Frequently Asked Questions About Bankruptcy

If you or your business is in financial trouble, you might be considering filing for bankruptcy. However, just the thought of doing so can be quite overwhelming, and leave you with many questions as to where to start, what kind of bankruptcy to file for, and what will happen after you file. This article discusses the most frequently asked questions about bankruptcy, and offers brief answers. In many cases, consulting with an Albuquerque bankruptcy lawyer in your area can be of great help if you are strongly contemplating bankruptcy.

What Is Bankruptcy?

Bankruptcy is a court-supervised process which allows individuals or businesses, called “debtors” in the bankruptcy process, who owe more money to lenders/creditors that they can repay, to fashion a plan to pay back the money over a period of time, or to eliminate some of the debts completely. Eliminating a debt in bankruptcy is called “discharging” the debt.

What Is the Difference Between a “Secured” And an “Unsecured” Debt?

A secured debt is a debt that is “secured” by some kind of property, whether it be by agreement between the borrower and the lender, or involuntarily due to a court’s order. The most common example is a car loan or a home mortgage- the loan is “secured” by the lender’s giving property to the borrower, which can be repossessed if the loan is not paid. Generally, a creditor can reclaim secured loan property during bankruptcy, and will most likely re-sell it to pay the borrower’s debt. Conversely, an unsecured debt is one that is not linked to any property, so that during bankruptcy, a creditor has no claim to any property.

Which Chapter of Bankruptcy Should I File Under?

Individuals with consumer debts (like car and home loans) generally file for Chapter 13 bankruptcy in which they repay their creditors, or Chapter 7 bankruptcy in which debts can be dismissed entirely. Both kinds of bankruptcy include details such as:

• Which bills can be wiped out
• How long you have to repay certain debts
• Which property you are allowed to keep
• Any additional relevant information

Which kind of bankruptcy you should file for will depend on your individual circumstances, and whether or not you have available assets sufficient to pay your debts, or at least partially pay your debts. The laws of bankruptcy can be complicated, so deciding if you should file, and under what chapter will require careful deliberation and possibly help from a bankruptcy attorney. See this article for more information about the differences between chapter 7 and chapter 13 bankruptcy.

Once I’ve Filed, Can I Then Switch From One Chapter To Another?

In general, you may convert your bankruptcy case from one chapter to another, provided you are eligible for the chapter you are seeking to convert to. The request to change chapters can be accomplished in a surprisingly easy, short document.  You should be on the lookout for certain pitfalls, however. For example, switching from Chapter 13 to Chapter 7 may be problematic if a portion of your possessions were protected under Chapter 13, but then become available for creditor taking pursuant to the rules of Chapter 7 because that property is not exempt.

Who Is Eligible To File For Bankruptcy?

Almost anyone, with some exceptions, can file for bankruptcy so long as they owe money to creditors and are willing and able to file the necessary paperwork. Businesses may also file for bankruptcy if they satisfy these qualifications. For more information see our articles about chapter 7 bankruptcy qualification and chapter 13 bankruptcy qualification.

How Frequently Can Someone File For Bankruptcy?

Because your ability to get future credit or rent a home can be negatively affected by filing for bankruptcy, and it can even impact your ability to get a job, filing back to back bankruptcy should be heavily debated.  Consider the following:

• Chapter 7 bankruptcy can be filed once during every 8 years, or 6 years after you file for Chapter 13 bankruptcy.
• You can file for Chapter 13 bankruptcy (and still receive a discharge) 4 years after filing for Chapter 7, and 2 years after filing for Chapter 13.

What Information Do I Need to Start the Bankruptcy Filing Process?

First, you should compile a list of any and all of your past and present debts, along with a list of your liabilities and assets. Also, you will need to prepare a statement of your financial affairs, which will be filed with a bankruptcy court at the same time you submit your filing fee. I ask clients to gather the last 6 months of bank statements, the last 6 months of pay advice, the last two years of tax returns, and copies of all their most recent debt statements. Some documents, such as taxes and pay stubs, will have to be forwarded to the trustee overseeing your case so they can verify the accuracy of some of the items listed in your petition.

