Answers to Commonly Asked Questions about Bankruptcy

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  • Following are the answers to some of the bankruptcy questions that our attorneys get frequently asked.

    How do Chapter 7 and Chapter 13 bankruptcy affect a loan/credit co-signer?

    Loan/credit cosigners are affected differently, depending on which chapter of the U.S. bankruptcy code you file under.

    Under Chapter 7 bankruptcy, certain debts are completely discharged, meaning that the filers do not have to pay them. The cosigner, however, is left with the responsibility of repayment, as they have signed their name to a loan guaranteeing repayment, taking major responsibility for the loan when doing so.

    Under Chapter 13 bankruptcy, your debts are rearranged and the filer makes regular payments under a repayment plan. As long as the filer follows the plan, the cosigner is protected by a “co-debtor stay”. However, if before you file for bankruptcy, you have any late or missed payments on a loan in which you have a cosigner, it may hurt your cosigner’s credit, as well as your own. Also, cosigners for business loans, rather than personal loans, are generally not protected in bankruptcy.

    Is the debt from medical bills also discharged in a Chapter 7 Bankruptcy?

    Medical bills debt are treated as non-priority unsecured debts within your Chapter 7 bankruptcy. This means that your medical debts will not have priority if your trustee is able to make payments to your creditors. In case a portion of your medical debt is paid off within your bankruptcy, the rest will be eliminated when you receive your discharge. Further, there are no limitations on how much medical debt you are able to discharge within a Chapter 7 bankruptcy; however you must still qualify for Chapter 7 bankruptcy.

    To conclude, bankruptcy could be, potentially, the solution that you have been searching for, as it can allow you to focus on you or your loved one healing, rather than focusing on your overwhelming medical bills and repaying your debts.

    Can I file bankruptcy on my own, or do I need to have a lawyer to file?

    You do not need a lawyer to file for bankruptcy. You can research the process yourself, complete and file the forms, and appear in court on your own.

    However, bankruptcy law is complex and it is, therefore, strongly recommended that any individual, partnership or corporation considering filing for bankruptcy, first obtain the advice of a competent bankruptcy attorney.

    For more information, read Filing Bankruptcy on My Own article.

    Are there alternatives to filing for bankruptcy?

    There are alternatives to filing for Bankruptcy; however, these alternatives are typically less appealing. There are many pitfalls to debt consolidation and debt settlement. Bankruptcy is most often the best solution to your financial well being today and into the future. It may be best to contact an experienced bankruptcy practitioner and discuss your situation in detail in order to make an educated decision.

    How is my property affected by filing bankruptcy?

    Property is typically protected under the bankruptcy laws with the appropriate bankruptcy plan. An experienced bankruptcy attorney can help you to understand the laws and protect your property while eliminating your debts and providing you the necessary relief you seek. There are exemptions that are built into the laws that protect your property from your creditors. For a list of exemptions by State, please visit this link.

    Is my house safe if I file?

    Your home can be protected in full or up to a certain value of equity. There are exemptions that protect equity in real estate. A bankruptcy attorney would best be able to explain the exemptions and the formula utilized to protect your real estate. However, under almost ALL circumstances, your residence will be protected.

    What about my car? Can I protect it in bankruptcy?

    Your automobile will also be protected up to a certain amount of equity. In almost all cases your automobile will be safe if you qualify for a Chapter 7 or Chapter 13 bankruptcy filing. If necessary, an experienced bankruptcy attorney will likely be able to help guide you through the process and plan to protect all of your property.

    What debts are included in bankruptcy?

    This is a tricky question. Many people do not understand the intricacies of bankruptcy and what debts are typically included. Most debts that are eliminated are credit cards, medical bills, utilities, personal loans, and sometime student loans. You may also be able to wipe away a second mortgage or cram down a car. A car cram down would allow you to pay the value of the car rather than the balance owed while also adjusting the interest rate. Your mortgage arrears may also be handled through a Chapter 13 Bankruptcy filing allowing you to save your home. Contact a bankruptcy attorney to learn more about your specific situation.

    Can I discharge my tax obligations?

    Yes and no. It depends on the type of tax obligation (income, sales, use), when the taxes were filed and/or assessed, when the bankruptcy is filed, and whether there is a statutory lien. The typical answer is that taxes that were filed over three years and assessed with no lien placed will be discharged under bankruptcy. It would be best to speak with an attorney to discuss your particular situation.

    What if I transfer my property to family and/or friends?

    This is a big no-no under bankruptcy law. Whether you intended to transfer the property with fraudulent intent will not matter. There are bankruptcy laws that prohibit hiding or concealing property from your creditors. Further, the FBI crimes in bankruptcy matter. Additionally, a Trustee in Bankruptcy will be able to undo any transfers and make the property available for your creditors. As discussed above, most property can be protected with careful bankruptcy planning. As such, you should consult with a bankruptcy lawyer to determine the specifics of your situation.

    What about my divorce obligations, can they be discharged?

    Under most circumstances, divorce obligations will not be discharged under bankruptcy laws. BAPCPA, the Bankruptcy Abuse Prevention and Consumer Protection Act, has made it difficult to discharge divorce obligations. Alimony and child support are specifically enumerated under BAPCPA as non-dischargeable debts.

    Can I stop a wage garnishment?

    Yes, once the bankruptcy is filed, any wage garnishment must cease.

    Can I stop foreclosure procedings?

    Yes! The filing of the bankruptcy will stay or stop foreclosure proceedings. In fact, a bankruptcy could possibly be filed on the eve of a sheriff’s sale. However, your editors do not advise you wait until this time to file the bankruptcy as there are a number of pre-bankruptcy requirements you will need time to accomplish. It is never in your best interest to procrastinate when trying to save property. You should seek legal advice at the outset of any action to determine your rights.

    Can I stop nagging creditor phone calls and correspondence?

    Yes. Once an attorney is retained to represent you, your creditors must cease all contact under the Fair Debt Collections and Practices Act. Further, once the Bankruptcy is filed, your creditors must cease all contact and collection efforts as the bankruptcy stay under 11 USC 362 is in place.

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