter 11 is a reorganization plan typically used by businesses and corporate entities. Think of it as a Chapter 13 for a business or corporation. Individuals generally do not use this chapter.


QUESTION #26: What is a Trustee?
ANSWER:  The Trustee is an independent attorney appointed by the Court to administer your case. It is the province of the Trustee to collect your Chapter 13 plan payments, to review the feasibility of your petition and plan, to monitor claims filed by your creditors, and to make recommendations to the Court regarding the stability of your case. Think of the Trustee as the gatekeeper to completing a successful bankruptcy.


QUESTION #27: How long do I have to be in bankruptcy?
ANSWER:  That depends on which chapter you file. The average Chapter 7 case lasts between four and six months.  Chapter 13 cases, by law, must last between three and five years.


QUESTION #28: Do I have to go to court?
ANSWER:  Yes!  In both Chapter 13 and Chapter 7 cases, the Court will automatically schedule a hearing  referred to as a “341 Meeting of Creditors” as soon as the case is filed.  You must attend this hearing to complete your case successfully.  In Chapter 13 cases, the Court will schedule one additional automatic hearing referred to as a “ Confirmation Hearing.”  Again, you must be able to attend this hearing or your case could fail.  In both chapters there may be additional hearings scheduled that arise under special circumstances. If these hearings occur, you must be able to attend.  Your case under either chapter can and will fail if you do not attend the scheduled hearings.


QUESTION #29: What is credit counseling?
ANSWER:  Credit counseling is a requirement added to the bankruptcy code in 2005.  Basically, before anyone may file bankruptcy they must undergo credit counseling with a federally-approved agency and receive a completion certificate.  During the case you must then undergo a second credit counseling course (known as “Financial Management”) and receive a completion certificate. If you do not take the second course before the end of your Chapter 13, or no later than 45 days following your first court date in Chapter 7, your case will fail.


QUESTION #30: Can I leave certain debts out of my bankruptcy if I want?
ANSWER:  No!!!  You are required by law to list all assets, liabilities and debts attached to you.


QUESTION #31: What if I accidently left an old bill (one that occurred before I filed) out of my case…can I add it?
ANSWER:  If your case is still active, then you can. There are usually additional fees required for such an amendment.  If your case has been closed, then it may be too late to add this bill.


QUESTION #32: I am an authorized user on someone else’s credit card – do I have to include that debt?
ANSWER:  If never signed an agreement obligating you to pay balances on that account, then the debt is technically not yours.  However, it is always a good idea to list the credit card company in your petition for notice purposes only (reflecting no balance owed). That way, if you were wrong about your obligation on that account, your bankruptcy will handle the debt.


QUESTION #33: What if I have unexpected expenses during my bankruptcy – can I add those bills?
ANSWER:  That depends upon which chapter of bankruptcy you have filed. If you filed Chapter 7, then you can amend your petition to include debts that arise before your case completes.  If you filed Chapter 13, you cannot include any debts that arise after your petition is filed.


QUESTION #34: Do I have to include property or assets that I own jointly with someone else?
ANSWER:  Yes!!!  You are required to report any ownership you have in property, regardless of whether it is full ownership or partial.


QUESTION #35: Can I file bankruptcy by myself if I’m married?
ANSWER:  Yes.  Many people routinely file this type of case.  Just understand that your spouse will have to report his/her income in your petition because, in the eyes of the Court, you two are a combined household unit.  Rest assured that reporting your spouse’s income does not make them a party to the case.  Also understand that the bankruptcy will only service your portion of any joint debts.  If the two of you are jointly obligated on the mortgage to a home you want to surrender, then the bankruptcy will absolve you of any obligation to pay, but your spouse will still be on the hook.  Similarly, if you are servicing a car under your case at reduced terms, then the case will render the repayment final as far as you are concerned, but will be able to seek the difference between what you paid under the case at reduced terms and what was owed under the original contract from your spouse.


QUESTION #36: If I do so, will my spouse have a bankruptcy on his/her credit report?
ANSWER:  No.  However, If you are both joint debtors on debts you are servicing through your case, then they may be reported as “in bankruptcy” on both your credit report and his – but, again, he will not have a bankruptcy filing on his personal record.


