FAQs
The prospect of filing for bankruptcy can be overwhelming. Whether it’s personal or business bankruptcy, there are many misconceptions about bankruptcy that can deter people from ever pursuing bankruptcy – even when they really need it. It is important to consider whether bankruptcy would be a good option for your or your business’s financial situation, as it can prevent your debt from climbing even further and further and provide critical relief.
The Fayetteville bankruptcy attorneys at Bradford Law Offices, PLLC, can help you closely explore your options and make an informed decision about whether bankruptcy is the right path. Please take a moment to read through some of our most frequently asked questions about bankruptcy, along with their answers, below. These FAQs can give you more perspective on bankruptcy, though a lawyer can go more in depth about how bankruptcy would work for your situation during a consultation. If you would like to learn more or have any additional questions, please feel free to call our office at (919) 758-8879 today.
What are the advantages of filing for Chapter 7 bankruptcy?
Chapter 7 bankruptcy will allow qualifying individuals to discharge unsecured debt, including credit card debt, medical bills, and a whole range of other debt. Since this form of bankruptcy will allow people to get rid of a substantial amount of debt, this form of debt is popular for its unique ability to provide a fresh start. The downside of Chapter 7 bankruptcy is that all of a person’s nonexempt property will be sold to help pay off their debts, hence the term liquidation bankruptcy. In addition, not everyone is eligible for Chapter 7 bankruptcy relief. To determine your eligibility for Chapter 7 bankruptcy, you should consider working with an attorney as you work through the bankruptcy “means test.”
What is the “means test”?
The means test determines eligibility for Chapter 7 or Chapter 13 bankruptcy by calculating whether a debtor’s current monthly income is above or below the median income in your state. This also takes into account an individual’s monthly expenses, so it is still possible to qualify for Chapter 7 with a substantial monthly income. Overall, the means test is intended to keep wealthy debtors with plenty of disposable income from liquidating their debts through Chapter 7 bankruptcy, and instead only allowing them to reorganize their debts through Chapter 13 bankruptcy.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
The principal difference is that Chapter 7 bankruptcy allows debtors to wipe out their debts (with exceptions), while Chapter 13 bankruptcy allows debtors to restructure their debts into more manageable repayment plans. In exchange for paying back all or a portion of their debts, people who file for Chapter 13 will be able to retain all of their property. It is for this reason that some debtors who are eligible for Chapter 7 bankruptcy relief choose to work through Chapter 13 regardless. If you are struggling to understand whether one form of bankruptcy will be better than the other for you, consider speaking to an attorney about your financial situation.
What are the advantages of filing under Chapter 13 bankruptcy?
As much attention as Chapter 7 bankruptcy receives, there are some distinct advantages that Chapter 13 has over Chapter 7. First and foremost, it will be possible to stop the foreclosure of your home with Chapter 13 bankruptcy. While you will still have to make all your mortgage payments over time—including any delinquent payments you have already missed—you will be able to save your home. On top of that, you will be able to reschedule all of your secured debts—aside from your mortgage for your primary residence—so that they extend over the lifespan of your Chapter 13 plan. In many ways, Chapter 13 is a lot like a consolidation loan that will allow you to make a single payment to a single Chapter 13 trustee who will then pay all of your creditors with those payments.
What does it mean for a debt to be non-dischargeable?
Though some people may be able to get rid of most of their debt through the Chapter 7 process, there are some debts that are considered to be non-dischargeable. For instance, it is not possible to discharge some tax debts, back child support and alimony payments, and student loans. Since these debts—and a number of other debts—cannot be discharged through the Chapter 7 process, they will still need to be repaid even after you have worked all the way through Chapter 7. That being said, certain non-dischargeable debts may make Chapter 7 less desirable than other forms of bankruptcy.
Will bankruptcy destroy my credit?
