If you’re thinking about filing bankruptcy, you have questions. We’ll answer the most common bankruptcy questions for you right here so you can decide whether you want to take the next step in the bankruptcy process or explore other debt-relief options that might interest you.
If you’re thinking about filing bankruptcy, you have questions. You’d probably like to know if you qualify to file bankruptcy, what the difference is between Chapter 7 and Chapter 13 bankruptcies, and how much a bankruptcy case will cost you. If you have a house or car, then you’ll surely want to know whether bankruptcy gives you the option to keep your house and car.
We’ll answer these bankruptcy questions for you right here so you can decide whether you want to take the next step in the bankruptcy process or explore other debt-relief options that might interest you.
1. Can Anyone File Bankruptcy?
Almost anyone that can prove they are struggling to pay debt can file bankruptcy. To file a petition for bankruptcy, you’ll need to take a credit counseling course in the six months before you file. If you filed for bankruptcy before, there are some time constraints, but you can file for bankruptcy again. Nobody is going to stop you from filing for bankruptcy if you don’t wait for the time constraints, but you won’t get your debts discharged and your claim could be construed as bankruptcy abuse.
What if I filed a Chapter 7 bankruptcy before?
If you filed a Chapter 7 petition before and your debt was discharged, you can file another Chapter 7 petition after eight years. If you want to start a Chapter 13 repayment plan after filing under Chapter 7, it’s only a four-year wait. The four-year or eight-year clock starts ticking from the date you filed your most recent bankruptcy.
What if I filed a Chapter 13 bankruptcy before?
If you received a discharge in a previous Chapter 13 filing, you only have to wait two years to refile a bankruptcy petition for the same chapter. You’ll have to wait six years from your most recent Chapter 13 bankruptcy filing if you intend to file a Chapter 7 case.
What if I had a bankruptcy claim dismissed before?
If you had a personal bankruptcy dismissed within the last 180 days for fraud, bankruptcy abuse, or a court violation, you’ll have to wait until 180 days from the dismissal date until you can file again. If you asked the bankruptcy court for a dismissal of your bankruptcy case because a creditor made a motion to lift the automatic stay, you’ll also have to wait 180 days from the dismissal date before you file again. It’s best to talk to a bankruptcy attorney that can help you deal with accusations or violations if you’re in this situation.
Does my income affect whether I can file for bankruptcy?
Your income, debt, and assets will affect the type (chapter) of bankruptcy you file. A person or a married couple usually files a Chapter 7 or 13 bankruptcy. Which of these two chapters you file is largely determined by your income. The Bankruptcy Code sets income limits for Chapter 7 and filers must pass a Means Test. The Means Test is a formula that evaluates your income and expenses and compares it to government data to see if your disposable income is low enough to qualify for a Chapter 7 bankruptcy.
Some types of income are exempt from the bankruptcy formulas, such as Social Security. If you have a steady income and can meet your expenses, you may not qualify for a Chapter 7 plan and you might have to file a Chapter 13 case. The United States Courts website refers to a repayment plan under Chapter 13 as the “wage earner’s plan.”
In 2019, Chapter 7 filers had a median average monthly income of $2,692 and a median average monthly expense of $2,840. In comparison, Chapter 13 filers in 2019 had a higher median average monthly income of $3,623 and a lower median average of monthly expenses of $2,827.
Even if you have no income, you can file Chapter 7 bankruptcy. You can file bankruptcy if you are on public assistance, Social Security, VA Disability, or receive other forms of government assistance.
2. What Kind of Personal Bankruptcy Should I File?
The answer depends on your financial situation. Your two main choices for filing personal bankruptcy are Chapter 7 and Chapter 13. About 62% of bankruptcy cases filed are Chapter 7, and 38% of cases filed are Chapter 13, according to a 2019 report required by the Bankruptcy Abuse Prevention and Consumer Protection Act. Personal bankruptcy helps with consumer debt such as credit card debt, medical bills, and old utility bills. Sometimes personal bankruptcy is used for business debt acquired as a sole proprietor. A Chapter 7 can also help with certain garnishments against your paycheck and bank account, a car loan deficiency after a repossession, and collection efforts that disrupt your life.
