Bankruptcy

What is the Definition of Bankruptcy?

Filing for bankruptcy is a federal court process to help people eliminate their debts or repay them under the protection of the bankruptcy court. Common terms used for bankruptcy are liquidation or reorganization. 

Does filing for bankruptcy protect me from creditors' efforts to collect what I owe? 

Filing bankruptcy grants you an "automatic stay". This will prohibit most creditors from contacting you to collect debts you owe unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Chapter 7 bankruptcy is when you ask the court to discharge most of the debts you owe. In return, the bankruptcy trustee can take any property you own that is not exempt from collection, sell it, and distribute the proceeds to your creditors. 

Chapter 13 bankruptcy is when you file a repayment plan with the bankruptcy court to pay back your debts over a specified period of time. The repayment amount depends on how much you earn, the amount of debt you owe, and how much property you own.

What do I stand to lose if I file bankruptcy?

You may be able to exempt a portion of your homes equity. Some states have no homestead exemption; others allow debtors to protect all or most of the equity in their home. You should consult a lawyer to discuss your individual options. 

In most cases, you get to keep the cash value of your insurance policies.

Retirement plans. Pensions which qualify under the Employee Retirement Income Security Act (ERISA) are fully protected in bankruptcy. So are many other retirement benefits; often, however, IRAs and Keoghs are not.

In most cases you should be able to keep household goods, furniture, clothing (except furs), appliances, etc. You may be able to keep jewelry if it is only worth up to $1,000. In most cases you can keep your vehicle with more than $2,400 of equity. In most states you will be able to keep around $1,000 that you can apply toward any property. 

All public assistance like welfare, Social Security, and unemployment insurance, are protected. 

You should be able to keep most of the tools of your trade or profession. 

Most states will allow you to protect approximately 75% of your wages that have been earned but not yet received. 

Can creditors get around the automatic stay?

If the stay is not serving its intended purpose, then a creditor can ask the bankruptcy court to lift the stay. For example, if you file bankruptcy the day before your house is sold and you have no equity in the home, you can't pay your overdue mortgage and you have no way of keeping the property. The foreclosed upon creditor will likely ask the court for permission to proceed with the foreclosure and permission will likely be granted. 

Will bankruptcy stop a foreclosure?

Yes and no. A home is usually secured by a deed of trust. The mortgage company is allowed to ask the court for relief from the automatic stay. You may be able to prolong a foreclosure until you have received your discharge from bankruptcy. In most cases, you will have to make a deal with the mortgage company to keep it out of foreclosure. That is why filing bankruptcy should be a last resort. You will still have to pay the overdue mortgage. 

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