QUESTION #37: How does a bankruptcy affect a person that co-signed for my debts if that person did not file with me?
ANSWER:  Your bankruptcy will not remove their obligation to pay the debt.  If you wipe out a co-signed debt through your case, then your obligation to repay is gone but they will still be on the hook.  If you repay a car at reduced terms under a Chapter 13 plan, then that repayment is final as far as you are concerned, but the co-signor is liable for the difference between what you paid at reduced terms and what was due under the original contract.


QUESTION #38: Can collectors still call me during a bankruptcy?
ANSWER:   No.  They cannot call or write or otherwise contact you.  If they do, contact your attorney immediately.


QUESTION #39: What happens to all the collectors that were bothering me before I filed?
ANSWER:  By law they MUST stop all collection efforts while your case is active.


QUESTON #40: I haven’t filed my taxes in a few years – can I still file bankruptcy?
ANSWER:  Not without first filing your tax returns for the years you missed.  You cannot receive a discharge under either chapter of bankruptcy if you have failed to file previous tax returns.


QUESTION #41: Do I file taxes during my bankruptcy?
ANSWER:  Yes, you do.  In fact, you are required to do so by law.  If you fail to file your taxes during a bankruptcy, your case can be summarily dismissed.


QUESTION #42: Can bankruptcy wipe out my tax debt?
ANSWER:  Almost never.  The saying in bankruptcy is that there are three types of debts a bankruptcy cannot wipe out:  (1) Alimony/child support, (2) student loans and (3) taxes.  If a tax debt meets a very strict set of criteria, then it may be dischargeable – but such circumstances are extremely rare.  Your tax debt can be repaid through a Chapter 13, but not wiped out.  Your tax debt will not keep you from filing a Chapter 7, but it will survive the case.


QUESTION #43: What if I get a tax refund, bonus from work, or inheritance in the mail during my case…is it o.k. to spend it?
ANSWER:  No!!! Always check with your attorney before you spend this kind of money.  If you have not been granted permission by the Court to keep this money, then your case could be in jeopardy if you spend it.


QUESTION #44: My income is “under-the-table”…do I have to report it to the Court?
ANSWER:  Yes – you MUST report all income, of any kind, to the Court.


QUESTION #45: If I do, will the IRS take action against me?
ANSWER:  Possibly. It is impossible to predict what the IRS will do!  Bankruptcies are public filings, and both the IRS and state revenue agencies have access to your petition.  If you have income that may have been under-reported in the past, it is best to correct the error before filing bankruptcy.


QUESTION #46: How will a bankruptcy affect my credit report? ANSWER:  Bankruptcy will negatively affect your credit and will remain on your report for 7 to 10 years.  However, keep in mind that most people that require bankruptcy protection usually have credit scores low enough that the impact from the bankruptcy makes little difference.


QUESTION #47: Will I be able to use credit after my bankruptcy is finished?
ANSWER:  Yes.  A common misconception about bankruptcy is that you cannot use credit after a case is over. On the contrary, you are free to use credit just as you were before you filed the case as soon as the case is completed.  You must simply (1) do so responsibly, and (2) accept the fact that some lenders (not all) may treat you differently because of the bankruptcy. 


QUESTION #48: Can bankruptcy protect me from getting sued? 
ANSWER:  Yes. The filing of either chapter automatically suspends most other legal proceedings. That suit must remain suspended until your bankruptcy concludes, or until the Court allows the suit to resume. If the debt in question is discharged, then the suit will not resume.


QUESTION #49: Can I be sued during my bankruptcy?
ANSWER:  Your creditors cannot sue you to collect on your debt while you have an active bankruptcy case pending.


QUESTION #50: Can I sue someone else during my bankruptcy?
ANSWER:  Generally you can. However, the Court has to approve the hiring of the attorney you use for the suit.  Further, any amount you collect from the suit must go to the Court to be applied to your case. If you have a special need for a portion of the award, you must request permission from the Court to keep that portion.  Remember that the Court will typically only grant permission for you to keep funds necessary for the welfare of you and your dependents (shelter, transportation, health, etc).