Do I Need To Have A Specific Amount of Debt Before I Can File?

You need not have a certain amount of unpaid debt to be eligible to file for bankruptcy. However, there are certain situations which might not justify filing for bankruptcy. For example, if your financial distress is only temporary, you might instead consider making arrangements with your individual creditors to alter the amount of your payments or even reduce the amount you owe in total. If you can do so, then filing for bankruptcy probably won’t be necessary, and your creditors might prefer you don’t, as some of them won’t be able to recover anything in bankruptcy.

What Is a Joint Bankruptcy Petition, And Who Can File One?

When an individual and his or her spouse file for bankruptcy together, they submit what is called a joint bankruptcy petition. Only people who are legally married may submit a joint petition. If you and your partner are unmarried and considering filing for bankruptcy, you would each need to submit your own individual petition. People that are married can file individually however; whether it makes sense for one spouse to file married-individual depends on the couple’s circumstances.

What If One Spouse Files a Bankruptcy Petition and The Other Doesn’t?

If only one spouse files for bankruptcy and the other spouse does not, the non-filing spouse might actually be held responsible for the debts of the filing spouse. There can also be significant benefits to filing for only one spouse. This is an important issue to consider before you file for bankruptcy. You can better inform yourself by speaking with a qualified bankruptcy attorney.

Will a Divorce Decree Shield Me From Creditors If My Ex-Spouse Files For Bankruptcy?

A divorce decree will unfortunately not protect you from creditors once your former spouse files for bankruptcy if the debts are joint debts. If you acted as a co-signor on a loan for your spouse during marriage, that creditor is allowed to come after you for repayment of the debt eve after your divorce. Essentially, the divorce will not change the fact that your name is on the loan agreement. However, your divorce decree might specify some action you can take should your ex-spouse fall behind on their payments of the loan; your recourse is against your ex-spouse for any damages (such as wages garnished or property foreclosed) incurred because he or she did not pay the debt they were supposed to.

Could a Co-Signer on a Loan Be Held Responsible for a Debt if the Primary Loan Holder Files For Bankruptcy?

Unfortunately, as mentioned directly above, a person who co-signs on someone else’s loan can indeed be targeted by a lender if the primary loan holder declares bankruptcy. This is one of the primary reasons why creditors require co-signers in the first place; in the event the primary cannot meet their payment obligations. A lender might require that the co-signer pay down the loan after the primary loan holder has filed for bankruptcy, so it is incredibly important to think carefully before you co-sign a loan for someone else. Do not do so unless you are prepared to pay the debt in the event that the other person cannot, or will not.

Can All My Debts be Discharged When I File for Bankruptcy?

Unfortunately, no. Only some kinds of debts can be discharged in bankruptcy, and the types that cannot be discharged will differ depending on the Chapter of bankruptcy being filed. These are the debts that are not dischargeable in general:

• Debts racked up after you filed for bankruptcy
• Debts for property, money, services, or an alteration of credit like refinancing or extension that was fraudulently obtained
• Debts that were not included in the list of debts initially submitted to the court, or that the debtor waived cancellation of
• Debts for federal, state, or local taxes owed (see our article about discharging tax debt in a bankruptcy for more information)
• Debts incurred from causing injury to a person or their property that are court ordered
• Debts like alimony or child support owed to a child or former spouse upon court decree
• Debts for any personal injury or death caused by the person’s driving drunk or otherwise under the influence
• Debts for student loans from the government, unless you can show that repaying the loans will cause you undue hardship (see our article about discharging student loans in bankruptcy for more information)
• Any kind of legal judgment against you

What Kind of Property Can I Keep After Filing for Bankruptcy?