Generally speaking, this is one of the most prominent misconceptions people have about bankruptcy. While it may be true that filing for bankruptcy will show up on your credit report and may even impact it for a short period of time, the truth is that most people who actually end up filing for bankruptcy already have poor credit. That being said, once a person has worked through bankruptcy, there is a very good chance that they will be in better financial shape than they were before filing. Once everything is said and done, you may actually have a chance to work with a fresh start, whereby you can begin rebuilding your credit once again.
Is it possible to convert from one chapter of bankruptcy to another?
If you decide to change the chapter of bankruptcy that you originally filed under, then you have the option to request a conversion. Sometimes, the bankruptcy court will enforce “forced conversion” through which you must file under Chapter 7 instead of Chapter 13. This can occur if you fail to complete the requirements for Chapter 13 bankruptcy such as not meeting the payment deadlines. Of course, to be able to change your bankruptcy status intentionally, you must meet the eligibility for the chapter you want. If you are considering converting to another chapter of bankruptcy, be sure and educate yourself on the requirements or financial consequences that may occur.
What are the first steps in filing for bankruptcy?
One of the first things you should complete is documenting your financial status. You should be prepared to present a list of past and present debts, assets, and liabilities. In addition to having your records in order, you must educate yourself on the types of bankruptcy. Both Chapter 7 and Chapter 13 bankruptcy have their own advantages, and it is important to file under the one right for you. You’ll also need to be ready to pay a filing fee in addition to any other documentation your trustee requests.
The process of filing for bankruptcy can be stressful, complex, and not to mention emotional. However, taking the proper steps to prepare your case can ease the experience significantly. Filing for bankruptcy is a demanding process, and it is important to consider talking to an attorney so that you are supported in times of confusion and struggle.
What types of property, if any, are considered exempt?
If you file for Chapter 13 bankruptcy then you have the ability to preserve all of your property, but Chapter 7 debtors do not share the same luxury. Despite this, individuals are allowed to exempt certain kinds of property from liquidation so that they may keep them under their possession. State law determines what items are considered exempt, and the amount that you can protect varies by case. Common property exemptions in North Carolina include homestead plots, motor vehicles, prescribed health aides, and retirement benefits. There is a value limit to each exempted possession and occasionally the exemptions and exemption amounts change. If you are unsure of the possibility of exempting your property, you can talk to an attorney to clarify your rights.
How will I know if bankruptcy is right for me?
The decision to file for bankruptcy is likely to be among the most difficult decisions that you will ever have to make. With that in mind, bankruptcy will probably be right for you if you are dealing with an unmanageable amount of debt or are subject to constant harassment from creditors about debts you cannot currently repay. Even if you believe you are a good candidate for bankruptcy, it will still be in your best interest to reach out to a bankruptcy attorney. A lawyer can help you explore and understand all of the options that are available to you.
Will I lose all of my possessions if I file for relief under Chapter 7 bankruptcy?
Although much of your estate will be liquidated to pay off your creditors, you may be able to set aside some of your belongings as exemptions to the bankruptcy process. Exempted items and property receive special protection from the bankruptcy trustee who handles your case. These exemptions can help you make a fresh start once the bankruptcy process is over. For example, debtors may exempt up to $3,500 of a single car or truck under North Carolina’s motor vehicle exemption rules. What’s more, it may be possible to cover even more of your vehicle’s value with the wildcard exemption. There is a full range of other exemptions that you should discuss with an attorney in order to understand which of your assets you can protect.
What is the wildcard exemption?
There are strict rules that dictate exactly how an individual can use each bankruptcy exemption during the bankruptcy process. On the other hand, the wildcard exemption covers up to $5,000 of virtually any asset or piece of property you own. In order for this exemption to be available at all, at least some portion of the burial or homestead exemption must remain unused. As with every other exemption, the wildcard exemption cannot be used to protect anything that was purchased within 90 days prior to the day you file for bankruptcy.
What are some common reasons people file for bankruptcy?
