The information contained in this page is intended neither as legal advice nor to create an attorney-client relationship. Bankruptcy law is very complicated and you should always consult with an attorney before taking any action.
What happens when I file a Chapter 7 bankruptcy?
You begin Chapter 7 bankruptcy proceedings by filing a “petition” with the bankruptcy court. The individual filing a Chapter 7 is referred to as the “debtor.” The debtor is required to disclose to the court all his or her property and debts and turn over all nonexempt property, if any, to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor then receives a discharge of all dischargeable debts. (You should consult with an experienced attorney to determine the assets you own that are exempt and protected from liquidation.)
What are the most common reasons for a Chapter 7 bankruptcy?
The most common reasons for consumer bankruptcy are unemployment and other employment issues reducing income, large medical expenses, seriously over-extended credit, marital problems and other large unexpected expenses.
Who can file a Chapter 13 bankruptcy petition?
Individuals may file Chapter 13 bankruptcy petitions if they:
(1) reside, have a domicile, a place of business, or property in the United States, or a municipality;
(2) have a source of regular income;
(3) and on the date the petition is filed owe less than $383,185 in non-contingent, liquidated, unsecured debts and less than $1,149,525 in non-contingent, liquidated, secured debts.
Corporations and partnerships may not file a Chapter 13 bankruptcy petition.
If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should check 11 U.S.C. sec. 109(g).
Will the bankruptcy stop bill collectors from calling?
Yes. The automatic stay prevents bill collectors from taking any action to collect debts.
How long after filing will the creditors stop calling?
Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of days. Creditors will also stop calling if you inform them that you filed the bankruptcy petition and supply them with the “docket number” for your case. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a law suit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy, they may be liable for court sanctions and attorney fees for this conduct.
Who notifies the creditors and bill collectors?
After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedules. This usually takes a couple of days.
Are there alternatives to bankruptcy?
Yes. Sometimes payment plans can be negotiated with creditors. Obtaining loan extensions, compromises and workout agreements require negotiation skills and experience. These alternatives may alert your creditors to the existence of nonexempt property that the creditor could reach and can involve considerable expense. You also have the option of doing nothing. In any event, you should seek professional advice in dealing with most of these alternatives to determine the best option for you.
What should I do to prepare for filing bankruptcy?
First, you should consult with an attorney. An attorney can help you plan for the bankruptcy, decide when to file a bankruptcy petition, or even avoid filing for bankruptcy. A few specific items are worth mentioning.
- If you intend to file bankruptcy, you should stop using your credit cards. If you borrow money with the specific intent of discharging the debt in bankruptcy instead of paying it back, the debt is not dischargeable. In addition, three specific circumstances are worth mentioning: (a) certain luxury purchases over $650 within 90 days of the bankruptcy filing are presumed non-dischargeable; (b) cash advances aggregating $925 within 70 days of the bankruptcy filing are presumed non-dischargeable; and (c) debts involving materially false financial statements are non-dischargeable under certain circumstances.
- Don’t transfer your assets to friends, family and business associates to protect the assets from your creditors. The transfer may be considered a fraudulent conveyance. If it is, you may lose both the property and your right to a bankruptcy discharge.
- Don’t destroy any business or financial records. You can lose your right to a bankruptcy discharge as a result.
- Carefully choose the creditors you pay. Some creditors, such as landlords, secured creditors, and some utilities should be paid under most circumstances. If you pay a credit card debt that eventually will be discharged, you may be throwing money away. Your attorney should advise you on what debts should and should not be paid while you prepare to file a bankruptcy petition.