QUESTION #51: Can bankruptcy stop a garnishment?
ANSWER:  Yes.  As mentioned above, a bankruptcy will suspend most active legal proceedings – including garnishments.  The garnishment will remain suspended until your bankruptcy concludes, or until the Court allows it to resume.  If the debt in question is discharged, then the garnishment will not resume.  Please understand that there are no guarantees that funds collected before your case is filed can be recovered.


QUESTION #52: Can bankruptcy wipe out my student loan debt?
ANSWER:  No.  The saying in bankruptcy is that there are three types of debts a bankruptcy cannot wipe out:  (1) Alimony/child support, (2) student loans and (3) taxes.  The good news is that student loan debt will not keep you from filing and completing Chapter 13 or Chapter 7, but you must simply understand that your student loans will still be out there after your case is finished.


QUESTION #53: Can I get new student loans during a bankruptcy?
ANSWER:  Even though you will generally be allowed to take out student loans during your case if you qualify, you should consult your attorney before applying.


QUESTION #54: Can bankruptcy wipe out my child support or alimony debt?
ANSWER:  No.  The saying in bankruptcy is that there are three types of debts a bankruptcy cannot wipe out:  (1) Alimony/child support, (2) student loans and (3) taxes. You can pay your alimony/child support arrears back through Chapter 13, but you cannot wipe them out.  Your alimony/child support will not stop you from filing Chapter 7, but it will survive the case.


QUESTION #55: Can bankruptcy alter the terms of my mortgage? (fix my interest rate or lower my payments?)
ANSWER:  No!!!  Neither chapter of bankruptcy can alter the terms of your mortgage contract.  Under Chapter 13 you can force your mortgage company to let you catch up under the terms of your current mortgage – but you cannot change the terms.


QUESTION #56: Can I buy a new home during a bankruptcy?
ANSWER:  Not without Court approval!!!  Remember, the rule of thumb is that you are not allowed to buy, sell, refinance or give away homes or cars during a case.   If you filed Chapter 7, you must simply wait for your case to complete over the next 4 to 6 months.  If you filed Chapter 13, you must request Court approval before buying a home.   It is extremely rare that a Court will approve such a request.


QUESTION #57: Can I refinance my mortgage during a bankruptcy?
ANSWER:  Not without Court approval!!!  Remember, the rule of thumb is that you are not allowed to buy, sell, refinance or give away homes or cars during a case.  In Chapter 7, you must simply wait for your case to complete over the next 4 to 6 months.  In Chapter 13, Courts commonly approve refinances (usually to fix or lower an interest rate) – however, please understand that any money that would come to you through the refinance must go instead to the Court to be applied to your case. 


QUESTION #58: Can I sell a home during a bankruptcy?
ANSWER:  Not without Court approval!!!  The rule of thumb is that you are not allowed to buy, sell, refinance or give away homes or cars during a case.  If you filed Chapter 7, you must simply wait until the case completes in 4 to 6 months.  If you filed Chapter 13, you must request permission from the Court before selling the home.  Generally, the Court will approve the sale – but it will also require you to send the proceeds from the sale to the Court to be applied to your case.   It is generally only a good idea to pursue the sale of a home during the case if the proceeds are enough to pay off the remaining obligations under your Chapter 13 case.


QUESTION #59: Can bankruptcy alter the terms of my car note?
ANSWER:  Depends upon your situation.  If you file Chapter 7, you cannot alter the terms of your note.  If you file Chapter 13, AND if you purchased the car more than 2 and a half years ago, then you can repay the car note through the case at the car’s current market value (not the balance of your note!) and usually at an interest rate just above prime.  If you file Chapter 13 and you purchased the car within the past 2 and a half years, then you must pay the contract balance under your Chapter 13 plan – but you can usually pay a much lower interest rate.  Please understand that you must complete your Chapter 13 case successfully in order for your reduced repayment terms to be final.  If your case fails, then the terms of your original contract snap back into place and you can be held responsible for the difference between the reduced amount paid to the car company during the Chapter 13 and what was due for those months under the original contract.