As we discussed above, you must pass the Means Test to qualify for a Chapter 7 bankruptcy. If you don’t pass the Means Test, then bankruptcy laws give you the choice to file for Chapter 13 instead. But, if you qualify for Chapter 7, you still have the option to file a Chapter 13 bankruptcy. So how do you know what type of bankruptcy to file if your income allows you to file for either chapter?
You can help yourself decide by looking at your assets and thinking about your future plans. Do you want to walk away from everything (Chapter 7) or do you just need some help managing payments (Chapter 13)? Is your property exempt or non-exempt in bankruptcy? How much debt do you have? To file a Chapter 13 plan, your unsecured debts must be less than $419,275, and you must have less than $1,257,850 in secured debt. A lawyer can give you legal advice on the best type of bankruptcy for your unique financial situation.
Regardless of which type of bankruptcy you file, there are some types of debt that never or rarely get discharged in bankruptcy. Bankruptcy won’t help you get rid of child support or alimony responsibilities. Debt from court fines, criminal actions, and certain personal injury cases won’t be discharged. Many types of IRS garnishments cannot be resolved with a bankruptcy. Student loans rarely get discharged, but exceptions exist for severe hardships.
Chapter 7 Bankruptcy Basics
A Chapter 7 bankruptcy is focused on liquidation, but in most cases, people who file a Chapter 7 petition can keep what they have because Chapter 7 allows for exemptions. When you first file your bankruptcy petition, an automatic stay will put an end to collection activity. You’ll also have to attend a credit counseling session 180 days before you file, a post-filing financial counseling session, and you’ll have to attend a 341 Meeting, the Meeting of Creditors.
All bankruptcies require some effort—you’ll have to gather a lot of documents and complete a lot of forms—but at the end of your Chapter 7, you could get all of your unsecured debt discharged. (Imagine no more medical bills! No more credit card bills!) The average time it takes to process a Chapter 7 plan from filing to discharge is about six months, but many cases are closed sooner.
Chapter 13 Bankruptcy Basics
A Chapter 13 bankruptcy is focused on payments and reorganization. If you can prove you have a steady income and you want to keep your car and house, 13 may be your lucky number. Under this chapter, you’ll be making monthly payments to a bankruptcy trustee to pay off your debt. If you don’t have the money or assets to pay off all of your debt, the unpaid portion will be discharged once the payment plan has been completed. If you have non-exempt assets of value—for instance, a vacation home—they will be sold off if you can’t make an acceptable repayment plan.
When you file a petition for this bankruptcy chapter, collection action will come to a stop because of the automatic stay, just like in a Chapter 7 proceeding. Although both bankruptcy chapters give you an automatic stay, a bankruptcy proceeding under 13 is more complex than Chapter 7, and creditors can object to payment plans.
You’ll have more paperwork and more responsibilities in a plan for a type 13 bankruptcy than a Chapter 7. A Chapter 13 bankruptcy usually takes between 3-5 years before a final Chapter 13 bankruptcy discharge is granted. It might be in your best interest to hire a bankruptcy attorney to handle your bankruptcy if you’re interested in a Chapter 13 repayment plan.
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3. How Much Does It Cost to File Bankruptcy?
Ironically, bankruptcy isn’t cheap, but it is a wise investment in your future. There are three types of bankruptcy costs you have to look at before filing: Court filing fees, attorney fees, and “make it happen” fees.
Court fees are a little steep, but if you make below 150% of federal poverty guidelines, you can ask the court for a waiver. Court fees can change, but as of 2020 the filing for a Chapter 7 is $338 and the filing fee for a Chapter 13 is $313. If you can’t come up with the money all at once but your income is more than 150% of federal poverty guidelines, you can ask the court to pay the filing fee in installments. You might also have to pay a fee to update certain forms. For instance, bankruptcy requires you to file a list of creditors. Often, people forget to list a creditor on that form. You can add a creditor after filing your bankruptcy forms, but you’ll be charged a $32 filing fee.
Filing bankruptcy comes with responsibilities that cost money, and you’ll have to make them happen. You’ll have to take a credit counseling course before you file for bankruptcy, and you’ll have to take a financial management class after you file your paperwork (but before you get your bankruptcy discharge). Credit counseling fees are in the ballpark of $10-$50. If your income is below 150% of federal poverty guidelines, you can get a fee waiver.
