Frequently Asked Questions (Bankruptcy)
Posted on 12. Mar, 2009 by emmettjones in Bankruptcy
If most debtors had the option, they would choose to file a Chapter 7 bankruptcy as opposed to a Chapter 13. Why isn’t that option available to everyone?
Debtors that have disposable income are usually unable to file a Chapter 7 bankruptcy. In part because the bankruptcy trustee is unwilling to let the debtor keep a portion of their month to the detriment of their unsecured creditors. Another factor that must be examined is whether or not the debtor passes the MEANS TEST. Debtors that fail the means test automatically have a presumption of abuse of the Chapter 7 code which must be rebutted before a Chapter 7 discharge can be obtained, so the failing of the MEANS TEST will impact on determining which chapter of bankruptcy is filed.
How long does a bankruptcy filing stay on my credit report?
Bankruptcy filings typically stay on your credit report for somewhere between 6-10 years. Typically a Chapter 7 filing will stay on your credit report for the 10 years, while a Chapter 13 typically appears on your credit report for seven years, which is usually done as a small reward for paying back some of your debts versus having all of your debts liquidated.
What’s a reaffirmation agreement, and why does my creditor want me to sign one?
The easiest way to explain a reaffirmation agreement is to consider it as a new contract between a debtor and a creditor, after a debtor has filed bankruptcy. Technically, when a bankruptcy is filed, the debtor is placed on a path to have their obligation to pay back their debts extinguished. Meaning that you technically won’t have an obligation to pay your car payment, for example (NOTE: If you want to keep your car, you still need to make the payments as usual, it is just the obligation to make the payments, created when you signed the car contract, that is extinguished). This becomes highly important if you live in a state that allows deficiency judgments. A quick example, below.
Debtor’s Car Value = $20,000
Amount owed = $16,000
—-> Fast forward to 6 months after the debtor has received their bankruptcy discharge —->
Assume that that the debtor cannot make the payments and the car is repossessed. After repossession the car would be sold at an auction.
Vehicle proceeds at auction = $4,000
Deficiency Balance (difference between amount owed and the amount received for the vehicle sale) = $12,000.
Debtors that signed a reaffirmation agreement before their bankruptcy case was completed would owe the $12,000 deficiency judgment based on the above example. Debtors that did not sign the reaffirmation agreement would not be obligated to pay the $12,000 deficiency. (NOTE: Amendments to the bankruptcy code in 2005 now require debtors to sign and file reaffirmation agreements, although this rule is not followed in every location. You should check with an attorney in your area to find out the rules for your location).
Can I obtain credit while in bankruptcy?
While not approved in every situation, debtors can obtain credit while in bankruptcy, as long as they have court approval. If you feel that you need to obtain financing, contact your attorney so that you may discuss the situation more thoroughly.
What if I can’t make my Chapter 13 plan payments?
Debtors that cannot make their Chapter 13 plan payments have a few options. Depending on the situation, they may be able to have their Chapter 13 plan amended; either in length, or in monthly payment amount. They also may have the ability to convert their case to a Chapter 7. Finally, they may also have the case voluntarily or involuntarily dismissed. (NOTE: deciding to amend a case or convert a case is a complex matter which should be discussed between you and your attorney. It is not guaranteed that you will not lose some of your assets upon conversion or amendment of your bankruptcy proceeding. If you feel that you cannot make your Chapter 13 plan payments, contact your attorney immediately).
Can I refinance my home while in bankruptcy?
Yes. Read the post “Refinancing in Bankruptcy” for more information.
