Common Bankruptcy Questions
Here are questions we often get about the bankruptcy process and how it affects people who file:
Will I lose my car or my house if I file Chapter 7 bankruptcy?
The vast majority of people who find themselves in the position of facing a Chapter 7 bankruptcy rarely find themselves in the position of losing a car or house. But at the same time we need to look at why and whether that applies to you. Chapter 7 of the U.S. Bankruptcy Code carries the title of “Liquidation”. That means that under the theory, things can be “liquidated” or taken away. But, the law also allows you to claim exemptions. So, in other words, suppose your car is 5 or 6 years old and worth $5,000. And you still owe $4,000. Hypothetically, you sell the car. You pay the car loan. That leaves you with $1,000. The $1,000 represents your “equity value” in the car. We disclose all of that, and claim an exemption under state or federal exemptions, and you keep the car.
The same idea applies to a home. As long as available bankruptcy exemptions are enough to cover your equity value then you keep the house. Here is more on the idea of exemptions.
If I’m on Social Security can bankruptcy take my social security benefits?
No. This is a fairly simple question because under federal law social security benefits are exempt. They do not even need you to include them in the bankruptcy means test which Congress passed in order to exclude people lawmakers thought made too much money to file Chapter 7 bankruptcy.
I know that I could have gotten rid of my credit card debts if I had filed bankruptcy before. But now that they’ve sued me and filed an actual collection law suit, is it too late for me to file bankruptcy?
The Chapter 7 bankruptcy, if all goes well discharges garden variety consumer debt, or the usual credit card debt you’re concerned about. So the underlying debt goes away. And yes the collection law suit needs to be stayed, the legal term for halting a court case.
My office files a “Suggestion of Bankruptcy” or “Notice of Bankruptcy” with the court where the collection lawsuit is pending. Then, under section 362 of the U.S. Bankruptcy Code the collection case must be put on hold immediately. At the end, the collection law suit dismisses entirely when your bankruptcy discharge is issued by the bankruptcy court.
Can I file bankruptcy if I am unemployed?
Yes. Many unemployed workers file for bankruptcy. In fact job loss and the resulting lack of income represent one of the biggest reasons people file bankruptcy. Unfortunately Congress failed to exclude unemployment benefits from the bankruptcy means test. That means your unemployment benefits count as income towards determining whether the law will allow you to file a Chapter 7 bankruptcy.
Generally speaking Chapter 13 often goes by another name, that of a wage earners payment plan. Those filing under Chapter 13 must benefit from an income stream in order to fund a payment plan for a 3 to 5 year period. But let’s not complicate things. The answer to your question is that yes unemployed people can and do file Chapter 7 bankruptcy cases.
I heard that credit counselling makes me consolidate my debts. Why do I have to do that before I file bankruptcy?
You do not. Unfortunately someone along the line caused some confusion over two very different concepts.
Credit consolidation represents a program where someone with multiple debts, let’s say a number of different credit cards, has one company attempt to negotiate final payment. The idea is that one company takes your multiple debts and puts them all together into one payment for you. Thus comes the term consolidation. In my experience with clients and potential clients such plans rarely if ever work.
Credit Counselling is an entirely separate concept. Bankruptcy law requires you to complete ‘Credit Counseling’ before filing bankruptcy. Credit counseling providers allow you to complete this requirement on line, or through a toll free telephone number. The counseling must be done by an agency approved by the U.S. Trustee’s office. It does not take long and when you’re done the company issues a credit counselling certificate, without which, you can’t file bankruptcy. Well, you can, but it will be dismissed.
Credit Counselling presents step one. The second step comes later, in something called “Debtor Education”, also sometimes called “Financial Management”. This step requires a quick session, usually on the computer, within 60 days after your creditors meeting. Bankruptcy law requires you to file a certificate of completion within 60 days after the creditors meeting or you will not receive the discharge that you seek, getting rid of your debts.
More frequently asked questions about bankruptcy and bankruptcy facts here.
Additional bankruptcy law on exemptions.
More questions? Our office files Chapter 7 and Chapter 13 bankruptcies in New Hampshire and Massachusetts. Contact us through the “Leave a Reply” or “Schedule a Consultation” blocks on this page. Or call one of the numbers at the top of this page.
Model Credit: Courtney Babel