Bankruptcy FAQ

Bankruptcy is a legal proceeding in which an individual who cannot pay his or her bills can get a fresh financial start. Bankruptcy does not eliminate the debt, it eliminates your responsibility to pay the debt. Bankruptcy is a way for people or businesses who owe more money than they can pay right now (a "debtor") to either work out a plan to repay the money over time under Chapter 11, 12 or 13, or for most of the bills to be wiped out ("discharged"), as in a chapter 7 case. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

Bankruptcy may make it possible for you to:

• Eliminate the legal obligation to pay most or all of your debts. This is called a "discharge" of debts. It is designed to give you a fresh financial start.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

The federal judiciary proves public access to federal appellate, district and bankruptcy court documents through Public Access to Court Electronic Records (PACER), an electronic public access service.

Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:

• Eliminate certain rights of "secured" creditors. A "secured" creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines, and some taxes.
• Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed.

You cannot receive a discharge in a Chapter 7 case if you received a discharge under a Chapter 7 case filed in the last eight years or a Chapter 13 filed in the last six years. You cannot receive a discharge in a Chapter 13 case if you received a discharge under a Chapter 7 case filed in the last four years or a Chapter 13 filed in the last two years. If you didn't received a discharge in the previous bankruptcy filing, you may be file and receive a discharge without any time restrictions, depending on the reason that you did not receive a discharge.

There are four types of bankruptcy cases provided under the law:

• Chapter 7 is known as "straight" bankruptcy or "liquidation." It requires a debtor to give up property which exceeds certain limits called "exemptions", so the property can be sold to pay creditors.
• Chapter 11, known as "reorganization", is used by businesses and a few individual debtors whose debts are very large
• Chapter 12 is reserved for family farmers.
• Chapter 13 is called "debt adjustment". It requires a debtor to file a plan to pay debts (or parts of debts) from current income.

Most people filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property which the law allows you to keep. In most cases, all of your property will be exempt. Property which is not exempt may be sold, with the money distributed to creditors. Typically the Court does not want to take your items because it takes time, energy and expense to collect and sell the items. Typically the Trustee will make a "deal" with you to make a cash payment of a portion of the value of the items in order to allow you to retain the items. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

In a chapter 13 case you file a "plan" showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property–especially your home and car–which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. You should consider filing a chapter 13 plan if you: (1) own your home and are in danger of losing it because of money problems; (2) are behind on debt payments, but can catch up if given some time; (3) have valuable property which is not exempt, but you can afford to pay creditors from your income over time. You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required payments as they come due.

As of June 1, 2014 it costs $335.00 to file for bankruptcy under chapter 7 and $310.00 to file for bankruptcy under chapter 13, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you hire an attorney you will also have to pay the attorney's fees you agree to. Attorney fees for a Chapter 7 case must be paid in advance, because when you file the case all debts owed prior to the filing of the bankruptcy, including any unpaid attorney fees, are discharged through the bankruptcy. Attorney fees for a Chapter 13 case may be paid in whole or in part through the Chapter 13 bankruptcy Plan.

In a chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. There are 2 types of "exemptions" - State and Federal. Your attorney will review the list you provide to him/her of your property and determine whether the State or Federal exemptions are most advantageous for you. In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement. You also only need to look at your actual equity in any property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it. While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind on payments. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt and you continue to make the monthly payments. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. However, some of your creditors may have a "security interest" in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case. There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

Yes. Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after your bankruptcy is filed, that money or property may have to be paid to your creditors if the property or money is not exempt. You can also keep any property covered by bankruptcy exemptions through the bankruptcy.

Yes, with some exceptions. Bankruptcy will not normally wipe out: (1) money owed for child support or alimony, fines, and some taxes;(2) debts not listed on your bankruptcy petition;(3) loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;(4) debts resulting from "willful and malicious" harm;(5) student loans owed to a school or government body, except if:– the court decides that payment would be an undue hardship;(6) mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

In most bankruptcy cases, you only have to go to a proceeding called the "meeting of creditors" to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time creditors do not attend. Typically they only attend if they are unfamiliar with the bankruptcy process and think that they must attend or they attend because they think that they have been defrauded. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney. To find the location of the court that serves your area visit the Wisconsin Federal Bankruptcy Court Directory page. Remember to bring a government picture identification card (driver license, passport, military ID) and your Social Security card to the meeting of creditors. The trustee reviews these documents at the meeting of creditors and will NOT conduct the meeting, if you do not provide them to him.

