Chapter 7 Bankruptcy Frequently Asked Questions (2021 Update)
Chapter 7 FAQ's
Chapter 7 Frequently asked questions
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Will I lose all my house, auto, or property in Bankruptcy?
A single filer can preserve $15,000 in equity and joint filers can preserve $30,000. You also have to factor that some equity is consumed by real estate broker fees and closing costs. We can estimate whether you are safe or at risk.
Can I just give away or transfer my house or auto before a bankruptcy?
You can, but any transfer for the last four years can be "undone". It also creates the impression that you are taking actions to "hide" your property before a bankruptcy and could invalidate your bankruptcy or even cause the loss of the asset that your were trying to preserve. You will be asked if any such property transfers have taken place.
Will I lose my income tax refund?
In a chapter 7, you could lose a refund that has been deposited into your account at the time of filing. It will be treated simply as normal "cash". With proper exemption use, you can completely preserve any pending Earned Income Credit, Child Credits, School Credits and similar portions of your refund. You could also take steps to preserve the pro-rata portion of your spouse's tax refund and your refund.
Do I have to include my Spouse in the Bankruptcy?
You do not have to include your spouse. However, your spouse's income must be reported unless you declare a separation and you should consider proper asset management and declaration of your joint assets to minimize any issues.
I am in an Illinois LGBT Civil Union, can we file a joint bankruptcy?
Yes, every filing district is different. In the District that covers Illinois, and LGBT union has the same rights as a common marriage.
What happens the 341 Creditors' Meeting?
You will be sworn in, your identity address and social security will be confirmed. You will be asked to verify that all your assets and liabilities have declared. You will then be asked specific questions about your particular financial condition. Most of these questions are similar and we can prepare you so that you know what questions to expect. Creditors are also invited to attend and ask questions but it is rare for them to do so. If the Trustee has not further matters to investigate, he will declare that there are no assets to administer and you will essentially be "done" with your bankruptcy.
Can I discharge my child-support?
Child Support is not dischargeable in a Chapter 7. Keep your payments timely. Late payments that are creating "rule to show cause" or other similar issues in "divorce court" can be managed with a Chapter 13 payment plan.
It's an emergency, how long does it take to file a bankruptcy?
A bankruptcy can commence very quickly. Often the same day. As soon as all your paperwork has been presented to the attorney, your financial affairs entered on your schedules, and it can be filed. Although not recommended, it can be done very quickly.
How often can I file a Bankruptcy?
After your receive a bankruptcy discharge, you must wait 8 years before you can file another Chaper 7 Bankruptcy. You could file a Chapter 13 if you have not received a Chapter 7 discharge in the last 4 years; or if you have not received a Chapter 13 discharge in the last 2 years.
Do I need an Attorney to file a bankruptcy?
You do not need an attorney. The bankruptcy court published the forms for filing and instructions. Their is no right to an attorney to be provided "at no cost" by the court. The rules of exemptions are complex and there are many "traps" for the unknowing. Considering that your assets are at risk and you wish your debts to be extinguished, the cost of a bankruptcy attorney is reasonable. For most people, its the only time in their life they will actually be "happy" to make a payment.
Must I include all my bills and credit cards?
Yes. All debts must be included. Banks are sophisticated enough that they will generally know you filed a bankruptcy even if you forget to tell them.
Can I keep my credit cards or keep my favorite credit card?
No. All debts must be reported and your bank will generally terminate your account. Debit cards are not credit cards and they are generally not affected.
I have a co-signer on my house, or car, are they discharged too?
They are not discharged and they remain responsible for the debt.
I have a workers compensation claim, will I lose my settlement in Bankruptcy?
A workers' compensation claim is exempted but it must be properly declared and managed distinct from any other asset. If you commingle funds, you are at risk. The loss of income during an injury frequently leads to a large debts which creates a situation ripe for bankruptcy. Consult an attorney if you have a workers compensation claim for proper protection of your settlement.
I have a personal injury claim, will I lose my settlement in Bankruptcy?
A properly declared and exempted personal injury matter is protected upto $15,000. At times, this can me managed to maximize your protected amount. In addition, your personal injury attorney should have some experience working with a bankruptcy attorney. Consult a bankruptcy attorney early in your loss to guide your personal injury matter.
Can I discharge my student loans in Bankruptcy?
In some extreme circumstances, a student loan can be discharged. However, until recently it is a hurdle that few have been able to meet. However, recent political developments may lead to seismic shifts in this arena and I encourage you to consult with a bankruptcy attorney for the most current legal development. For most people, we can manage this with a Chapter 13 bankruptcy or in some cases, our firm has been successful in defending claims by student loan lenders resulting in no liability.
Will everyone know I filed a bankruptcy?
You bankruptcy is a public record in the Federal Court system. It is not actively promoted and advertised. To find out, you must search.
I'm in a divorce or thinking about a divorce, when should I file?
We think that a divorce and bankruptcy go hand in hand. The loss of a double income, the increased costs of two households, the splitting of assets and sudden redistribution of debts leads to financial disaster for most divorcing couples. Whether you are thinking about a divorce, in one or finished, see us early for the best strategy to help.
My spouse doesn't want me to file a bankruptcy, can I file one anyway?
You can. You don't need permission. We will need the cooperation of your spouse to document their income. This generally means we need your spouse's pay advices (paystubs).
What is the automatic stay and how does that help my?
