FAQs

Both individuals and businesses are allowed to file for Chapter 7 bankruptcy. When an individual files such a bankruptcy, it is referred to as a consumer Chapter 7 bankruptcy. When a business files a Chapter 7 Bankruptcy case, essentially for liquidation, it is referred to as a business Chapter 7 Bankruptcy. These bankruptcy cases will typically last between three and six months, with more complicated ones spanning from six to 12 months or longer. A Chapter 7 Bankruptcy is commonly referred to as a "straight bankruptcy." Upon filing the bankruptcy with the court, an automatic stay immediately goes into effect, ceasing all collection activities, thus providing an opportunity for the filer to catch their breath. Upon entry of the Discharge (the order from the court relieving the filer of all obligations and liabilities on debts listed in their schedules), the filer obtains a "fresh start." The Discharge allows the filer to begin anew, having eliminated most, if not all, of their debt, retaining their exempt property, and starting over.

Before you can file for Chapter 7 bankruptcy, you must show that you are eligible to file for the protection offered by Chapter 7. The eligibility to file such a case hinges on the type of debt you owe, such as consumer debt or business debt, and also on your monthly household income based upon a six-month look back.

Chapter 13 bankruptcy protection is designed for individuals with regular income who are temporarily unable to pay their debts and would like to pay them in installments over some time. You are eligible for Chapter 13 if your secured and unsecured debts do not exceed specific dollar amounts outlined in the Bankruptcy Code. You must file a Plan with the Court explaining how you propose to repay your creditors all or part of the money you owe them, using your future earnings. Usually, the period allowed by the court to repay your debts is five years but no less than three years. You may keep all your property, both exempt and non-exempt, as long as you continue to make payments under the Plan.

There are six different types of bankruptcy, known by their chapters in the Bankruptcy Code. All types provide permanent relief from certain debts. Most debtors file for bankruptcy under Chapters 7, 11, and 13.

Chapter 7 provides for the liquidation of the debtor's non-exempt assets. A court-appointed trustee conducts the sale of the debtor's non-exempt assets and distributes the proceeds to creditors. Both individuals and businesses may file for bankruptcy under Chapter 7.

Chapter 9 provides for the reorganization of municipalities (which includes cities, towns, villages, taxing districts, municipal utilities, and school districts).

Chapter 11 is typically relied upon by partnerships and corporations. It provides for a supervised reorganization of a business and allows the debtor to maintain the business while implementing a payment plan confirmed by the court.

Chapter 12 is applicable to family farmers and fishermen.

Chapter 13 provides for bankruptcy of an individual with a regular income, which is used to make a payment plan to pay debts, usually within three to five years.

Chapter 15 applies to cross-border bankruptcies. It adopts and implements the United Nations' Model Law on Cross Border Insolvency.

Most consumer debt can be eliminated through a bankruptcy discharge. If you forget to include a debt in the paperwork, however, it will not be discharged. Additionally, creditors have the opportunity to object to the discharge of any debt. There are 19 categories of debts that are considered "non-dischargeable”.

Some debts considered non-dischargeable can nevertheless be discharged if a creditor does not challenge your effort to get them discharged. Student loans are only discharged if you are able to convince the court that repaying the debt is an undue hardship for you.

Filing for bankruptcy triggers an automatic stay, which requires creditors to stop their collection efforts, including efforts to foreclose on or repossess the property. Whether the bankruptcy fully stops foreclosure or repossession or merely delays these events, depends on the type of bankruptcy you file.

Filing for Chapter 7 bankruptcy allows you to stall a foreclosure sale for 3-4 months, which can provide you time to negotiate with a lender to change the loan period or loan terms of the mortgage. However, a lender may move to lift the stay. Filing for Chapter 13 can stop the sale and allow you to propose a debt repayment plan that will cover arrearages as well as mortgage payments that come due during bankruptcy. As long as the plan is approved and you make timely payments on this plan over the 3-5 years of bankruptcy, you can avoid foreclosure altogether.

A Chapter 7 automatic stay stops a lender from repossessing your car, but the lender can and probably will ask the court to lift the stay unless you show that you are going to catch up on car payments or cure a default. The lender will need to show the court that its interests are inadequately protected because you have failed to make timely payments on the loan or you are in default. Most times, if you cannot afford to catch up on car payments or cure your default, the court will lift the stay and will not stop a lender from repossessing your vehicle.

However, you should be able to stop a repossession altogether if you adequately address arrearages and upcoming car loan payments in your Chapter 13 debt repayment plan. To keep your vehicle, you will also need to make adequate protection payments from the date your file for bankruptcy until the date the judge approves the plan.