Some property will be considered “exempt” when you file for bankruptcy, and cannot be taken by creditors during bankruptcy proceedings. The exemptions applicable to the individual depends on State law and the exemptions allowed for that particular state (see our article on New Mexico Bankruptcy Exemptions). The law of your state will define which of your assets are “exempt,” but generally the list of exempted assets includes:

• Jewelry
• A car worth up to a certain amount
• Equipment and tools needed for your trade
• Home equity up to a certain dollar amount

Do I Need To File for Bankruptcy on All My Debts, or Can I Leave Some Out That I Plan to Pay?

When you fill out the required bankruptcy petition and schedules, you will need to include each and every one of your debts. However, after filing, you can indicate that you’d like to keep some of the debts by using the reaffirmation process.

Will Filing for Bankruptcy Cause Me to Lose My Social Security Benefits or Retirement Accounts?

In general, filing for bankruptcy will not cause you to lose this kind of income. If your retirements qualify under ERISA, they will not be considered “assets” for the purpose of your bankruptcy estate. Also, your Social Security benefits will be shielded from assignment in bankruptcy. However, when those Social Security payments are made to you, they will only continue to be protected if they can be clearly identified as Social Security payments. So, if you have an account specifically for your social security benefits and there is no other income in that account, the benefits will usually be protected from creditors during bankruptcy.

Will My Home Mortgage Creditor Take My Home When I File for Bankruptcy?

This question cannot be easily answered, as there are a number of considerations that may affect whether you keep your home in bankruptcy:

• The state you live in and the exemptions that state allows
• The loan status- whether it is current, or your home is in foreclosure
• Which chapter of bankruptcy you are filing for

Keeping a secured debt obligation, like a home, generally requires that you reaffirm debts that you wants to keep; this is done with a reaffirmation agreement.

What Is A Reaffirmation Agreement?

When you reaffirm one of your debts, you will do so voluntarily as reaffirmation is not required under the laws of bankruptcy. Reaffirming a debt means you take responsibility for it and promise to pay the debt after your bankruptcy case is finished. See our article for more information about reaffirming debts in bankruptcy.

How Long Will a Bankruptcy Filing Remain on My Credit Record?

A bankruptcy filing will stay on your credit report from anywhere between seven and ten years.

Is There Anything I Can Do to Get a Bankruptcy Off My Credit Report?

Unfortunately, there is nothing you can do to have a bankruptcy filing removed from your credit report. You can, however, file an explanation of the bankruptcy with credit reporting agencies, which will describe the circumstances of your filing.

After I File, When Can I Apply For Credit Again?

There is no hard and fast rule, as each creditor is the one who will make the decision whether to give you a loan after you’ve filed for bankruptcy. They are not prevented by law from giving you credit, but they are also not required to do so. The decision will vary from creditor to creditor.

Will a So-Called Credit Repair Company Truly Be Able to Save Me From Bankruptcy?

The majority of people can do themselves exactly what a “credit repair” company would do with respect to credit reporting agencies and individual credit ratings. All you need to do it yourself is patience and time. Each state usually has some non-profit agencies that can give credit guidance for cheap, which might be a better option compared to expensive credit repair companies who will offer essentially the same services. We’ve found that it is often not economic to hire an attorney to perform this task, as their fees can outweigh the benefit they obtain for you.

Could a Creditor Keep Contacting Me After I File?  

While you are working out a bankruptcy or payment plan, or while a bankruptcy trustee gathering your assets in preparation for sale, the law requires that creditors refrain from attempting to collect outstanding debts from you. Once the bankruptcy court orders relief on your bankruptcy petition, the creditors must refrain from contacting you. This is referred to as an “automatic stay.” Once relief is ordered on your petition, you should notify your creditors right away, in writing, and give them your bankruptcy case number and the date on which you filed. You should also include a copy of your bankruptcy petition as proof. If a creditor continues to contact you in an attempt to collect, you might be able to take legal action for an automatic stay violation or discharge violation (if they are trying to collect after the bankruptcy is over and their debt was discharged); either action would require the initiation of an adversary proceeding. However, creditors who were owed a debt secured by some type of collateral will still have the right to take the collateral back after the bankruptcy if the loan is in default; this is done through repossession or foreclosure.