You’ll also be responsible for attending a 341 meeting, otherwise known as the Meeting of Creditors. Plan ahead to budget money for gas, public transportation, or ride-hailing services. You’ll also need to provide the court with forms and documents. You may need postage money to mail your bankruptcy documents and it will cost more than a single stamp.
If you hire a lawyer to help you with your bankruptcy case, attorney fees will be the biggest chunk of your bankruptcy expenses—but advice from a law firm can help you discover options for your personal financial situation. If you can afford the attorney fees, hiring a lawyer is an investment in time and security. A lawyer can guide you in a complex case and assure you that all filing dates are met and that all bankruptcy regulations are followed. But you do not need a lawyer to file bankruptcy.
For people with no income and no assets, filing bankruptcy can be easier than applying for financial aid or buying a house. If you have a steady income and assets, and you’d prefer the repayment provisions a type 13 bankruptcy provides, an attorney can help you deal with creditors and objections so you can get the repayment plan you can afford.
4. Will I Lose My Property If I File Bankruptcy?
Many people are afraid that they will lose their property if they file for bankruptcy. But essential property, like a home, farm, car, work tools, wedding rings, and even retirement funds can be protected during bankruptcy through exemptions. An exemption is a specific law that protects a person’s property from their creditors.
If your property is exempt in bankruptcy, it has a protective shield against creditors. Bankruptcy exemptions are set by state law and federal law, so somebody in California won’t have the same exemption options as somebody in Arkansas, and there are value limits to exemptions.
5. Does Filing Bankruptcy Eliminate All Debts?
Bankruptcy doesn’t get rid of all types of debt, but the debt relief it provides gives you some breathing room so you can pay your court-mandated debt. Child support, alimony, and other types of domestic support obligations aren’t covered under bankruptcy. Most student loans and tax debts aren’t dischargeable. Some student loans can get discharged if there is undue hardship that can be proven in court. This usually includes having to prove that you’re living in poverty and that your circumstances aren’t likely to change. Tax debt has to be more than three years past due for the bankruptcy court to consider a discharge.
Unsecured debt such as credit cards, medical bills, cell phone bills, and utility bills from collection agencies can usually be eliminated through bankruptcy. Once eliminated, you can work on mending your credit report and watch your credit score improve with time.
The more you learn about bankruptcy, the more questions you’re likely to have. Upsolve has a Learning Center to help answer your questions as you discover whether bankruptcy is the right option for you. If you’ve already decided that a Chapter 7 plan is your best option, but you can’t afford an attorney, Upsolve can help you with the filing process for a Chapter 7 bankruptcy. By walking you through the bankruptcy steps from document collection to document submission, Upsolve empowers you to prepare yourself for a fresh start!
- U.S. Bankruptcy Courts. (2020). Income and Expenses Reported in Chapter 7 Cases Filed—During the 12-Month Period Ending December 31, 2019. Table BAPCPA 2A— Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) (December 31, 2019). Retrieved August 5, 2020, from https://www.uscourts.gov/statistics/table/bapcpa-2a/bankruptcy-abuse-prevention-and-consumer-protection-act-bapcpa/2019/12/31
- U.S. Bankruptcy Courts. (2020). Income and Expenses Reported in Chapter 13 Cases Filed—During the 12-Month Period Ending December 31, 2019. Table BAPCPA 2D— Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) (December 31, 2019). Retrieved August 5, 2020, from https://www.uscourts.gov/statistics/table/bapcpa-2d/bankruptcy-abuse-prevention-and-consumer-protection-act-bapcpa/2019/12/31
- U.S. Courts. (2019, December). BAPCPA Report - 2019. Retrieved August 5, 2020, from https://www.uscourts.gov/statistics-reports/bapcpa-report-2019
- Judicial Conference of the United States. (2020, February). Revision of Certain Dollar Amounts in the Bankruptcy Code Prescribed Under Section 104(a) of the Code. Federal Register, 84 FR 3488 . Retrieved August 10, 2020, from https://www.federalregister.gov/d/2019-01903