Bankruptcy - Frequently Asked Questions

The bankruptcy attorneys at Bailey & Galyen provide answers to frequently asked questions regarding bankruptcy. Specific financial situations may involve other bankruptcy laws, and these FAQs are not intended as legal advice. It is always essential to consult with a bankruptcy attorney who will review your particular circumstances.

1. What is bankruptcy?
2. How does filing bankruptcy stop other creditor actions against you?
3. How frequently can you file for bankruptcy?
4. Do you have to list all your creditors in your bankruptcy petition?
5. Will your employer will discover that you filed bankruptcy?
6. Will you lose your job after filing for bankruptcy?
7. How will bankruptcy affect your credit rating?
8. Can you repay a creditor after you file for bankruptcy?
9. Will bankruptcy discharge taxes owed?
10. After you file bankruptcy do you have to go to court?
11. How can you re-establish credit after bankruptcy?
12. Can you keep a credit card after bankruptcy?
13. What are the signs that your finances might be in trouble?
14. After filing bankruptcy, what entries will appear on your credit report?
15. Has bankruptcy become more difficult and more expensive after the enactment of BAPCPA?

1. What is bankruptcy?

Bankruptcy is a legal action for debtors to deal with insolvency. Most debtors are given relief even if there is not a complete discharge of debts.

Title 11 of the United States Code establishes and sets the guidelines for bankruptcy procedure. There are various types of bankruptcy outlined in Title 11, and debtors are eligible for certain forms of bankruptcy based on their financial situation, their type of business (in the case of a business bankruptcy) and other factors. The court appoints a trustee who oversees the bankruptcy proceedings.

A bankruptcy may be voluntary or involuntary. A voluntary bankruptcy is one that the debtor initiates, as opposed to an involuntary bankruptcy, which is a legal action taken by creditors against the debtor. In an involuntary bankruptcy the debtor has the opportunity to contest the bankruptcy petition.

The Bankruptcy Code prevents creditors from pursuing collection actions against the debtor while he or she is either working out a payment plan or while the trustee dealing with liquidation of assets. The Bankruptcy Code determines all aspects of the bankruptcy, including the chapter of bankruptcy that applies, which bills are eliminated and the time period for payment.

2. How does filing bankruptcy stop other creditor actions against you?

As soon as you file a bankruptcy petition, the court issues an ‘‘automatic stay,’’ which is a legal action that prevents creditors from pursuing collection activities or legal actions against you in an effort to collect debt. If the creditor has seized funds after the petition was filed, in many cases those funds must be returned. Your bankruptcy attorney will explain legal actions that will be taken to recover these funds.

Repeat bankruptcy filers are subjected to different rules under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2006 (BAPCA). It is very important to consult a bankruptcy attorney regarding how the automatic stay may be handled under the new rules if you previously had a dismissed bankruptcy.

3. How frequently can you file for bankruptcy?

If you filed a Chapter 7 bankruptcy and received a discharge, you must wait 8 years before filing another Chapter 7.

You cannot receive a discharge in a Chapter 13 case if you received:

• a) A discharge in a prior case under Chapter 7 11, or 12 that was filed within four years of the current Chapter 13.
• b) A Chapter 13 discharge in a case that was filed within two years of filing the current Chapter 13.

However, a ‘‘Chapter 20’’ filing may be available to you under the above rules. A Chapter 20 filing is a Chapter 7 case to eliminate unsecured debt followed immediately by a Chapter 13 case to allow mortgage arrearages to be remedied, etc. The reason it may be available to you under the above rules is because the point of the follow-up with a Chapter 13 case is usually to repay a mortgage debt and not to get a discharge from that debt.

4. Do you have to list all your creditors in your bankruptcy petition?

Yes, you are obligated to list in your bankruptcy petition all your creditors. A creditor is any company or any person, even a family member or friend that you owe money.

5. Will your employer discover that you filed bankruptcy?

You usually don’t have to worry about your employer finding out about your bankruptcy unless your employer is one of your creditors or your wages are no longer being garnished, in which case your employer may follow up to learn why the garnishment ceased.

6. Will you lose your job after filing for bankruptcy?

No. You are protected against discrimination based on bankruptcy laws that prohibit job termination due to filing bankruptcy.

7. How will bankruptcy affect your credit rating?

Chapter 7 bankruptcy filing remains on your credit report for 10 years, and Chapter 13 remains for 7 years. You may start qualifying for loans such as a car loan as early as one year after filing bankruptcy if you meet the income requirements. However, the lender will likely charge you higher than normal interest rates. It may take five to seven years before you are offered normal interest rates again.