Who Will Inform My Creditors That I Have Filed for Bankruptcy?

After you file and the court accepts your petition, the court will notify your creditors in writing and tell your creditors various details of your case including:

• That you have filed for bankruptcy
• Your case number
• That the automatic stay has taken effect
• The name of your bankruptcy trustee
• The date of the creditors meeting
• Any deadline for filing an objection to dismissal of your debt
• Where and whether claims can be filed

The particular information might differ depending on which chapter you have filed under.

What Does a Bankruptcy Trustee Do?

The trustee has several responsibilities and functions:

• Administering the bankruptcy
• Making sure your creditors will get as much money as possible
• Running the initial 341 meeting of creditors
• Collecting and reselling any of your non-exempt property with Chapter 7 cases, or collecting and paying according to a Chapter 13 repayment plan
• Gathering information and documents from you in regard to your bankruptcy

Can My Creditors Object to Me Filing for Bankruptcy, Or to My Payment Plan?

Yes, your creditors may object. Creditors are permitted to object to certain debts in your plan, your proposed repayment plan, or the cancellation of your debt. Specifically:

• Chapter 7 bankruptcy creditors usually have up to 60 days after the initial creditors meeting during which they can object to a specific debt being discharged. If there are no objections filed, the bankruptcy court will issue a discharge order, then the bankruptcy trustee will collect and sell the assets. He or she will then distribute the sale proceeds to your creditors according to a schedule. If there are any objections, the bankruptcy proceedings will continue, minus the debt which has been objected to. In some cases, there might need to be a trial to resolve the issues.
• Chapter 13 bankruptcy creditors may object to the proposed payment plan, and the bankruptcy court can take the objection into consideration. The plan will likely be confirmed if no creditor objections are filed.

What Happens at the First Creditors Meeting?

After you declare bankruptcy, you will need to attend a creditors meeting. The meeting will be conducted by your appointed bankruptcy trustee, who will ask you several questions regarding:

• How your present financial situation came to be
• Any actions taken with your property
• The debts you have listed in your bankruptcy petition, and any additional information about your financials that the trustee requests

If you fail to answer these questions truthfully, your petition might end up being dismissed. In some cases, you may even expose yourself to charges for perjury. At these meetings, your creditors are invited to attend, and may ask you questions about your assets and anything else to do with your bankruptcy. If a creditor does not attend the meeting, that creditor does not forfeit the right to collect from you.

If I Forget to List a Debt At First, Can I Add It Later?

If you realize after filing your petition that you inadvertently left out a debt, you can usually file an amendment to remedy the omission. Keep in mind that your petition is filed under penalty of perjury, so be careful to list everything when you first file. Further, any debt that you fail to list on your petition may not be discharged, and you may remain fully responsible for it after bankruptcy; whether you will be responsible for paying back a debt that was omitted on your bankruptcy depends on the specifics of the individual’s situation (whether there was property liquidated as part of their bankruptcy) and the type of debt (unsecured vs secured).

If I Plan On Filing For Bankruptcy, When Should I Stop Using My Credit Cards?

You should cease racking up charges on your credit cards as soon as you think you might be filing for bankruptcy in the near future. The laws of bankruptcy permit review of any suspicious charges for fraud. Any luxury purchases you made in the ninety days prior to filing, or cash advances you got within seventy days prior to filing, might be left out of your bankruptcy case leaving you responsible for them.

Can My Bankruptcy Case be Opened Again After It Is Closed?

Yes, your case can usually be reopened. Generally, a bankruptcy will be opened again by the trustee who was appointed to the case if issues arise regarding what was omitted or included in your petition, or any other irregularities.

If you have any questions which we haven’t answered, see our bankruptcy practice page, or feel free to contact our office for a free consultation to determine if bankruptcy can help you.