Frequently Asked Bankruptcy Questions
Here is a list of a few bankruptcy questions that we deal with on a regular basis. They are intended to be quick answers not complete answers or legal advice concerning your particular situation. Please do not try to substitute this web site for legal advice with a competent attorney about your particular situation! It is not a substitute; it is not intended to be a substitute for legal advice. Bankruptcy is a complex and interrelated area of the law. One simple fact can change everything. Use this site for general information, then talk to your attorney about your specific situation and how the laws apply and affect you.
- Will I be allowed to file a bankruptcy?
- Am I eligible for a Chapter 7 Bankruptcy?
- Do I have to give up all my assets?
- What Property Can I Keep In A Chapter 7 Bankruptcy?
- Do I have to list all my debts?
- Can I keep my home in a Chapter 7 if I am current?
- Can I keep my car?
- Can I keep my property if I am not current on the payments?
- I heard you can not get rid of taxes in bankruptcy, is that true?
- Will someone come to my house?
- How does the trustee know what I have?
- If I am married do we both have to file bankruptcy?
- Will a bankruptcy stop a wage garnishment? A foreclosure?
- Are there some debts I won’t eliminate in bankruptcy?
- Can I put my ______ in someone else’s name?
- Will I lose my retirement?
- I filed bankruptcy before, does that keep me from filing now?
- What happens to my credit if I file a bankruptcy?
- What if I can’t make my Chapter 13 payments?
Will I be allowed to file a bankruptcy?
Probably you can file some kind of bankruptcy that can help you, unless you have filed bankruptcy over and over again recently – called serial filings. Then your case might be dismissed because it is filed in bad faith.
Am I eligible for a Chapter 7 Bankruptcy?
Let’s go through the steps:
- You must be an individual, a partnership, or a corporation or other business entity.
- You can not be:
- a Railroad;
- a insurance company, bank, savings bank or S & L
- If you are an individual you must have received credit counseling from an approved credit counseling agency within 180 prior to filing.
- A prior bankruptcy or yours can not have been dismissed within the last 180 days
- For a failure to appear before the court or a failure to obey the court’s orders, or
- A voluntary dismissal after a creditor had filed for relief from the court to recover property encumbered by liens
- The Bankruptcy can not be an “abuse” of the bankruptcy process
- Such as repeated and regular filings
- And the debtor’s failure to “pass” the “means test” (see below)
Before discussing the means test, one clarification must be made. If you are not an individual or if you obtained a Chapter 7 or 11 discharge in a case that that filed within the last 8 years or a Chapter 12 or 13 discharge in a case that was filed within the last 6 years, you can still file a Chapter 7, however the Chapter 7 will not eliminate the liability on the debts.
The Means Test was enacted in 2005, because Congress was convinced by the credit industry that too many people who could pay their debt were filing bankruptcy. If a debtors’ family’s income is lees than the median income for the size and location of the family, the debtor can file either a Chapter 7 or a Chapter 13. If they make more than the median income, then a complicated set of calculations based upon the actual and allowed expenses of the family are performed to determine if “there are sufficient funds to repay” a significant amount of the debt. This is called the “Means Test” – if a debtor has enough disposable income then the only kinds of Bankruptcies which they can file are Chapter 13, Chapter 11 or for family farmers, Chapter 12. (For the US Trustee’s information on means test Click here)
If you take your family’s total gross income (not reduced by taxes or other deductions) over the last six months, then multiply by 2. Then, check your income with the table below. If your income is below the median income for your state and family size you are not prohibited from filing a Chapter 7 bankruptcy. If your income is above those numbers then a more complicated set of calculations which look at allowed must be performed to determine eligibility.
The median income standards for California and Wyoming as of November 1, 2014 are as follows:
Add $8,100 for each person in the household in excess of 4.
Note: This data is effective as of November 15, 2013. These numbers are updated periodically. To check the current data or look at median income for other states go to the US Trustee’s web site
Do I have to give up all my assets?
