Frequently Asked Questions About Bankruptcy
The Answers You Need from Our Bowie Legal Team
The following are answers to some of the most frequently asked questions about bankruptcy. We intend this information to serve as general guidance, and it may not directly pertain to your unique case. That is why our team at Adams Law Office, LLC is here to provide professional guidance and insight backed by 20+ years of experience.
Q:What are the different types of bankruptcy?
A:Chapter 7 bankruptcy is generally best for an individual with: Few to no assets; and an income that is below the median income for their state. Under Chapter 7, burdensome debt can be erased in as little as 3 ½ months, and the debtor can keep their assets if they are below the amount allowed under state or federal jurisdiction (called exemptions). If an individual files for Chapter 7 with assets above those allowed, the bankruptcy trustee will liquidate these nonexempt assets to pay off as much of the debt as possible before discharging the balance.
Chapter 13 bankruptcy is best for individuals who are unable to pay their bills on a timely basis, but they have: Assets that cannot be protected by exemption laws; and a regular source of income that is above the state’s median income. Chapter 13 bankruptcy allows individuals to repay all or most of their total debts on an extended schedule (3-5 years). Generally, the debts that are not paid off during that period are discharged at the end of the 5 years, so long as payments are kept up during the plan.
Chapter 11 bankruptcy is generally used by business owners to reorganize their companies and reduce debt. There are also Chapter 9 bankruptcies and Chapter 12 bankruptcies for municipalities and family farmers, respectively.
Q:How soon can I purchase a home after a bankruptcy?
A:You can get financing for the purchase of a home as soon as 1 day after a Chapter 13 discharge and even while you are in a Chapter 13 bankruptcy. If you give yourself a year or two after discharge to rebuild your credit score and increase your savings, you will be in an even better position to get a lower rate. The goal is to take advantage of the fresh start that you gain from a bankruptcy, such as by building equity through home ownership rather than renting.
Q:Which debts are dischargeable?
A:For debts to be discharged, they must exist on the date the bankruptcy case was filed and be properly listed in the bankruptcy. If the bankruptcy court grants a discharge in your Chapter 7 or Chapter 13 case, you are no longer legally obligated to pay most of the following types of unsecured (i.e. not backed by collateral) debt: Credit card balances, deficiencies on auto repossessions, medical bills, judgments, personal loans.
Creditors are prohibited from attempting to collect a discharged debt. Therefore, they cannot contact the debtor, file or continue a lawsuit, garnish wages, or freeze their bank account. However, creditors may have the right to enforce valid liens, such as mortgages or security interests in an automobile. This means the creditor can take back the secured property if you do not reaffirm and redeem the debt, or if the lien is not avoided.
Q:Which debts are not dischargeable?
A:Even if the bankruptcy court grants a discharge in your Chapter 7 or Chapter 13 case, you will most likely still need to pay: most taxes; debts incurred to pay non-dischargeable taxes; domestic support obligations; most student loans; most fines, penalties, forfeitures, or criminal restitution obligations; debts for personal injuries or death caused by the debtor’s operation of a motor vehicle, vessel, or aircraft while intoxicated; debts owed to certain pensions, profit sharing plans, stock bonuses, retirement plans, or certain types of loans from the Thrift Savings Plan for Federal employees; debts the bankruptcy court has specifically decided are not discharged; and debts that have been reaffirmed
Q:Will I be able to keep my property (e.g., car, house, etc.) if I file bankruptcy?
A:Yes and no. There are certain types and amounts of property that you can keep in a Chapter 7 bankruptcy, depending on the state in which you file. In Maryland, you can keep $12,000 of personal property (of the types specified below), plus some other types of property.
Some of the Maryland exemptions (subject to some restrictions) are: crime victims’ compensation awards; fraternal benefit society benefits; $5,000 of tools of trade/profession; miscellaneous benefits, such as sickness, accident, injury, death, etc.; professionally prescribed health aids $1,000 of family clothes, furnishings, books, and pets (valued at replacement value, which is the price a store would charge for the property, considering its age and condition); $6,000 of property or cash back from attachment; $5,000 of personal property; $23,675 in equity in a primary residence (subject to certain restrictions); child support and some alimony pursuant to court order or agreement; pension and retirement; public assistance; unemployment compensation; some wages; workers’ compensation; partnership property.
In the District of Columbia, you can use the Federal exemptions or the DC exemptions. Here are just a few the exemptions you can claim under DC law: Motor vehicle valued up to $2,575; any single item valued up to $425, or $8,625 of household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments; property valued up to $850 in value, plus up to $8,075 of any unused amount of the exemption provided for real estate; $1,625 of implements, professional books, or tools of the trade; any unmatured life insurance contract, other than a credit life insurance contract; professionally prescribed health aids; money or other assets payable to a participant or beneficiary from a retirement plan qualified under section 401(a), 403(a), 403(b), 408, 408A, 414(d), or 414(e) of the Internal Revenue Code of 1986; provisions for 3 months’ support $300 of the library, office furniture, and implements of a professional person or artist; the debtor’s aggregate interest in real property used as the residence of the debtor or in a burial plot for the debtor or dependent of the debtor; unmatured life insurance.