8. Can you repay a creditor after you file for bankruptcy?

Under Section 524(f) of Title 11, you are authorized to repay any creditor you choose.

9. Will bankruptcy discharge taxes owed?

There are circumstances which discharge tax debt. For Chapter 7, if you filed your tax return for the year, under the circumstances below your debt will be discharged:

1. The 3-Year Rule: Your tax return was due more than 3 years prior to your bankruptcy filing. If you obtained an extension, the due date would be the extension deadline.
2. The 2-Year Rule: If your late return (filed after its due date and any extensions) was actually filed more than 2 years prior to the bankruptcy filing.
3. The 240 Day Rule: If the IRS assessed your taxes more than 240 days prior to the bankruptcy filing
4. If you did not file a fraudulent return or knowingly attempt to evade paying taxes.

There are other taxes your attorney can review with you, such as trust fund taxes, tax liens and taxes not covered by the 2 and 3 Year Rules. Because these tax areas can be very complicated, an experienced bankruptcy attorney can be invaluable in helping you sort out what taxes are discharged and what taxes you still owe.

10. After you file bankruptcy do you have to go to court?

With a Chapter 7 bankruptcy you usually have to attend one Meeting of Creditors before your bankruptcy trustee, which takes place 20-40 days after filing your bankruptcy petition. For a Chapter 13 bankruptcy you will have go to court for two appearances before your trustee, for the Meeting of Creditors and the Confirmation Hearing.

If you are seeking extra relief, other court appearances may be required. Your Discharge is entered after all required Plan payments have been made and your certificate evidencing completion of the Instructional Course in Personal Financial Management has been filed.

11. How can you re-establish your credit after bankruptcy?

You can re-establish your credit by getting a co-signer on a loan and also by getting a secured credit card. With a secured credit card you, your credit card will have a limit based on the sum of money you gave the creditor as security for your card.

12. Can you keep a credit card after bankruptcy?

Yes. If the credit card was not adversely affected by your insolvency, most credit card companies will continue to do business with you after filing for bankruptcy.

13. What are the signs that you may be in trouble?

• You’re making balance transfers from one card to another lower interest rate card.
• You are only able to make minimum credit card payments.
• You have maxed out your credit cards.
• You are covering basic living expenses, such as food, with your credit card.
• You’re taking ‘‘cash advances’’ from one card to pay on another.
• You need a co-signer before you can qualify for a car loan.
• You cannot afford health insurance because all of your money is being used to cover revolving debt.
• You are refinancing your house over and over to pay down debt.
• Creditors call you at all hours of the day or night at home or at work.
• Your creditors are calling your neighbors.
• Creditors are filing lawsuits against you.
• Your house is in, or on the verge of, foreclosure.
• The IRS filed a tax lien against you.

14. After filing bankruptcy, what entries will appear on your credit report?

While creditors are supposed to notify credit-reporting agencies when debts are discharged, they do not always do so. As a result, you may have discharged debts still appearing on your credit report. You should send copies of the following documents to the three credit reporting agencies to ensure your credit report accurately reflects your discharges:

• Discharge of Debtor and Order of Final Decree
• Notice of Bankruptcy Case Filing (attached to the front of your petition)
• Schedules ‘‘D’’, ‘‘E’’ and ‘‘F’’ of your bankruptcy petition, together with any amendments of said schedules:

Experian
PO Box 2104
Allen, TX 75013

Equifax Information Services
PO Box 105873
Atlanta, GA 30348

TransUnion
PO Box 1000
Chester, PA 19022

Unless you specifically hire your attorney to do so, it is not his job to clear up any errors on your credit report, once your debts are discharged. You can easily take the above steps yourself and save the expense of additional attorneys’ fees.

15. Has bankruptcy become more difficult and more expensive since the enactment of Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)?

Yes. Since the enactment of BAPCPA, the rules for filing bankruptcy are more stringent. You must take a Means Test, go to credit counseling classes before you file for bankruptcy, and obtain additional budgeting and debt management counseling before your debts are discharged. And, there is more documentation than ever before. The time it takes to carry out the added tasks has increased the cost of an attorney, and court filing fees are also higher than before BAPCPA was passed. More documentation and stricter rules have definitely made filing bankruptcy more difficult.

When you are considering bankruptcy, it is strongly recommended that you retain competent legal counsel. At Bailey & Galyen, our experienced bankruptcy attorneys can assist you in evaluating your financial circumstances, recommending the type of bankruptcy most appropriate in your situation, and guiding you through the complexities of filing for bankruptcy.