QUESTION #60: Can I buy a new car during a bankruptcy?
ANSWER:  Not without Court approval!!!  The rule of thumb is that you are not allowed to buy, sell, refinance or give away homes or cars during a case.  If you are in Chapter 7, you must simply wait until the case completes in 4 to 6 months.  If you are in Chapter 13, you must request permission from the Court before buying a car.  Generally, the Court will not approve your request unless the car is “reasonable” (at least 5 model years old and non-luxury) and “necessary.”  A car is only “necessary” in the eyes of the Court if you or your spouse need it for transportation to work.  A car is not “necessary” in the eyes of the Court if you need it so that your son/daughter can have a vehicle to drive.


QUESTION #61: What if my car is wrecked during a bankruptcy?
ANSWER:  If your car is repairable, then you will typically be allowed to file a claim with your insurance company and repair the vehicle (please note that you will need to contact your attorney so that he/she can file the proper paperwork with the Court). If your car is damaged beyond repair, then you must request permission from the Court to purchase a replacement vehicle.  Please understand that the replacement vehicle must be both reasonable and necessary (as described in the paragraph above) before a Court will approve your request. In either scenario, any insurance proceeds the Court does not allow you to use to repair/replace your car must go to the Court to be applied to your case.


QUESTION #62: If I wreck my car and the insurance company sends me a payoff, is it o.k. if I spend it?
ANSWER:  No!!! Always check with your attorney first.  You must obtain permission from the Court before spending this type of payoff.  Failure to do so can jeopardize your case.


QUESTION #63: Can I sell a car during a bankruptcy?
ANSWER:  Not without Court approval!!!  The rule of thumb is that you are not allowed to buy, sell, refinance or give away homes or cars during a case.  If you filed Chapter 7, you must simply wait until the case completes in 4 to 6 months.  If you filed Chapter 13, you must request permission from the Court before selling the car.  Generally, the Court will approve the sale – but it will also require you to send the proceeds from the sale to Court to be applied to your case.   It is almost never a good idea to attempt to sell a car during bankruptcy.


QUESTION #64: Can I give my home or car away during a bankruptcy?
ANSWER: Not without Court approval!!! The rule of thumb is that you are not allowed to buy, sell, refinance or give away homes or cars during a case. The Court has the power to use any of your assets that contain equity (meaning that you owe less than they are worth and would make a profit if they were sold) for the benefit of your creditors.  If you give away any without Court approval then you are directly violating bankruptcy law and your case may fail.


QUESTION #65:  Can I give property back to the lender in a bankruptcy?
ANSWER: Yes. You may surrender, or give back, any property you are financing in either chapter of bankruptcy.  If you choose to surrender property, your bankruptcy will manage and (in most cases) wipe out the debt attached to that property.


QUESTION #66:  If I surrender property in a bankruptcy, can I change my mind?
ANSWER: The answer depends upon the chapter of bankruptcy you filed and how far it has progressed. Consider the following scenarios:

  • You filed Chapter 7 and announced your intent to surrender a home – can you change your mind?   You can, but remember that you can only request to keep a home or car in Chapter 7.  The ultimate decision is in the hands of the creditor despite your request.  So, you could amend your statement of intention to request permission to reaffirm your debt, but that doesn’t change the fact the decision is in the hands of the creditor.
  • You filed Chapter 13, your Chapter 13 plan announces your intent to surrender a home and your case has not been confirmed (an order from the Court that occurs several months after filing formally accepting your case) – can you change your mind?  Yes, under this scenario you can freely amend your Chapter 13 plan to keep the home.  You must be able to afford the revised Chapter 13 plan payment which will include any back mortgage payments you owe on the home in question AND you must be able to afford the mortgage payments that come due during the case.
  • You filed Chapter 13, your Chapter 13 plan announces your intent to surrender a home and your case has already been confirmed – can you change your mind? No.  After the Court enters an order confirming your plan (which, again, occurs several months after your case is filed), you may not amend your plan to keep surrendered property.  You must speak with the mortgage company outside of your case and attempt to work things out with them.

QUESTION #67:  How long do I have to move out of my home if it is surrendered or lost during my case?
ANSWER: You should make plans to move out as soon as possible. Mortgage companies must follow certain formalities to complete the foreclosure, but there is no guaranteed timetable.


