Top 10 most commonly asked questions regarding consumer bankruptcy.
1) What is a Chapter 7 bankruptcy and/or a Chapter 13 bankruptcy and which one is right for me?
A Chapter 7 bankruptcy is a type of bankruptcy that can give an individual immediate relief from most, if not all, of their debts. Debts that typically cannot be discharged include but are not limited to certain tax obligations, student loans, domestic support payments, and debt incurred by fraud. A Chapter 7 bankruptcy is also called a liquidation because in certain situations, an individual's assets could be liquidated if there is too much equity in those assets. However, most individuals do not lose anything and thus are allowed to keep their houses and cars if they are able to continue making the regular monthly payments.
A Chapter 13 is a bankruptcy that allows an individual to consolidate most of their debts into one monthly payment. It stops all collection activity as soon as it is filed, including foreclosures, garnishments, repossessions and harassing phone calls. A chapter 13 is primarily used by individuals looking to stop a foreclosure or repossession, but is also used by those who do not qualify for a Chapter 7 bankruptcy because of their high income level.
2) Do I qualify for a Chapter 7 bankruptcy?
Congress changed the bankruptcy laws on October 17th, 2005. These new laws make it more difficult to qualify for a Chapter 7 if the individual's income is above the median income in the state that they reside. The median household income in Georgia for a household of one is $40,691.00, household of 2 is $54,054.00, household of 3 is $61,959.00, household of 4 is $71,554.00, household of 5 is $78,454.00, and household of 6 is $85,354.00. For every other individual in the household, just add $6,900.00.
Many individuals have been told, either from friends, family, or even their own creditors, that they will not qualify for a Chapter 7 bankruptcy if their income is above the median income level. This could not be any further from the truth. Most individuals who are slightly above the median income will still qualify for Chapter 7. Many of my former Atlanta Chapter 7 bankruptcy clients were above the median income and qualified fairly easily. If you are above the median income, the new bankruptcy laws require that you must pass the "means test". Since the laws changed, I have only seen a small percentage of individuals that did not qualify for a Chapter 7. And truth be told, many of them would not have qualified under the old bankruptcy laws.
3) If I file for bankruptcy, can I keep my house and car?
Probably. If a Chapter 13 is filed, 99% of the time an individual will not lose any property as long as they can continue paying for it. If an individual files a Chapter 7, and they are current with their house and/or car payment, they can generally keep it by signing a reaffirmation agreement. The only drawback would be if there is too much equity in the property or the car. In Georgia, an individual can have up to $10,000 of equity in their house ($20,000 if married) and up to $3,500 of equity in a car. However, these numbers can change if an individual just moved from another state within 3 years of the bankruptcy case being filed. Since this issue can be quite complex, it is generally advised to discuss your case with an attorney.
4) What debts are not dischargeable in a Chapter 7 bankruptcy?
Most tax debts are nondischargeable, but there are exceptions. If the tax is for individual income tax and it is older than 3 years, there is a good chance that the tax debt could be discharged in a Chapter 7. There are all kinds of exceptions to this rule, so finding an attorney that knows all of the twists and turns of the tax laws is advisable.
Under the new bankruptcy laws, all student loans (even non-governmentally backed student loans) and all domestic support payments are nondischargeable. Other debts that are nondischargeable include but are not limited to debts incurred due to fraud, personal injuries caused while driving under the influence of drugs or alcohol, and recent credit card purchases incurred right before the filing of the Chapter 7.
5) How long will a Chapter 7 or a Chapter 13 stay on my credit report?
A chapter 7 will stay on an individual's credit report for 10 years from the date of filing and a Chapter 13 will stay on the credit report for 7 years from the date of filing.
6) How long do I have to wait before I can file a bankruptcy again?
When the bankruptcy laws changed, the waiting period between bankruptcy filings changed as well. Individuals must typically wait longer to file back to back bankruptcy cases. Listed below are the scenarios that I have seen in my Atlanta bankruptcy practice:
An individual previously filed and received a discharge in a Chapter 7 and now wants to file another Chapter 7. They must wait eight years from the date they filed their first Chapter 7 before filing a second Chapter 7 case.
An individual previously filed and received a discharge in a Chapter 13 and now wants to file a Chapter 7. They must wait six years from the date their Chapter 13 was filed before filing a Chapter 7.
An individual previously filed and received a discharge in a Chapter 7 case, and now wants to file a Chapter 13. They must wait five years from the date they filed their Chapter 7 before filing a Chapter 13 that will result in a discharge.
They previously filed a Chapter 13 that resulted in a discharge, and now want to file a second Chapter 13. They must wait two years from the date they filed their first Ch. 13, if they want a discharge in their second Chapter 13 case.
An individual previously filed a Chapter 13 but their case was dismissed. They now want to file a second or third Chapter 13 within the year. They may file a second or third case at any time but the automatic stay may not apply. An attorney should be consulted before filing a second or third case within a year.
7) If I am married, and I am filing for bankruptcy and my spouse is not, will the Chapter 7 bankruptcy affect my spouse?
It depends. If an individual's debts are solely their debts, and their spouse is not cosigned on any of them, then it should not affect their spouse at all. If the spouse is cosigned on certain debts that the individual wants to have discharge, the bankruptcy will not discharge their spouse's obligation on the cosigned debts. Therefore, if the debts are joint, it is generally advisable to file a joint case.
8) My property has too much equity and I am worried about losing it in a Chapter 7. Could I transfer it to my spouse or to someone else so that it is out of my name?
Absolutely Not. Any transfer on the eve of bankruptcy raises red flags. Even transfers made within 10 years or longer of the bankruptcy filing could be avoided if it can be proved that the transfer was done to avoid creditor action. If an individual is caught doing this, the court could avoid the transfer and sell the property, have the individual's case dismissed without receiving a discharge, and possibly refer the case to the FBI for possible criminal bankruptcy fraud charges.
9) May employers or governmental agencies discriminate against persons who file bankruptcy?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under chapter 7. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses (including driver's license), permits, student loans, and similar grants because that person has filed under chapter 7.
10) Will I be able to buy a car or a house after I have filed for bankruptcy?
The simple answer is yes. Most individuals will be able to purchase a car within a few months of their bankruptcy case being discharged. Therefore, it is sometimes a wise financial move to surrender a car that is upside down (meaning it has a lot of negative equity). As this is true with obtaining any loan, an individual should be smart and shop around for the best offer and not accept the first car creditor's offer that is presented to them.
As to purchasing a house, I have been told by a realtor that an individual most wait at least 2 years before they can become eligible to qualify for a home mortgage. However, it is important to note that the individual must keep their credit in good standing during this time and try to rebuild their credit by obtaining one or two debts and keep them current. Remember, a bankruptcy stays on an individual's credit report for 10 years, but it does not keep one from rebuilding their credit during that time. On the average, it has been shown that an individual's credit score rises 70 points within a year of the Chapter 7 filing.