Here are some of the assets you can claim under federal exemption laws: Up to $23,675 in real property or personal property used as a residence or a burial plot; up to $3,775 in value for one motor vehicle; up to $600 for a single item, or $12,625 in aggregate value in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments; up to $1,600 in jewelry; up to $1,250 in value for any property, plus up to $11,850 of any unused amount of the exemption provided for the real property exemption; up to $2,375 in implements, professional books, or tools, of the trade; any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract; professionally prescribed health aids for the debtor or a dependent of the debtor; retirement funds (to the extent that those funds are in a trust or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986)
Q:How long does it take to get my debts discharged?
A:In a Chapter 7 bankruptcy, dischargeable debts are generally eliminated in approximately 3 months. In a Chapter 13 bankruptcy, debts are generally discharged after completion of the payment plan, which takes approximately 3-5 years.
Q:How will the new bankruptcy law affect my ability to obtain a discharge?
A:The latest bankruptcy law prevents debtors who make above a certain income level and have a disposable income greater than approximately $175 (the means test) from filing for Chapter 7 bankruptcy. These debtors must file under Chapter 13 instead. The new law also requires debtors to take a credit counseling course prior to filing bankruptcy and a financial management course prior to receiving a discharge. There are also increased attorney responsibilities, higher filing fees, and increased documentation requirements.
Q:How long do I have to wait to file for bankruptcy if I have filed before?
A:You cannot file for Chapter 7 bankruptcy until 8 years after the filing date of a prior Chapter 7 or 11 discharge. You cannot file for Chapter 13 bankruptcy until 4 years after the discharge of a prior Chapter 7, 11, or 12 case, or until 2 years after the discharge of a prior Chapter 13 case. An experienced lawyer can better explain which dates matter in either case.
Q:How long will a bankruptcy remain on my credit?
A:Bankruptcy can remain on your credit report for up to 10 years if you file Chapter 7 bankruptcy and up to 7 years if you file Chapter 13 bankruptcy.
Q:What happens to my secured debt?
A:Once you file for bankruptcy, an automatic stay halts and prevents collection activity by your creditors. However, creditors can petition to lift a stay for special circumstances, such as if the creditor has a secured lien on the debtor’s property (e.g., a vehicle or house). Creditors may be given the right to enforce valid liens, such as mortgages and security interests in automobiles, which means the creditor can take back the secured property if you do not reaffirm and redeem the debt, or if the lien is not avoided.
Q:What is the creditors’ meeting?
A:The creditors’ meeting (also called the 341 meeting) is generally scheduled 30 days after the filing of a bankruptcy petition. The debtor (including both spouses in a joint case) must attend the meeting and is questioned under oath by creditors and the court-appointed bankruptcy trustee. Creditors are not required to attend the meeting and often do not attend.
Q:What other options do I have besides bankruptcy?
A:You can contact your creditors and try to negotiate lower interest rates, a reduction in penalties, and/or reduced or delayed monthly payments. You can do this yourself, or you can contact a debt consolidation company to negotiate for you. Be careful, however, as many debt consolidation companies will try to take the money you would have sent to creditors, falsely promising that they can eliminate all your debt. If you have equity in your home, you may qualify for a home equity loan to consolidate your debt and/or pay off high interest credit cards and other loans. If you have a lump sum, we can potentially negotiate debt settlements with your creditors.
Q:How much will bankruptcy cost?
A:The Maryland bankruptcy attorney’s fees for an individual Chapter 7 bankruptcy case start at $1600. The filing fee required by the bankruptcy court is $335 for Chapter 7 and $310 for Chapter 13.
Q:Will I have to go to court?
A:In a Chapter 7 bankruptcy case, you generally will not have to appear in a courtroom. Debtors are required to attend a creditors’ meeting at the trustee’s office, during which the trustee and creditors can ask the debtor questions regarding their finances. Chapter 13 bankruptcy requires filers to attend a plan confirmation hearing.
Q:Is bankruptcy the “right” or moral thing to do? What does the Bible say about bankruptcy?
A:Deuteronomy 15: 1-6. The Year for Canceling Debts (New International Version). At the end of every seven years, you must cancel debts. This is how it is to be done: 1) Every creditor shall cancel the loan he has made to his fellow Israelite. 2) He shall not require payment from his fellow Israelite or brother, because the LORD’s time for canceling debts has been proclaimed. 3) You may require payment from a foreigner, but you must cancel any debt your brother owes you. 4) However, there should be no poor among you, for in the land the LORD your God is giving you to possess as your inheritance, he will richly bless you, 5) If only you fully obey the LORD your God and are careful to follow all these commands I am giving you today. 6) For the LORD your God will bless you as he has promised, and you will lend to many nations but will borrow from none. You will rule over many nations, but none will rule over you.