No. The idea of bankruptcy is to give people a fresh start. People who file a bankruptcy are entitled to keep exempt property and may be able to keep other property. See: What property can I keep?
What Property Can I Keep In A Chapter 7 Bankruptcy?
People who file bankruptcy are often able to keep three kinds of property:
A. exempt property,
B. Property that is fully encumbered with debt, and
C. Property that has no value or can not be sold.
Even though ultimately a debtor in bankruptcy will be able to keep this property, the debtor should not be sell anything until the case is closed or their attorney tells them that you can sell it.
Exempt Property. The property that a debtor is allowed to keep in a bankruptcy is usually the same property that a creditor could not take even if the debtor had not filed a bankruptcy. It is called exempt property. Each state has different exemption laws and the Bankruptcy Code has exemption laws that also can apply. Some States, like California have different sets of exemption laws and the debtor can choose the exemption plan that works best. Go here to review Wyoming exemptions.
Fully Encumbered Property. This is property that the Bankruptcy Trustee does not want because there are liens and/or mortgages against the property that equal or exceed the value of the property. The debtor can keep this property if the debtor pays the debts on the property. If not then the creditors will take the property and sell it to pay off the liens or mortgages.
Property with no or nominal market value. This will include non-pedigreed pets, costume jewelry and similar items that could not be sold for much money. The debtor can keep these things only because no one else wants them. So, unfortunately that heap of junk car on the street that does not start will probably not be taken by the trustee.
Most Chapter 7 cases are “no-asset” cases, which simply means that you do not have any non-exempt property for the trustee to sell. At the time that you file your petition for bankruptcy, you declare whether your case is “asset” or “no-asset” and the burden is on the trustee to change the designation.
Do I have to list all my debts?
Yes. You must list all of your debts on your bankruptcy schedules, even debts that are non-dischargeable or secured, or that you want to pay even though you filed bankruptcy. If you leave out a debt on purpose, that is perjury which could result in loosing your discharge.
Just because you filed bankruptcy on a debt does not mean that you can not pay the person anyway, and if you make some payments after the discharge you do not become liable for the debt you decide not to pay. Listing a creditor does not prevent you from paying creditors you wish to pay after bankruptcy.
Not listing a credit card company on your bankruptcy, because you want to retain the use of the card, does not mean that you will continue to be able to use the credit card. Most major credit card companies discover who has filed bankruptcy, whether or not they are listed. They then cancel cards of everyone who has filed bankruptcy, whether or not a balance is owed.
Can I keep my home in a Chapter 7 if I am current?
This depends on how much equity you have in the home and if you continue to pay the liens on the home. Usually, if your equity (Value of the home minus all the liens on the home) is less than or equal to the exemption you are entitled to (In Wyoming $10,000 per owner) then the trustee will not want the home and will abandon it. Then if you pay the liens on a current basis you will be able to keep the home.
If you have more equity than the exemptions allow, then to keep the home you would need to pay to the trustee the amount in excess of the equity. Otherwise the home may be sold, the liens paid, you will get the exemption amount in cash and the trustee keeps the rest.
Some liens on homes can be eliminated. Ask your attorney which.
Can I keep my car?
Keeping a car depends again on its value, whether you are current on the loan and the exempt status. If the equity (value less debt) on the car is not greater than the exemption in the car, and you are current on the car you will be able to keep the car in a Chapter 7 bankruptcy. If equity exceeds the exemption, then the trustee will want the excess value and you would either need to pay the trustee that excess of the car would be sold, the debt paid, your exemption paid to you and the rest used to pay creditors. If you are not current on your payments, the creditor will probably want to take the car and sell it to pay the debt.
Can I keep my property if I am not current on the payments?
Unless you file a reorganization bankruptcy, like Chapter 11, Chapter 13 or Chapter 12, a creditor will probably be able to sell the property that you have pledged as collateral on a debt that you are delinquent on.
