Frequently Asked Questions About Bankruptcy
Bankruptcy is one of the most powerful legal options consumers and businesses have in the United States. It is also one of the most misunderstood. At the Law Office of Seni Popat, we strive to arm our clients with as many resources as possible so they can make fully informed legal and financial decisions. As such, we have compiled the following bankruptcy FAQs to answer common questions our clients have.
This information is intended as general guidance. For an assessment of your situation and personalized recommendations, get in touch with our attorney online or call (718) 340-3385 today. We can begin with a free consultation.
What does it mean to file bankruptcy?
Bankruptcy is a court-administered form of debt relief. Essentially, the court will either reaffirm or discharge (validate or eliminate, respectively) each of your debts. Depending on the type of bankruptcy you file, it may take a few months or a few years. The court may liquidate some of your assets, or you may avoid liquidation by establishing a repayment plan. Each case differs greatly, but the goal of bankruptcy is to reduce your debt and give you a financial fresh start.
What is the difference between Chapter 7 and Chapter 13?
Under Chapter 7, the bankruptcy trustee will liquidate (i.e. sell) your nonexempt assets to repay qualifying creditors. At the end of this 4-6-month process, the court discharges your remaining unsecured debt, thereby releasing you of any obligation to repay that debt. Chapter 7 does not require you to repay your debt, but you will be responsible for any debt that you did not list on your petition or that the court did not discharge.
Chapter 13, on the other hand, involves a repayment plan that takes 3-5 years. You will make monthly payments to the trustee, who will distribute the payments to creditors in a certain order under the Bankruptcy Code. The size of your monthly payment depends exclusively on your income level and monthly expenses. If you complete this payment plan, the court can discharge any remaining unsecured debt.
Will bankruptcy eliminate all of my debt?
Most debts such as credit card debt, medical bills, loans, and other unsecured debt can be discharged and wiped out in a bankruptcy. The bankruptcy court can only discharge certain types of unsecured debt, meaning anything that is not attached to collateral. Unsecured debt includes credit card debt, payday loans, medical bills, utility bills, and more. Although tax debt and student loans are technically unsecured, they are very difficult to discharge through bankruptcy.
Generally, secured debt cannot be discharged. Secured debt refers to loans with collateral, such as mortgages and automobile loans. Your home or car lender has the contractual right to foreclose your home or repossess your car if you fail to make payments. In some cases, however, the bankruptcy court may “cramdown” your secured loan, meaning it will reduce what you owe down to the principal.
You also cannot discharge criminal fines, child support, alimony, and more.
Will I lose everything I own if I file bankruptcy?
Typically, Chapter 7 involves a liquidation process but you can normally keep your house, cash and other assets including your car by claiming exemptions. This process involves carefully planning and Seni has the knowledge to protect your assets. Even those who file Chapter 7 can protect many of their possessions through state or federal exemption laws.
Exemption laws allow you to exempt, or protect, certain types of assets or levels of equity. Each state has a different set of bankruptcy exemptions, and some states allow you to choose between state and federal exemptions.
Bankruptcy is intended as a fresh start and solution to overwhelming debt. It is not meant to leave you with nothing to your name. Generally, you can expect to file bankruptcy and still keep what you need to live a normal life.
Will bankruptcy ruin my credit?
Most likely, bankruptcy, when first filed will slightly impact your credit score in the beginning but 3-12 months after, you typically will see your credit score improve and normally you will be able to get new credit cards, car loans, etc. if you have income and begin helping your credit rebuild. If you file Chapter 7, it will stay on your report for 10 years, and if you file Chapter 13, it will stay on your report for 7 years, but that again does not mean you cannot get new credit cards, loans etc.
The impact of bankruptcy on your ability to acquire new credit, however, will reduce over time. If you manage your finances responsibly after filing, you can expect to see a steady improvement over time on your credit score and ability to get new credit cards and loans.
Furthermore, many people who file bankruptcy already have very poor credit because they are not paying or paying late or have a large revolving balance. Because bankruptcy can eliminate debt, it can actually raise a person’s credit score shortly after filing. Many clients call our office 3-6 months after the bankruptcy and brag about how they have new credit cards and loans but we always advise them to manage their finances wisely going forward. You will be able to rebuild and have a fresh start at your financial life.
Can creditors attempt to collect debt during my bankruptcy case?
Except in very limited circumstances, no. All chapters of bankruptcy trigger the automatic stay, which is a court order that prohibits debt collectors from contacting you or using any other method to collect debt. This includes foreclosure, repossession, lawsuits, and other drastic consequences. Unless this is your second time filing bankruptcy in a year, you can expect complete freedom from your creditors for the duration of your case (i.e. 4-6 months for Chapter 7 or 3-5 years for Chapter 13).
What will happen to my house if I file bankruptcy?
Bankruptcy’s consequences on homeownership depend on several factors, including:
- Whether you are behind on mortgage payments
- Whether you can catch up on arrears by the end of your bankruptcy case
- Which type of bankruptcy you file
- Exemptions you can claim
Because your mortgage is a type of secured debt, bankruptcy will not discharge what you owe. Therefore, to keep your home, you must catch up on arrears by the end of your case. If the IRS attached a lien to your home because of tax debt, you will need to remove this lien, as well.
Due to these factors, Chapter 13 is a viable solution for anyone facing foreclosure. The automatic stay halts the foreclosure proceeding, and the Chapter 13 process gives you 3-5 years to catch up on arrears in addition to making regular payments. Many people file Chapter 13 specifically to rescue their home from foreclosure.
If you file Chapter 7 bankruptcy, you will typically only be able to keep your home if you:
- Are caught up on payments; AND
- You can fully protect it through state or federal exemption laws.
Is bankruptcy right for me?
This question can only be answered by you and your attorney. There are many viable alternatives to bankruptcy, but the right decision depends on many factors, including:
- The type of debt you owe
- The amount you owe
- Your assets
- Whether you own a business
- Your short-term and long-term goals
To determine whether bankruptcy is the solution you need, bring your case to the Law Office of Seni Popat. Our attorney can answer your remaining questions, address your concerns, and recommend a customized plan that will most efficiently and effectively solve your financial crisis.
I had the pleasure of working with Seni Popat. He is a Top Professional!- I Gie – via Google
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He is very knowledgeable, professional, helpful and was readily available to guide me and advise me through the filing process.- James Potter - via Google
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Mr. Seni Popat is THE BEST bankruptcy lawyer there is.- Yasmeen Smith - via Google