QUESTION #68:  How long do I have to clear out my car if I surrender it during a bankruptcy?
ANSWER: You must remove your personal effects from your car immediately.  Car creditors face far fewer formalities before they can repossess than do mortgage companies.


QUESTION #69:  What if I get an inheritance during a bankruptcy?
ANSWER: You will be required to send it to Court.  If it is enough to pay off your case, then your case will complete and any excess will be returned to you. If it is not enough to pay off your case, then it will be taken and applied to your case. 

  
QUESTION #70:  What if I get a bonus from work during a bankruptcy?
ANSWER: You will generally be required to send it to the Court. If it is enough to pay off your case, then the case will complete and the excess will be sent back to you. If it is not enough to pay off the case, then it will be taken and applied to your case.

 
QUESTION #71:  What if I win the lottery during a bankruptcy?
ANSWER: You will be required to send your winnings to the Court. If they are enough to pay off your case, then your case will complete and any excess will be returned to you. If they are not enough to pay off your case, then they will be taken and applied to your case.

 
QUESTION #72:  What happens to my 401(k) / IRA / Pension during a bankruptcy?
ANSWER: These types of accounts must be reported in your bankruptcy petition but are completely immune from seizure by the Court - as long as you do not attempt to cash them in early.


QUESTION #73:  Can I cash out my 401(k) during a bankruptcy?
ANSWER: Not without Court permission!  If you cash out a 401(k) early, without Court permission, then it is considered income and is subject to seizure by the Court. Courts will generally grant permission only if the cash-out is necessary for the welfare of you or your dependents (shelter, transportation, health, etc).


QUESTION #74:  If my case fails, how quickly can I re-file?
ANSWER: You can theoretically re-file a case as quickly as you want. You must consider (1) what caused my prior case to fail; (2) can I rectify that cause in a new case; and (3) given my circumstances, is a re-filed case practical? Of course, these questions are best discussed and answered with the help of your attorney.


QUESTION #75:  What is the difference between a discharge and a dismissal?
ANSWER: A “discharge” occurs when your bankruptcy completes successfully (i.e. – you have met all requirements). In Chapter 13, the discharge is an order from the Court wiping out and absolving you of all debts you were not required to pay through your Chapter 13 plan (except student loans), and rendering all debts repaid under the plan paid-in-full. In Chapter 7, the discharge is an order from the Court wiping out and absolving you of all debts other than taxes, alimony/child support, student loans and any debt you successfully reaffirmed. On the other hand, a “dismissal” occurs when you fail to complete your bankruptcy successfully. A dismissal  is an order from the court terminating your case without a discharge – meaning no unpaid debt is wiped out or absolved.


QUESTION #76: What happens to my debt after the bankruptcy is over?
ANSWER: That depends on the chapter you filed and whether you finished your case successfully (receiving a discharge) or unsuccessfully (receiving a dismissal). Consider the following scenarios:

  • You filed a Chapter 7 and completed the case successfully. In this event the Court issues a discharge (which is an order wiping out your debt). The only debts that survive this discharge are taxes, alimony/child support, student loans and any debt you successfully reaffirmed. 
  • You filed a Chapter 7 and failed to complete the case successfully. In this event the Court issues a dismissal (which is an order terminating your case with no discharge). All of your debts survive the case.
  • You filed a Chapter 13 and completed the case successfully. In this even the Court issues a discharge wiping out all debt you were not required to repay through your Chapter 13 plan. All debts you paid through your plan (your house note and your car note) survive the case either paid-in-full or current.  Any delinquent tax or alimony/child support debt will have been paid though your Chapter 13 plan and you will be current. Any student loan debt you may have will survive the case.
  • You filed a Chapter 13 and failed to complete the case successfully. In this event the Court issues a dismissal of your case with no discharge.  Your creditors will give you credit for all amounts paid through your Chapter 13 plan, but you will be responsible for the balance. A specific danger here is your car note.  As mentioned above, Chapter 13 usually repays car notes at reduced terms. If the case completes successfully, then that repayment is final. However, if the case terminates prematurely then the contract terms snap back into force and you will be responsible for the difference between what the creditor received under the Chapter 13 plan (at reduced terms) and what the creditor was entitled to receive under the original contract.

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