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. The fact that you've filed a bankruptcy can appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.

Yes, there are several options available. While technically not a credit card you could use a bank or debit card to perform activities for which you normally would use a credit card. You also may be able to keep the credit card you already have if the creditor grants approval. If these options do not work you can get secured credit card which is backed by your own bank account. Making timely payments, which are reported to the credit reporting agencies, is the key to rebuilding your credit.

Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after your bankruptcy is filed.

No. 11 U.S.C. sec. 525 prohibits governmental units and private employers from discriminating against you because you filed a bankruptcy petition or because you failed to pay a dischargeable debt.

If you lost your license solely because you couldn't pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. Your bankruptcy does not discharge the obligation to your lender of the co-debtor or co-signer. If you have a co-debtor or co-signer and you make the monthly payment on the debt, the court considers this to be a payment for the benefit of the co-debtor or co-signer. If the co-debtor or co-signer is a family member then the court will look back 12 months to see how much you have paid on the debt to the benefit of the co-debtor or co-signer. The court may require that the co-debtor or co-signer pay that money to the court. If the co-debtor or co-signer is not a family member, then the court looks back 3 months and may require that the co-debtor or co-signer pay that money to the court.

Yes, but your spouse will still be liable for any joint debts. However, because of Wisconsin's Marital Property laws, and what is called the "phantom discharge" which generally protects the non-filing spouses marital property, a creditor may not be able to sue the non-filing spouse. You should retain an experienced bankruptcy attorney who is familiar with the "phantom discharge." The non-filing spouse would only be collectible upon the death of the filing spouse or divorce from the filing spouse. If you file together you will be able to double your exemptions. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.

Yes. The automatic stay prevents bill collectors from taking any action to collect debts. While retaining a bankruptcy lawyer does not automatically stop bill collectors, they typically stop their efforts, if you have retained (paid money to) a bankruptcy lawyer. They know that you are serious able filing bankruptcy because you have retained a bankruptcy lawyer and they usually do not want to waste their time trying to collect on a debt which will be discharged.

Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with your case number. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a lawsuit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.

Generally, student loans are not discharged in bankruptcy. In 11 U.S.C. sec. 523(a)(8) there are two exceptions to this general rule:

1. The student loan may be discharged if it is neither insured or guaranteed by a governmental unit, nor made under any program funded in whole or in part by a governmental unit or nonprofit institution.

2. The student loan may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents." Student loans more than 7 years old used to be dischargeable under certain circumstances, but this provision was removed by an appropriations bill passed in October of 1998.

Whether an exception applies depends on the facts of the particular case and may also depend on local court decisions. Even if a student loan falls into one of the two exceptions, discharge of the loan may not be automatic. You may have to file an adversary proceeding in the bankruptcy court to obtain a court order declaring the debt discharged.

If you haven't lived in your current state for 91 days you must wait until you have lived there for 91 days and then file in your current state. If you lived in your current state for more than 91 days but less than two years, you will file in your current state but use the exemptions from where you lived for majority of the 180 day period immediately previous to the 2 year period before you filed. If you bought your home within the last 40 months and/or haven't lived in your current state for the last 2 years then your homestead exemption may be limited.

Alimony, maintenance, and/or support are protected from discharge. Divorce decrees and separation agreements are covered by 11 U.S.C. Section 523(a)(15). This section states that these debts are not dischargeable unless:

(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or

(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor.

With secured debts a person has 3 options

1) Redeem - Pay the creditor the value of the item and receive a release of the creditor's lien.

2) Surrender - You can return the item to the creditor and the amount that you owe to the creditor is discharged through the bankruptcy.

3) Reaffirm - Sign an agreement to agree to continue to make payments to the creditor. There is potential for changes to the agreement through the reaffirmation agreement process. A creditor can not change the agreement to your disadvantage, but you can ask for better terms. The creditor is not required to change the agreement, but may change it, if it senses that you may surrender the item, if you do not get better terms.

