Common Bankruptcy Questions

Bankruptcy is a broad subject. Because there are so many variables based on a debtor's financial situation, the laws of the state in which a petition is filed and the different types of bankruptcy, it can be difficult to obtain a solid understanding of the matter. We have therefore included some common questions related to bankruptcy in the United States and have tried to keep the answers as basic as possible, in clear terms, so as to address any debtor's needs. In addition to reviewing these, we welcome you to visit our Bankruptcy Information Center, where you can find helpful information related to a number of key bankruptcy-related topics.

What are the most common types of bankruptcy?

The three most common types of bankruptcy are Chapter 7, Chapter 11 and Chapter 13. Chapter 7 bankruptcy is the most common of these three; 71% of the more than 1 million petitions filed in 2010 were filed under Chapter 7.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy involves a liquidation of assets to pay creditors. This is the fastest and generally the easiest form of bankruptcy, with a discharge of all eligible debt often occurring within 4 to 6 months. Read more about Chapter 7 bankruptcy.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy involves a reorganization of debt. Also referred to as a wage earner's plan, Chapter 13 bankruptcy will involve a repayment of debt over a 3 to 5 year time period, depending on the amount of debt. This is generally a good option for debtors who have property they would like to protect from liquidation and for those who wish to save their homes from foreclosure. Read more about Chapter 13 bankruptcy.

What will happen to my credit?

Bankruptcy will have a negative impact on your credit score. It may remain on your credit report for up to 10 years, depending on the type of bankruptcy. However, many debtors who file already have less than ideal credit because of the debt they have accumulated and the fact that they have fallen behind on their payments. Though bankruptcy will further reduce their credit rating, they may find that the relief they experience is enough to outweigh this negative consequence. There are also options to begin rebuilding and repairing credit during and after bankruptcy.

What debt can I discharge?

You may be able to address various types of debt through bankruptcy, depending on whether you file under Chapter 7 or Chapter 13 of the Bankruptcy Code. Generally speaking, bankruptcy will address unsecured debt such as medical bills, credit cards and personal loans. Certain types of debt, including child support, alimony and student loans, may not be able to be discharged. Because there are so many variables to consider, it is important to consider talking to a bankruptcy attorney about your options. Learn more about bankruptcy and your debt.

How long until my debt will be discharged?

The length of time it will take for your debt to be discharged will depend on the type of bankruptcy you have chosen. With Chapter 7, this may occur within as little as 3 months. With Chapter 13, it may take 3 to 5 years, after you have completed your repayment plan.

Will I lose all of my property?

The answer to this question will depend upon whether you have chosen Chapter 7 or Chapter 13 bankruptcy. With Chapter 7 bankruptcy, certain property may be protected from liquidation by state or federal bankruptcy exemptions. With Chapter 13 bankruptcy, all of your property may be protected. Read more about bankruptcy and your property.

What are some of the advantages of bankruptcy?

Bankruptcy is powerful. In the right hands, it can eliminate your debt once and for all, providing you with a fresh financial start. When you file, you will experience immediate relief from all debt collection efforts, including creditor contact, wage garnishment, repossession and collection lawsuits. It can even stop foreclosure. The specific advantages you experience may vary depending on your financial situation and the type of bankruptcy relief you choose.

Why should I consider Chapter 13?

If you have a steady income and property that you would like to protect from liquidation under Chapter 7, Chapter 13 bankruptcy may be a good option to consider. You will still experience relief from debt collection actions when you file your petition, and you may even be able to save your home from foreclosure.

Will Chapter 13 bankruptcy save my home from foreclosure?

Because Chapter 13 bankruptcy may enable a debtor to include past due mortgage payments and penalties in his or her repayment plan, this may provide an opportunity to save a home from foreclosure. Because every case is different, you may find it helpful to review your particular options with a lawyer.

What will happen when I file my petition?

Once you file your petition with the bankruptcy court, the clerk will issue a notice to all creditors listed in your petition that they must cease all collection efforts against you. This will mean that the phone calls and letters will stop. You will also experience relief from collections lawsuits, repossession proceedings, wage garnishment and even foreclosure. A temporary hold will be placed on all debt collection actions.

If I file, does my spouse have to file as well?

If you are married, your spouse does not have to file for bankruptcy with you. However, if you have co-signed on a significant portion of your debt, you may wish to consider what impact filing may have on your spouse. There are certain scenarios where your spouse may be held liable for the debt if he or she co-signed with you.

How will bankruptcy affect co-signers?

With Chapter 7 bankruptcy, a co-signer may be held liable for debt. With Chapter 13 bankruptcy, co-signers are generally protected. The specific circumstances of the case, however, may dictate how bankruptcy will affect a co-signer.

What is the means test?

To qualify under Chapter 7 of the Bankruptcy Code, a debtor must pass the means test. This is essentially an evaluation of the debtor's income to determine whether he or she can repay creditors under a Chapter 13 reorganization.

Do I need to hire an attorney?

Depending on whether you are an individual or filing as a business, the type of bankruptcy and the specific circumstances surrounding your case, you may or may not be required to hire an attorney to handle your case. Even if you are not required to have legal representation, there are numerous benefits to involving a competent professional. Bankruptcy proceedings are complex and will dramatically impact your financial situation. With an attorney to not only guide you through but to protect your legal rights, you can feel confident that you will have the best opportunity of experiencing as many of the advantages and as few of the disadvantages associated with bankruptcy.

If you have more questions and would like to learn more, find a bankruptcy lawyernear you.