What if I forget to include a creditor in my bankruptcy?

Generally speaking, 11 U.S.C. Section 523(a)(3)(A) excepts from discharge any debt not listed in the debtor’s schedules in time for the creditor to file a timely proof of claim. There is an exception to that rule: Debt not listed in bankruptcy schedules is indeed discharged in Chapter 7 no-asset cases.

Since the Trustee will not be collecting any assets, there is nothing to divide in a no-asset case. As there is nothing to divide, there is no reason to file a proof of claim. In fact, the trustee’s notice to creditors in no-asset cases instructs all creditors to refrain from filing a proof of claim. Consequently, a proof of claim in a no-asset case will never be too late and the debt can never be excepted from discharge, despite its not being listed in the debtor’s schedules. Courts reaching this conclusion include the 6th U.S. Circuit Court of Appeals: In re Madaj, 149 F.3d 467 (6th Cir. 1998).

With the debt discharged, the post-discharge injunction of Section 524 prohibits all collection efforts on the unlisted debt. If the creditor has been notified of the bankruptcy and nevertheless refuses to stop collection efforts, the debtor could re-open the bankruptcy and request sanctions.

Why should I consider bankruptcy?

You can discharge most, if not all, your unsecured debts (e.g., medical debt and credit card balances). You can catch up on past due mortgage payments. You may be able to avoid second mortgages in some cases. You can cram down loans for cars and investment property under certain circumstances.

What will happen to my credit?

Your score will bottom out, but that may not be as big a drop as you think. We have even seen cases where a filing can actually improve ones score. Many of our clients work with a consultant while emerging from bankruptcy to bring the score up significantly in 2-3 years.

How long will my case take?

A Chapter 7 case usually lasts 4-5 months, but can extend to as much as a year if the estate is complex or difficult; A Chapter 11 case can take from approximately a year to several years; A Chapter 13 case typically extends 3-5 years.

How do I know if Chapter 7 is right for me?

If you have property that is largely exempt and your household income is at or below the median, you might benefit most by filing a Chapter 7 case.

Which bankruptcy chapter saves the most money?

A Chapter 7 case generally has the most economic benefit because most unsecured debt can be discharged in full. However, a Chapter 13 case can provide significant benefit in the form of avoided or reduced secured debts. A Chapter 11 case is generally the most expensive since it is utilized primarily by corporations or individuals with significant income and debt/assets.

Can I keep a credit card and not report the debt on my bankruptcy schedules?

No. Every debt must be reported in your bankruptcy case, along with all of your assets.

What is a reaffirmation agreement?

If you want to keep a secured asset like a car, you may have to reaffirm the debt with the lender to avoid repossession of the vehicle. This would mean that, although most of your debts are discharged, you will remain liable for the debt after your case is closed.

What assets are subject to exemption?

Most commonly held assets will be exempt. For example, $21,625 of home equity and $3,450 of vehicle equity are protected. The most common problems involve vehicles owned outright, significant amounts of funds in bank accounts, cash value of certain types of insurance policies and tax refunds.

Will my corporation be affected by my personal bankruptcy?

Generally, no. However, your shares likely must be turned over to the trustee and you may lose your voting rights.

Will I have to appear before a bankruptcy judge?

In the vast majority of cases, no. Your appearances will be limited to your meeting of creditors, a short question and answer meeting with the Trustee.

Who does the trustee represent and what is his or her job?

The Trustee represents the American people. His or her job is to administer, oversee and ensure compliance with bankruptcy procedures and laws. To that end, a Chapter 7 Trustee will pursue nonexempt assets with equity and use them to payoff, first, secured creditors and then unsecured creditors according to priority. A Chapter 13 Trustee will attempt to extract a maximum monthly payment in order to pay secured creditors and return to unsecured creditors the highest percentage payback on debt as possible.

What if I am in a Chapter 7 case and the trustee wants my motorcycle, boat or other non-exempted asset?

Usually, the trustee will allow you to make an offer for the asset in order to keep it. In most cases, the trustee will also allow you to enter into a payment plan if you cannot afford a lump sum payment.

What happens if I change my mind after filing and don’t want to be in bankruptcy?

If you are in Chapter 7, the trustee may object to the dismissal. But only a bankruptcy judge can determine whether or not a case may be dismissed. If you are in a Chapter 13, dismissing your case is usually pretty easy.

Can I stop a foreclosure on my house by filing bankruptcy?

Yes. Upon filing bankruptcy, the automatic stay prevents any collections efforts by any creditor, including foreclosure actions and even sheriff sales. In order to proceed, the creditor must file for relief from stay. If that is granted, the creditor may then proceed with its collections efforts.

Can I leave some debts or assets out of my bankruptcy?

No, you must report all assets and liabilities in your schedules.

If I start a Chapter 13 plan but find I can no longer afford the payments, can I convert to a Chapter 7 case?

Yes, as long as you otherwise qualify as a Chapter 7 debtor.

Can I file a case without naming my spouse?

Yes. However, the income and expenses of the spouse must be reported and may be considered when determining what your Chapter 13 plan payment will be. That said, the bankruptcy will not appear on your spouse’s credit report.

Will everyone find out that I have filed bankruptcy?

Probably not. Most bankruptcies are only known to the attorneys, creditors, trustees and the judge.

Will all my debts be discharged in bankruptcy?

Maybe. But there are debts that are excepted from discharge and will survive the bankruptcy. They include, but are not limited to: mortgage liens, most tax obligations, spousal and child support, criminal fines, fines and penalties, liabilities resulting from fraud, and obligations arising from drunk driving.

Can I reaffirm certain debt?

Yes, you can. Whether you should is another matter. In our office, we are very reticent to advise our clients to reaffirm debts without a clear understanding of the downside.

How do I know whether I should file under Chapter 7 or Chapter 13?

If you have a combined income under the median for your family size and you are current on your payments for your house and car, then you will probably end up benefiting most from a Chapter 7 bankruptcy. However, you may have to file a Chapter 13 case if your family income is over the median and you fail the Means Test (a complicated formula for determining whether you should have sufficient net income to afford a Chapter 13 plan). You may also want to file under Chapter 13 if you have an arrearage on your mortgage or car loan and want to keep your house or car.

Can I file bankruptcy on my own without the assistance of a lawyer?

Yes, but I have seen pro se debtors really make a hash of things and then look to us to undo the mess they’ve made, especially in the case of Chapter 13 filings.

Can I discharge any federal income tax obligations?

In a Chapter 7 case, you can discharge federal income tax debt if: (a) there is no tax lien; (b) you haven’t tried to evade taxes or file fraudulent returns; (c)the tax return was filed with the IRS at least two years prior to the bankruptcy; (d) your return was due more than three years prior to filing; and (e) any tax deficiencies on prior returns were assessed at least 240 days prior to the filing of your bankruptcy case. In a Chapter 13 filing, you’ll pay the IRS as part of your repayment plan.