FAQ


What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, sometimes call a straight bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick “fresh start”.

One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts.

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What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is also known as a reorganization bankruptcy. Chapter13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.

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Will my creditors stop harassing me?

Yes, they will! By law, all actions against a debtor must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments. Secured creditors such as banks holding, for example, a lien on a car, will get the stay lifted if you cannot make payments.

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Will my spouse be affected?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card they are probably responsible for that debt. However, In community property states, either spouse can contract for a debt without the other spouse’s signature on anything, and still obligate the marital community. There are a few exceptions to that rule, such as the purchase or sale of real estate; those few exceptions do require both spouse’s signatures on contracts. But the day to day debts, such as credit cards, do NOT require both spouses to have signed.

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Who will know?

Bankruptcy filings are public records. However, under normal circumstances, no one will know you went bankrupt. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.

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What are the most common reasons for chapter 7 Bankruptcy?

Unemployment: Large medical expenses; Seriously overextended credit; Marital problems, and other large unexpected expenses.

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What don’t I keep?

In a bankruptcy, assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee.

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I was Bankrupt before. When can I file again?

A person can file Chapter 7 again if it has been more than 8 years since he or she filedthe previous Chapter 7 bankruptcy.

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Can I keep my credit cards?

Whether a debtor keeps credit cards after filing bankruptcy is up to the credit card company. If you are discharging a credit card they will cancel the card unless you reaffirm the debt. Even if you have a zero balance the credit card company might cancel the card.

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When will I be discharged from Bankruptcy?

One of the major purposes of bankruptcy legislation is to afford the opportunity to a person hopelessly burdened with debt to erase his or her debt and thereby get a fresh financial start. A bankrupt’s debt is erased when he or she is discharged.

The debtor is discharged 3 – 5 months after bankruptcy is filed. At that time all debts (with some exceptions) are written off.

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If I use a credit counselor won’t I get a better credit rating than if I go bankrupt?

No, you will not. It will cost you less money and you will rebuild your credit rating faster if you file Chapter 7 or Chapter 13. Be cautious if you are considering using a credit counselor. Also read about the problems of unscruplous companies in the credit counselling industry and the action the IRS has taken against “non-profit” credit counseling groups following widespread abuse.

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Will I ever get my credit again?

Yes! A number of banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt. Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.The fact you filed bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before.

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Can my boss fire me for filing bankruptcy?

No. U.S.C. Sec. 525, prohibits any employer from discriminating against you because you filed bankruptcy.

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What debts are erased by bankruptcy?

Most unsecured debt is erased in a bankruptcy except for:

  • Child support and alimony;
  • Debts for personal injury or death caused by your drunk driving;
  • Student Loans.
  • Income tax debt.

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What is chapter 13 and when can it be used?

Individuals may file chapter 13 bankruptcy petitions if they:

  1. Reside, have a domicile, a place of business, or property in the United States, or a municipality;
  2. Have a source of regular income; and on the date the petition is filed owe less than $290,525 in unsecured debts and less than $871,550 in secured debts. Note: The amounts given here are 2001 amounts. They are regularly adjusted to keep up with the cost of living.

Corporations and partnerships may not file a chapter 13 bankruptcy petition. If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should check 11 U.S.C. sec. 109(g).

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What is foreclosure?

Foreclosure is a legal process in which the rights to a property is taken away from the owner and the property is then sold to satisfy unpaid mortgages and liens against the property.

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When do foreclosure proceedings start?

In most cases, foreclosure proceedings are started when payments become delinquent.

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How many payments can I miss before my lender puts my property in foreclosure?

It depends on what type of loan you have. Your mortgage contract should state how many payment you can miss before a Notice of Default is filed and sent to you.

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Who can foreclose on my property?

Mortgage holders and other lien holders who have a vested interest in loans on your property, which is used as collateral,can foreclose on you.

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What about tax liens?

A tax sale can take place if you get behind on your property taxes. The tax sale can be initiated by federal, state or local taxing agencies.

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From the time I become delinquent on my first payment, how long does it take to complete the full foreclosure process?

Different types of loans have different time frames. The foreclosure process for FHA and VA loans usually take longer than Conventional loans.

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How will I know when the foreclosure process begins?

Once foreclosure proceedings are initiated, a Notice of Default will be recorded at the County Recorders Office in the county in which the property is located and you will be notified by regular mail and by certified mail.

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How much time do I have after a Notice of Default is filed?

Normally, it is ninety days plus twenty to twenty five days for publication. But it would be wise to read all correspondence carefully, and or contact an attorney, to make sure what your rights are and what the time frame is in your situation.

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Can I stop the foreclosure sale?

Yes. You can bring your mortgage payments current along with all late charges, foreclosure fees, taxes, and insurance premiums.
If you are unable to do so, you can contact your lender and try to negotiate a plan to modify your payments but don’t wait until the last minute to do this.
Other options include refinancing, selling your home and or filing for bankruptcy.

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If I file bankruptcy, how will that help me?

Bankruptcy will stop the foreclosure proceedings and give you time to work out a plan through the courts.

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If I lose my property through foreclosure, can I get any money from the foreclosure sale?

Yes. But first, any remaining balance on the mortgage will be paid along with all outstanding property taxes and court fees. In most cases, very littlemoney will be left for you to get.

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How much time is given to vacate the property once the foreclosure process is completed?

Remember, once the Trustee’s sale is complete, the title to the property is given to the new owner and your rights to the property are gone and the new owner gets immediate possession.

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Can I just sell my house for less than what I owe?

Selling your house for less than you owe is referred to as a “short sale”, and in many states, you must get the permission of your lender before you do this. If you don’t, the lender may sue you after the sale for the difference. If you live in a state that does allow this, then you can sell your house for less than the mortgage amount and the lender can’t do anything about it. Finally, short sales typically aren’t possible if you have more than one mortgage, unless the same lender owns the additional mortgages.

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What will happen to my tenants if my property is foreclosed on?

Leases are generally wiped out upon foreclosure, unless the lease preceded the mortgage (which is rare). That does not mean, however, that your tenants will just up and leave immediately. You must give them proper notice of eviction (up to 90 days in some places), and there are a variety of other potential laws that may prevent your tenants from being evicted (such as Section 8 housing laws).

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Can I give my lender the deed to my house instead of foreclosing?

You can, but in most states the lender can still sue you for the difference between what it sells the house for versus what you owe. Thus, this is not an attractive option unless you can get your lender to agree, in writing, to not sue you for the difference. Similar to short sales, this option typically isn’t available if there is more than one mortgage on the property unless the same lender holds the additional mortgages.

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Do military personnel have any special protections to prevent foreclosure?

Yes. Mortgage lenders cannot foreclose on a house owned by military personnel on active duty unless the lender gets permission from a court. There is an extreme reluctance to do this, so lenders will usually not pursue this course of action.

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