The automatic stay is a court injunction for all actions to stop while the bankruptcy administers your estate. This means all lawsuits, foreclosure actions, wage garnishments, repossessions and other such action must halt, at least temporarily and each will be dealt with in tandem with your bankruptcy.
Can I pay my family member back before I file a bankruptcy?
An unsecured debt to a family member or any other creditor is like any other debt and cannot be paid as a priority over other debts. If you do pay a family member, it is possible that the court may ask for those funds back so that it can be distributed without preference to that party.
I'm not married, but live with someone does that affect my bankruptcy?
Household income is a calculation that is made for your bankruptcy and it could affect your declared schedules. See your attorney for proper handling.
Will I lose the equity in my home?
If you have equity that exceeds your exemptions, it is as risk. Such a situation can be managed in various ways. It is best to consult your bankruptcy attorney.
I have no debt, but caused an accident that I will have to pay, can I file a bankruptcy?
Yes. There are situation where a person may have no debt, but know that they will eventually owe. A bankruptcy can help.
How soon can I get credit after my Chapter 7?
Banks and other creditors will want your business immediately. Car lenders will send you promotional materials within days. Your credit profile will remark that a bankruptcy has been filed, but with new credit and it's proper use, it is common to have scores in the 700's within a year.
How fast will my credit score improve after a Chapter 7 Bankruptcy?
Very quickly. I recommend that my clients open about 4 credit lines (yes you will get them), use them and pay them. Within a year, most people have scores in the 700's.
What happens to my mortgage in a Chapter 7 bankruptcy?
If your are keeping your house, you continue your payments as normal and life goes on. You are not personally liable for the debt, but if you do not pay, the property will be foreclosed with no liability to you. In some cases, re-affirming the debt may be adviseable. Strategize with our office to see if a reaffirmation is proper for you.
I'm late several payments with my home or auto loan payments, can a Chapter 7 help?
A Chapter 7 will pause any foreclosure activity during the bankruptcy stay but the foreclosure will eventually resume. If you are late with your mortage payments (called arrearage) they can be dealt with a Chapter 13 or perhaps through a modification with your lender.
My foreclosure sale is in 20-minutes, can a Chapter 7 bankruptcy help me?
That's cutting it close. But as long as a bankruptcy is filed before the sale, you sill retain your options for managing the debt through your bankruptcy.
What is better Chapter 7 bankruptcy or loan consolidation?
This is a long conversation. If you have a small debt or a single debt under $4000.00, perhaps loan consolidation is good option. In our experience, many loan consolidations fail and bankruptcy is a much quicker and lower cost method of resolving debt matters.
I have a social security number and all my debt was on my ITIN, can I just file with the ITIN?
No. All tax id numbers must be reported.
What is an adversary?
In some cases, a creditor may take action against you through a separate lawsuit against you directly. The suit generally asks for some relief to the creditor. Usually, it asks that your bankruptcy be denied or that they be excluded from a discharge.
Are some trustees better than others?
All trustees are professional and are doing their job. Some have better bedside manner than others but no particular trustee should be feared if you properly disclose, declare and are fully forthcoming.
Do I have to go to "court"?
In the Northern District, the 341 meetings are held in the old Kane County Courthouse, the Federal Courthouse Downtown, Roundlake, IL, Kane County Courthouse and Joliet. You do have to attend. During the COVID crisis, the meetings have been held by phone and soon will be held by Zoom conference.
Can my Chapter 7 be denied?
It can be denied for minor infractions. (Such as not disclosing a prior social security number).
What happens if I forgot to list an asset or creditor?
If you forget to list an asset, your bankruptcy can be denied. A missing creditor is less of an issue and it can have consquences. However, in a standard, "no-asset" Chapter 7 case, the creditor is discharged as well.
I'm being sued, does the bankruptcy stop the lawsuit?
Yes. All further creditor actions are stayed during your pending bankruptcy. If your discharge is granted, they will dismiss your case.
Will the Illinois bankruptcy stop a garnishment?
Yes. Upon notice, the creditor must stop the garnishment immediately. In real life, it does take some time, but the end result is they do stop quickly.
Will a bankruptcy stop child-support?
Bankruptcy will not stop your child support obligation nor does it affect the receipt of child-support. If you have overdue child support obligations, they can be managed with a Chapter 13 to avoid penalties such as the suspension of your driver's or professional licenses. The Chapter 13 can also make you eligible for the restoration of such licenses.
Can a chapter 7 bankruptcy help with tax matters?
In certain circumstances, the bankruptcy discharge will also eliminate income tax due. The application of the rules are somewhat complicated but our attorneys can help. Trust fund taxes such as sales taxes or witholding from employees is never dischargeable.
I'm shopping around for bankruptcy attorneys, what should I ask him?
You may not even have to ask. If they advertise a bunch of things that the law firm concentrates on, be suspicious. The rules of bankruptcy are very harsh and it takes experience to be well versed. I would ask two questions: 1. Are you an attorney? (lots of firms use paralegals). 2. Are you the same attorney that will be attending the 341 Creditors meeting. (Very often, they send junior or a contract attorney that you've never met. As a result, that increases the chances for errors, miscommunications and issues with your bankruptcy)
I want to minimize COVID risk, do I have to meet my attorney in person?
Thanks to technology and recent rule chanages, you can do your consultation by phone or video conference. You can even sign digitally and of course your 341 is currently by phone or Zoom. It currently possible to do your entire bankruptcy and never leave home! Good times! Good times!