I heard you can not get rid of taxes in bankruptcy, is that true?
Older income taxes and some tax penalties can be eliminated in a bankruptcy. Reorganization bankruptcies such as Chapter 11, 12 and 13 can also be used to pay tax debt without accruing additional penalties and interest. In fact a bankruptcy can be one of a taxpayers most effective tools in dealing with the IRS. See our section on taxes for more detailed information.
Will someone come to my house?
It is not likely that anyone will come to your house to check and see what you have. You are under the legal obligation to be honest in your report of what you have and unless the trustee has information that you are being less than honest, no one will come to check.
How does the trustee know what I have?
Simple answer: you tell them!!! A debtor must: Answer the questions on the statements of affairs which include listing all transfers and all payments to creditors; and disclose all property with fair estimates of the value of the property. If the debtor fails to provide answers or answers the questions dishonestly the court can issue sanctions, including a dismissal of the case or a denial of a discharge. Further since the answers must be under oath, one can be charged with criminal perjury and/or bankruptcy fraud.
If I am married do we both have to file bankruptcy?
No, however the effect of one spouse filing a bankruptcy on the other spouse depends very much on whether: The state is a community property state (such as California) or not (such as Wyoming); the state recognizes tenancy by the entireties laws (such as Wyoming); and other variables. Consult your attorney for the details as to the consequence on a spouse of just one spouse files a bankruptcy.
Will a bankruptcy stop a wage garnishment? A foreclosure?
Yes for garnishments, unless the garnishment is for child or family support.
Yes, at least temporarily for foreclosures. The automatic stays stop the foreclosure until or unless the Court lifts the stay or the property has been abandoned and your discharge has been received.
Are there some debts I won’t eliminate in bankruptcy?
Yes. Some debts can not be eliminated in bankruptcy and must be paid. See discharge discussions for each chapter.
Can I put my ______ in someone else’s name?
You can, but you must disclose those transfers and the transfers may be undone. So why do it?
Will I lose my retirement?
No. Retirement is almost always exempt and will not be lost in a bankruptcy.
I filed bankruptcy before, does that keep me from filing now?
It depends on when you filed before and what bankruptcy you want to file now. You can only get a Chapter 7 discharge if a previous Chapter 7 case was filed more than 8 years ago. If you got a Chapter 13 discharge within 6 years, the earlier Chapter 13 plan has to meet certain repayment requirements to permit a Chapter 7 case earlier than 6 years from the filing of the prior case.
If your previous case was dismissed before discharge, it does not count in these considerations.
You can file a Chapter 13 case after a previous bankruptcy without any time restrictions. However, you can only get a discharge in the new Chapter 13 case if the previous case was filed more than 4 years ago for a previous Chapter 7, 11 or 12, and two years must be between filings of successive Chapter 13 to obtain a discharge in the second Chapter 13.
Courts can, however, question the debtor’s good faith if there are recent bankruptcies, and refuse a filing if they find a lack of good faith.
What happens to my credit if I file a bankruptcy?
Filing bankruptcy does not prevent you from getting new credit. In fact many lenders target people who recently filed a bankruptcy as customers, since they have no other debt, they can not easily file bankruptcy again recently and are anxious to reestablish credit. BUT you can expect credit to be more difficult to get, more expensive, and limited in amount.
Usually, within two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms just as good as those with the same financial characteristics who have not filed bankruptcy.
Although a bankruptcy stays on your credit report for 10 years, it becomes less important to creditors the more time elapses. In fact, you are probably a better credit risk after bankruptcy than before.
What if I can’t make my Chapter 13 payments?
Plan can be amended after confirmation to adjust the amount of payments because of lower income or unforeseen circumstances. If you are in a Chapter 13 with less than 60 months of payments, sometimes a plan can be extended and missed payments excused.
This page was last updated: May 12, 2014