In the current economic state, more individuals than businesses are going bankrupt. There is a wide variety of causes for debtors to file. Many are suffering from financial strains outside of their control, but many times filing for bankruptcy can actually benefit an individual’s financial situation. The most common reasons people in America file for bankruptcy include medical expenses, loss of income from job, credit card debt, and divorce. While filing for bankruptcy has threatening connotations, it is actually a very common occurrence that can protect you from further financial downfall.
How much does it cost to file for bankruptcy?
Chapter 7 and Chapter 13 generally run a fee of approximately $330, with Chapter 13 being slightly cheaper. Sometimes the court will also impose an administration fee and installment fees that are significantly less. Nonetheless, the court can waive many fees if you fall below a certain income level or for any other severe financial reason. If you are filing for bankruptcy, then hiring a skilled attorney can be a worthwhile investment in your financial future, as he or she will guide you through your bankruptcy and ultimately help protect your interests throughout the process.
How do I stop creditor harassment?
Creditors are often extremely persistent in their communication with debtors. They send snail mail, email, and even voicemail. Filing for bankruptcy is a great way to stop your creditors from troubling you. A court order called an automatic stay can make it illegal for them to continue to try and collect money from you. In the event that you don’t qualify for this, your attorney can help you communicate with collection agencies to start discussing your options.
Is there a type of bankruptcy that lets me maintain possession of my property?
Under Chapter 13 bankruptcy, debtors are often allowed to keep the majority of their property. Under Chapter 7 bankruptcy, debtors typically undergo the liquidation or sale of their property as a means to pay back their creditors. Chapter 7 may allow you to maintain possession of your property depending on what is exempt from sale in your state. Typically, exempt assets include jewelry, vehicles under a certain worth, equity in a home under a certain value, and the tools or equipment you need for your trade.
If I file for bankruptcy, will I lose Social Security payments or retirement account funds?
In most cases, you will not lose Social Security or retirement money. The government does not consider that money an asset or estate property because it is in an account that is ERISA-qualified. As long as the only deposits into your account are qualified, you will be able to keep those funds.
Can I ever get bankruptcy removed from my credit report?
Unfortunately, you cannot remove bankruptcy from your credit report. However, you do have the option to file explanations detailing the cause of your bankruptcy with the credit-reporting agency. In addition, if the bankruptcy description on your credit report is inaccurate, you can have the record updated.
Will I be able to negotiate my debts?
As an alternative to bankruptcy, it may be possible for you to negotiate with creditors to reduce or restructure your debts. In particular, you could potentially:
- Extend the duration of your repayment plan
- Lower the overall amount of debt you are carrying
- Reduce the interest rates for your loans
- Pay off a significant portion of your loans all at once
The process of first creating a plan and then actually engaging in the negotiation process with your creditor can be exceedingly complex on your own. You should reach out to an attorney before attempting to negotiate with your creditors.
Is it possible to modify my mortgage payments?
If your financial circumstances are making it difficult to pay your scheduled mortgage payments, it may be possible for you to modify the terms of your mortgage to avoid foreclosure. Once we know more about the particulars of your situation and your finances, we may be able to help you modify the kind of mortgage loan you have. Doing so could lower your interest rate, extend the overall term of your loan, reduce or eliminate any accumulated debts, and even lower the overall principle loan amount.
What is an automatic stay?
The moment you file for bankruptcy, the court will file what is known as an “automatic stay” on each of your debts. By doing so, the court will force creditors to stop trying to collect on that debt. You will no longer receive calls, notifications, or any other form of direct contact from any creditors until the court lifts the automatic stay. The automatic stay remains in place until the bankruptcy case is officially discharged in court. The purpose of an automatic stay is to provide you with the breathing room you need as you work to bring your finances back under control.
How long does the typical personal bankruptcy process last?
