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| Bankruptcy FAQ |
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Q. What is bankruptcy?
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| The purpose of bankruptcy law is to provide people burdened by
debt the chance to get a fresh start. The reasons for filing are many--
and not necessarily anyone's fault--including divorce, job loss, unexpected long illnesses,
death of a spouse or breadwinner, debts created by a co-debtor, or excessive credit card
charges built up from years of earning less than that person's living expenses.
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| Q. Will I lose my home?
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| No, not if properly planned. In a Chapter 7, if there is no equity in the house (value of
the house today minus costs of sale and payoff balances on all liens) the trustee (a private attorney
appointed by the court to oversee the case) will not bother with attempting to sell your home to pay off
your creditors. However, you must make sure that you continue to make your mortgage payments. Even when
you are in bankruptcy, a lender keeps the right to foreclose on the property if you don't make the monthly
payments. If there is limited equity in the house then you can come up with a lump sum to pay that to the
trustee in a Chapter 7 case, a procedure known as "buying the equity." Or you might want to consider a
Chapter 13. In a Chapter 13 you will pay the amount of equity in your home to your creditors, plus catch
up if you're behind on payments to the mortgage lender, over a period of three to five years
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| Q. Will I be able to keep my car?
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| Yes. Most people owe more on their car than what the car is worth, especially if you bought
it new with a small down payment. Thus, because there is no equity in the car, the trustee will
not bother to take your car and sell it. If you owe less on your car than it is worth, you can
generally protect most of the equity using your exemptions.
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| Q. Can the lender take my car back?
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| If you still owe money on the car, you can choose to reaffirm the debt to
the secured lender, keep the car, and continue paying under the existing terms; or
you can "buy" the car for its present value from the secured creditor in a single
payment using your right of redemption. In many states, including the commonwealth of
Virginia, you can even keep the car and continue to make your regular payments under the
terms of the original agreement without having to reaffirm. If you choose, you can surrender
the car and be free of any obligation to pay for it.
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| Q. I have many student loans, can I discharge my student loans in bankruptcy?
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| Student loans are not dischargeable in any type of bankruptcy unless you can prove that repaying the
loan creates an undue hardship on you or your family. Proving hardship usually requires showing that you
can't provide a minimum standard of living for yourself and your dependents if you have to repay the loan.
Some courts will discharge part of the loan on a showing that repaying it all would be a hardship; however,
this is an extremely difficult showing to make in court. A Chapter 13 bankruptcy can get the debtor out of
default by paying the delinquent amount over three to five years
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| Q. A couple of my credit cards are hard to get, can I keep a credit card out of the bankruptcy for use later on?
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| If you owe money on a credit card at the time you file bankruptcy, you must list the card as
a debt; however, if you don't owe anything on the card, you don't have to give the credit card
company notice of your bankruptcy. Note however that they may find out through other means and
cancel the card as a precaution. Most credit card companies will allow you to keep their credit
card for use after bankruptcy if you agree to reaffirm the balance on the card and enter into a
new agreement. The decision is up to the creditor, but most creditors will want to avoid the loss
when the debt is discharged.
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| Q. Will I be able to purchase a house after filing bankruptcy?
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| Yes. Studies show that 24 months after a bankruptcy discharge, bankruptcy debtors can qualify for
a loan on the same terms as if they had not filed bankruptcy. That means that the lender will be much
more interested in your down payment, the stability of your income, and the relationship between the
loan payments and your monthly income than your past financial troubles
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| Q. What happens to my credit after I file bankruptcy?
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| If you only have a small amount of debt and have a good credit history, then filing bankruptcy
is foolish. On the other hand, if you are deep in debt, so much so that with your excess income,
if any, it would take many years to realistically pay it off, then increasing your net worth by
wiping out your debt, and starting to save money and invest, makes good sense. As for your credit
history, bankruptcy is no more harmful than the financial history that led to the bankruptcy filing
in the first place. Prior to bankruptcy most debtors couldn't get new credit from a lender who
looked closely at their financial condition anyway. Bankruptcy at least makes all the debt shown
in the negative history unenforceable. You want to make sure that the bankruptcy discharge also
shows on the credit report so that creditors understand that those old creditors have no legal
claim remaining. The bankruptcy can be on your credit report for up to ten years. However, you
are not barred from borrowing. The bankruptcy is only one factor in determining credit-worthiness.
Lenders take a practical approach looking at a person's post-bankruptcy ability to re-pay. In fact,
for many lenders, persons who have been through bankruptcy are a better risk because they are now debt-free,
and are determined to get a new start.
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| How long does a bankruptcy take?
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| Generally speaking, once you file your bankruptcy, you will have a creditor's meeting within
30 to 45 days. After the meeting of the creditors, you will receive you discharge order in about
90 days in Chapter 7, if there are no objections. Chapter 13 usually takes three to five years,
depending on the plan proposed by the debtor, but it could be less if you pay 100% to creditors
and can afford the higher payments.
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