Answers To Frequently Asked Questions About Bankruptcy

What is bankruptcy?

Bankruptcy is controlled by federal law.  Your bankruptcy petition starts the legal process, and it is filed at the federal court that has jurisdiction over where you live.  It is designed to help consumers and businesses deal with out of control debt.

Will bankruptcy wipe out all my debts?

Bankruptcy is a powerful tool that will wipe out most kinds of debt.  Even if a creditor has a judgment against you, the debt will be discharged in bankruptcy.  The three most common types of debt that WILL NOT be wiped out are:

1. Certain kinds of tax debt.

2. Domestic Support Obligations like child support or alimony.

3. Student Loans.   Student loans will not be discharged unless you can demonstrate that there is no chance you will ever be able to repay them, which is very difficult to prove.

What happens when I file bankruptcy?

An automatic stay goes into effect that prevents all your creditors from taking any action to collect the debt.  What this means is that they have to:

1.  Stop harassing you.

2.  Stop any lawsuits currently pending.

3.  Stop any wage garnishments or bank freezes.

4.  Stop any other attempts to collect money from you.

What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A Chapter 7 bankruptcy is a liquidation process where they look for assets to take and sell so they can distribute the money to unsecured creditors.  However, most people who file Chapter 7 do not lose any property because that property is protected by state law.

A Chapter 13 bankruptcy involves you paying a monthly payment for three to five years.   The size of that payment depends on a variety of factors, but the primary factors are the size of your secured debt, your annual income, and the value of your assets.  You do not lose any property in a Chapter 13.

Should I pick a Chapter 7 bankruptcy or a Chapter 13 bankruptcy?

That depends on a lot of different factors.   If you meet the eligibility requirements for both chapters, the decision hinges on your personal situation.  As a general rule, Chapter 7 is the most attractive option for most people, as it is much shorter and usually equally effective in eliminating debt.

If you schedule a free consultation with me, I answer your specific questions and help you decide your best course of action.