No two bankruptcies are the same; each case can have significantly different factors that can make the duration of the bankruptcy vary greatly. The repayment plans that are established during the bankruptcy process can range from three to five years. For example, under Chapter 13 bankruptcy, if a person earns less than the state median income, the plan will usually only take three years to complete. Subsequently, for families that earn more than the state median income, the repayment plan generally must be for five years. In no circumstances can the repayment plan last longer than five years.
How will filing for bankruptcy affect my taxes?
Filing for bankruptcy creates an automatic stay that inhibits creditors, including the IRS, from further pursuing collection activities. However, even for people that are currently under bankruptcy protection, taxes must eventually be paid. Priority tax debts will be accounted for in the repayment plan, but many of the penalties for late payments may be discharged. Failure to file returns or pay current taxes could lead to your case being dismissed.
When should I consider seeking bankruptcy protection?
Seeking bankruptcy protection is frightening for many struggling families, but it may be necessary to protect their best interests. One of the most important aspects of filing for bankruptcy is timing; a debtor does not want to wait for the debts to accumulate too much, but they do not want to file prematurely. A general rule of thumb is that a debtor should consider bankruptcy if a debt is too large to pay back in full over the next 36 months. With that being said, if you are considering filing for bankruptcy, it is imperative to consult with a Fayetteville bankruptcy attorney to learn more about your legal options.
What are Secured and Unsecured Debts?
All debts can be divided into two categories: secured and unsecured. Secured debts are all debts that are backed by some form of collateral; the most common of these types of debts include car and mortgage loans. Ergo, all unsecured debts are those that are not backed by a form of collateral. These include medical bills, student loans, and credit card debts. Many unsecured debts are classified as dischargeable and may not have to be paid back.
What are Priority and Non-priority debts?
After a debt is classified as either secured or unsecured, the unsecured debts must then be further separated into priority or non-priority. Priority debts are those that are generally more important than your other debts and must be paid back first. These debts are typically owed to the government or deemed to be important to the public good by the government, some of the most common including child support, taxes, and government fines. Non-priority debts are generally considered less important and are often dischargeable and include student loans, medical bills, and personal loans.
Can only farms and fisheries file for chapter 12?
While the many benefits of chapter 12 bankruptcy, like its streamlined process and less expensive fees, may seem enticing for a debtor, chapter 12 can, unfortunately, only cater to farms and fisheries with a regular annual income. Due to its limited eligibility, chapter 12 bankruptcy has seen very little application, encompassing only about 500 out of the roughly one million bankruptcies filed every year, less than even a tenth of a percent.
What happens if I can’t find anyone to be on my creditor’s committee?
Companies with smaller debts may experience difficulties finding creditors to appear on the creditors’ committee, as the debt to the creditor may not be worth their time. In these situations, the U.S. courts have created the Small Business Case under chapter 11 bankruptcy. A company qualifies for the small business case when their total debts are under $2,490,925. These cases omit the requirement for a creditors’ committee in exchange for more oversight from the U.S. trustee.
What are the responsibilities of the Trustee?
For most cases of bankruptcies, the debtor will be assigned to a trustee who will be in charge of many of the bankruptcy proceedings. The debtor and the trustee will work closely together to agree on the terms of bankruptcy as well as defining the debts that are owed and helping create the repayment plan for them. The trustee will primarily be responsible for collecting payment from the debtor and repaying creditors with it. In some cases, this involves the trustee liquidating property in order to do so. For chapter 11 and 13 bankruptcy, the trustee will also have the power to review and challenge the proposed repayment plan or reorganization plan.
What is the Hardship Discharge in chapter 13 bankruptcy?
After the confirmation of a repayment plan, it is rare to be able to cancel the terms of the bankruptcy. However, if a situation arises where the circumstances are not within the debtor’s control and modification is not possible, they may be able to pursue a hardship discharge. This discharge is available as a last resort for debtors that cannot fulfill the repayment plan, so long as the creditors have recovered at least the amount they would in a chapter 7 liquidation case.