Top 5 Things to Know About Bankruptcy
Before deciding to file for bankruptcy, it is important to have all of the relevant information that can impact your decision to file. While there are many aspects of a bankruptcy filing to consider, the top 5 things to know about bankruptcy involve determining what chapter to file under, the automatic stay provision, non-dischargeable debts, the impact of bankruptcy on the debtor’s assets and the future impact of a bankruptcy filing.
Chapter 7 or Chapter 13?
Not all debtors qualify to file under Chapter 7, which is the bankruptcy section that provides the most sweeping relief in terms of discharging unsecured debts. In order to file for bankruptcy under Chapter 7, the debtor must first satisfy a means test.
Chapter 13 requires that the debtor enter into a repayment plan that can last between three and five years. The repayment plan is designed to provide some repayment to creditors, and essentially reorganizes the debtor’s finances so that all payments are made to the bankruptcy trustee, who then provides payment to the creditors.
The Automatic Stay
The automatic stay serves to freeze all collections efforts by creditors throughout the pendency of the bankruptcy proceedings. While the automatic stay is in effect, creditors are not permitted to call or write to the debtor, and all wage garnishments and bank account levies are stopped. However, it is possible for a creditor to challenge the automatic stay and obtain permission to continue collections efforts, including efforts to repossess a secured asset.
Not all debts can be discharged in bankruptcy. One of the top things to know about bankruptcy is that the following debts will survive the bankruptcy proceedings:
- Child support and alimony
- Certain taxes
- Student loans
- Certain amounts charged against the debtor as a result of a judgment in a court case
Assets and Exemptions
After filing for bankruptcy, a secured lender remains entitled to repossess the asset that secured the debt even if the debt was discharged in bankruptcy. For example, if the debtor’s mortgage debt was technically discharged in bankruptcy—because the debtor chose not to reaffirm the debt—the lender remains entitled to foreclose upon the home after conclusion of the bankruptcy proceedings.
The bankruptcy exemptions are limited, so that the exemption amount is insufficient to protect the entire asset in many cases. Debtors should be aware of this possibility and take it into consideration when deciding to file for bankruptcy.
One of the top 5 things to know about bankruptcy is that it can remain an issue even after the bankruptcy proceedings have concluded. Bankruptcy will impact the debtor’s credit score and must be disclosed in a variety of future situations—including all future applications for credit. In some cases, an employer may even ask whether a potential employee has ever filed for bankruptcy relief.
An experienced bankruptcy attorney can explain all future repercussions of filing for bankruptcy in detail, based upon the individual’s circumstances and the chapter under which the debtor chooses to file.