What Should I expect when I file for Bankruptcy?
How will the 2005 changes in the Bankruptcy Laws Affect Me?
There are many ways in which the new bankruptcy laws will affect certain debtors:
- A financial means test is now required which may preclude certain debtors from filing a liquidation bankruptcy under Chapter 7;
- Debtors must now receive a briefing from an approved credit counseling agency as a pre-requisite to filing bankruptcy;
- Debtors must take an approved class on debt management techniques before they receive their bankruptcy discharge;
- A provision now makes it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
- A provision now permits a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.
How do Bankruptcy Attorneys Solve Credit Problems?
Bankruptcy attorneys handle all aspects of bankruptcy law and provide legal methods for an individual or commercial enterprise/business to either wipe out debts by liquidating assets and distributing them to creditors or resolve them by developing a court-approved reorganization plan, or other plan involving the repayment of creditors over time.
Bankruptcy lawyers explain the primary purposes and applications of bankruptcy laws and how they function to relieve individuals and businesses from indebtedness and provide debtors a fresh financial start. Title 11 of the United States Code (the bankruptcy code) regulates the bankruptcy proceedings, including the chapter under which a debtor may file, what bills can be eliminated, how long payments may be extended, what possessions can be kept, and all other details concerning the bankruptcy.
Do I have to list all my debts?
Yes, you must list all of your debts on your bankruptcy schedules, even debts that are non-dischargeable or secured.
However, you can choose to reaffirm any debt you choose after the filing.
Thus listing a creditor does not bar you from paying creditors you wish to pay after bankruptcy.
Can I retain a credit card?
Theoretically, if you possess a credit card with no balance, you can omit that respective credit card company from your schedules in order to retain the use of the card. However, such omission does not assure continued access to the card. Most major credit card issuers use a national data base to determine who has filed bankruptcy, independently of the court’s notice to them of bankruptcy filings. They routinely cancel cards of everyone who has filed bankruptcy, whether or not a balance is owed.
You cannot assure that your creditors will not find out about your bankruptcy. Further, omitting a debt (if such debt exists) constitutes perjury, which could result in your discharge being denied.
Does my spouse have to file bankruptcy with me?
No, you may file without your spouse. The effect on your spouse and any debts you have jointly will vary depending on marital property law.
If you and your spouse are jointly liable to a creditor, the bankruptcy of one spouse does not relieve the other of paying the debt. Upon a bankruptcy of one spouse, the creditor may look to the other spouse for payment, unless the bankruptcy case is under Chapter 13. If the debt is a consumer debt to be paid 100% through the Chapter 13 plan, the non-debtor spouse is protected by the co-debtor stay in §1301.
Generally, in New York State, marriage alone does not make both spouses personally liable for a debt. Liability on contracts such as home loans and credit cards arises by agreement between the creditor and the debtor. Only persons who signed the loan or credit application are liable for the debt.
If you have joint debts, you can expect the bankruptcy to be noted in some way on the credit record of the non-filing spouse. There is uncertainty in the law at the moment as to whether it is proper to mention the bankruptcy of one debtor on the credit report of a debtor who is not in bankruptcy.
If you and your spouse own property together, a bankruptcy filing may put the property at risk of being sold to pay creditors.
Will bankruptcy stop wage garnishments?
Yes. Once your case is filed, creditors are no longer entitled to garnish your wages for debts that existed at the beginning of the case. The only exception may be for on-going child or family support ordered by a court.
Are there debts that I cannot discharge?
Yes. The scope of the discharge varies in each chapter : In Chapter 7, debts incurred by fraud, intentionally harmful actions, dishonesty, as well as priority taxes, unfiled taxes, family support and certain debts to a former spouse, student loans, criminal fines and restitution cannot be discharged.
In Chapter 13, you can discharge non-support debts to a former spouse, government fines, and some intentional torts that cannot be discharged in Chapter 7.
Will I be allowed to file bankruptcy if my income is high?
