What Happens When You File Bankruptcy
Bankruptcy isn’t the easy answer some people may think it is. There’s a lot to consider.
- The 2005 changes to the Bankruptcy Code did not eliminate bankruptcy as an option for most people. But it did make it more complicated.
- In order to qualify for Chapter 7 liquidation you must meet a “means test” intended to prevent liquidation of debt if the debtor’s income exceeds the national average. A more complicated calculation applies if your income is too high. Even if you don’t qualify for Chapter 7 liquidation, you can still qualify for Chapter 13 reorganization.
- Your bankruptcy filing will require at least one court appearance.
- After you file Chapter 7, even if your discharge is denied or you elect not to proceed with your bankruptcy, your non-exempt assets may still be liquidated and the proceeds distributed to creditors.
- Before a petition for bankruptcy is filed, the debtor must undertake a credit-counseling course – which may be completed online. After the petition but before discharge, the debtor must undertake a financial management course – which may also be completed online.
- If your discharge is denied (for example, for committing fraud in your bankruptcy) your obligations generally become non-dischargeable, even in a subsequent bankruptcy.
- Chapter 13 reorganization of debt involves repayment of some of your debt over a 3 – 5 year period by committing “disposable income” to repayment. The unpaid debt is then typically discharged.
- If you have an insolvent business, you may need to consider bankruptcy for both yourself and your business in order to accomplish your objective.
- Contrary to rumors, credit card debt is still dischargeable. However if the card-debt was incurred fraudulently, or with no intention of paying it back, it may be non-dischargeable.
- Not all debt is dischargeable. For example, tax liability, student loans, child support and spousal maintenance, criminal penalties and debt incurred by fraud is not typically dischargeable.
- “Liquidation” means liquidation of all non-exempt assets in addition to discharge of debt. If your non-exempt assets exceed your debt, you should be prepared to surrender those assets.
- Bankruptcy does adversely impact your credit rating – your ability to borrow money. Be prepared.
- Bankruptcy discharges all debt unless a debt is reaffirmed. Preferences are not allowed, so the debtor does not get to choose arbitrarily what debt survives and what debt does not. Reaffirmation must be approved by the bankruptcy court.