Upon the filing of the bankruptcy the automatic stay prevents bill collectors from continuing the garnishment. You should provide to you attorney the fax number of your payroll department and upon filing of the bankruptcy your attorney should immediately notify the payroll department, so that the garnishment will cease immediately. The garnishor is required to notify your employer to stop the garnishment, but may not get it done fast enough to timely stop the garnishment. You are entitle to the return of any money garnished after the filing of the bankruptcy. Additionally, if any one garnishor has garnished more than $600.00 in the 90 days prior to the filing of the bankruptcy, this is considered a preference payment and you may be able to get that money back from the creditor.

Upon the filing of the bankruptcy the automatic stay prevents bill collectors from continuing the lawsuit. Typically the creditor's attorney will file with the state court a request for a dismissal of the case without prejudice. This means that you case is dismissed, but if for some reason your bankruptcy is not successfully completed, the creditor can reinitiate the lawsuit.

A judgment is typically obtained by a creditor in state court. Typically when creditors obtain a judgment, they pay an additional fee for the judgment to be "docketed" When a judgment is docketed, it becomes a lien upon all real property owned by you in the county where the judgment is docketed. Bankruptcy cases are filed in federal court. A bankruptcy discharge discharges your personally responsibility to pay the debt, but does not eliminate the judgment. The judgment stays of record and will haunt you unless an additional step is taken after the bankruptcy is filed. After the bankruptcy is filed, a motion to satisfy the judgment due to discharge in bankruptcy must be filed with the state court in order to receive a satisfaction of the judgment. It is a process with which your attorney can help you.

No. Federal income tax law defines canceled debt greater than $600.00 as income and requires that you pay income tax on any canceled debt. However, through bankruptcy a debt is not canceled, it is discharged. If a creditor sends to you a 1099-C for Cancellation of Debt, refer your tax preparer to IRS form 982.

While it is possible to file a bankruptcy case "pro se," that is, without the assistance of an attorney, it is extremely difficult to do so successfully. Hiring an attorney is recommended.

Typically the process entails gathering together information regarding your assets, liabilities, income and expenses. The court wants to know what you own and what it is worth. The court also wants to know the names, addresses, accounts and amounts that creditors believe you owe. The court wants to know your income in order to determine your eligibility for the various types of bankruptcies. The court also needs to know your monthly expenses.

Your assets are all personal and real property that you own regardless of where it is located or in whose possession it is. Personal property includes, but is not limited to, tables, chairs, couches, sofas, desks, dressers, computers, televisions, clothing and cars. Real property is any land or timeshares that you may own or in which you have an ownership interest.

Liabilities are any claims against you by a creditor for money that the creditor believes you owe to the creditor. All liabilities must be listed in the bankruptcy, whether you agree that you owe the money or not. You can not pick and choose creditors to include in the bankruptcy. You must disclose all your creditors.

The court requires that your eligibility for filing bankruptcy be determined by a review of your income. Court requires that your eligibility be determined by calculating your gross income for the 6 months prior to the month in which you file bankruptcy. For example, if you will file bankruptcy in the month of July, then the months of January through June are used to calculate your income for determining eligibility. You add up the gross income for those 6 months, divide by 6 to get a monthly amount and then multiple by 12 to calculate your annualized income. The income arrived for your household size is then compared to the State Median Family Income by Family Size data for Wisconsin to determine your eligibility.

Most individual debtors filing for bankruptcy relief are required to complete either Official Bankruptcy Form 22A for Chapter 7 or Form 22C for Chapter 13. This is the "means testing" form. The first portion of the Means Test compares your Current Monthly Income (CMI, an average of the last six months, excluding Social Security benefits) to the allowed State median income for your family size. If your income is less than the median for your household size, the full Means Test does not apply and you are eligible for a Chapter 7 case. If the your income is higher than the state median for your household size, then you must complete the full Means Test. Your Disposable Monthly Income (DMI) is then calculated and is based on your current monthly income minus allowances and actual expenses. If the DMI exceeds the limits allowed by law, then you must file Chapter 13. If the DMI does not exceed the limits allowed by law, then you can file a Chapter 7.

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William G. Weiland
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