Bankruptcy now includes a “means test” which is intended to provide a more objective approach to the issue of a debtor’s ability to pay. Prior to the 2005 amendments, the trustee could ask the judge to dismiss a case because the debtor’s income was so high that to permit the debtor to discharge his/her debts in Chapter 7 was a “substantial abuse” of the bankruptcy system. Now, the means tests purport to provide uniformity to the process and lower the standard to simple “abuse.” S 707(b)(2).
The means test calculation is found in Form B 22, now a part of every debtor’s Chapter 7 filing. The United States Trustee or the Chapter 7 trustee can seek to have a debtor’s case dismissed for “abuse” if the debtor’s income, including that of a non-filing spouse, is sufficient to repay a significant portion of the scheduled debts. 11 U.S.C. 707(b). The real expectation is that debtors who are challenged in this way will convert their case to a Chapter 13.
The law on this subject is not well developed and the attitudes of trustees and judges about what is “abusive” vary from district to district.
This concept does not apply to Chapter 7 debtors whose debts are primarily business debts, tax debt, or to those filing under Chapter 13.
How do I know which Chapter to file?
Choosing which Chapter of bankruptcy is best for you depends on what kind of debts you have, whether you are behind on secured debts, and whether you have the regular income necessary for a Chapter 13. The means test may require some consumers to file Chapter 13 for the sole reason of apparent ability to pay a portion of their debts.
Does a previous bankruptcy prevent me from filing?
It depends on:
- What chapter you want to file now?
- What chapter you filed before?
- Whether you received a discharge in the earlier case.
You can only receive a Chapter 7 discharge if a previous Chapter 7 case was filed more than 8 years ago. This is a change from the previous period of 7 years.
You can freely convert a pending case from one chapter to another. It is the same case, even though the chapter is different, so these time considerations do not apply. Generally, you can only convert a Chapter 7 to a Chapter 13 before the discharge is entered.
Will I lose my retirement savings?
No. Most forms of retirement savings are unaffected by a bankruptcy filing, either because they are not property of the estate or because they may be claimed exempt from the claims of creditors. The 2005 amendments to the Bankruptcy Code expanded the protection for retirement assets.
ERISA plans excluded from estate:
The Supreme Court has held that an employee’s interest in pension plans that are qualified under ERISA (the Employee Retirement Income Security Act which contains the governing law on pensions) are not property of the estate: the debtor does not even have to claim them as exempt in bankruptcy. If an asset is not property of the estate, the trustee cannot cash it in for the benefit of creditors.
Exemptions protect retirement savings that are property of the estate. Retirement savings that are property of the estate, such as some Keogh plans and IRAs, can be claimed as exempt up to a million dollars.
Can I get credit after bankruptcy?
Filing bankruptcy does not prevent you from getting new credit. An entire class of lenders targets the recently bankrupt as customers!
Immediately after a bankruptcy filing, you can expect credit to be more difficult to get, more expensive, and limited in amount.
After a bankruptcy discharge, some debtors may be eligible for mortgage loans on terms just as good as those with the same financial characteristics who have not filed bankruptcy. That is, in getting a home loan after a bankruptcy, the size of your down payment and the stability of your income will be much more important than the fact that you filed bankruptcy in the past.
There is no “right” to credit. Landlords and credit card companies are well within their rights to consider your financial history in their credit decision. However, debtors are protected from discrimination in government employment and governmental licensing based solely on the fact that they have filed bankruptcy by provisions of the Bankruptcy Code § 525.
While the fact that you filed bankruptcy stays on your credit report for 10 years, it becomes less significant the more time elapses. In fact, you are probably a better credit risk after bankruptcy than before.
Is the IRS affected by my bankruptcy filing?
The IRS must cease collection actions after a bankruptcy is filed, just like all other creditors. The automatic stay protects the debtor and the debtor’s property.
Whether the tax claim will survive the bankruptcy, (that is, whether it is non-dischargeable) depends on many variables.