Bankruptcy FAQs

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What is the difference between Chapter 7 and Chapter 13?

Chapter 7 is a complete liquidation of unsecured debts, such as credit cards, medical bills, cash advances, utilities, and unsecured personal loans. Chapter 7 can be filed once every 8 years.

Chapter 13 is a reorganization and repayment of the debt. Under this Chapter, a debtor is given anywhere from 36 to 60 months to repay their debt back.

In addition, depending on what the debtor's income is, they may not be required to pay back 100% of the debt. We have had clients who have paid back as little as 10% of their total debt. Once the debtor has made their 36 to 60 payments, the debt is considered paid in full, whether 100% was paid back or 10%.

Chapter 13 is mostly for the following:

1. People who make too much money to qualify for Chapter 7
2. People who are in foreclosure and want to save their home
3. People who are in need of bankruptcy relief but have filed Chapter 7 less than 8 years ago.

Will I lose my house or car if I file bankruptcy?

Not necessarily. The main reason to lose a home in a bankruptcy is because there is too much equity in the home or the debtor is behind several months on payments.

In a Chapter 7 bankruptcy, a filer can have a certain amount of equity in their home without having to surrender it to the bankruptcy estate. Very rarely do we see clients who have this kind of equity in their homes. Most of our clients owe more on their homes than what the home is worth.

The same applies with vehicles. Each filer is given a certain amount of equity that they are allowed to have for their vehicles. If you owe more on your car than what it is worth and you are maintaining your payments on the vehicle, you most likely will be able to keep the vehicle.

As long as there is not a large amount of equity in your assets and you are maintaining the payments, you should be able to keep them.

Your attorney should be able to determine whether you can keep your assets or not. Right now, a good strategy is more important than ever!

My credit card company is threatening to take my house or car if I don't send them a payment. Can they do that?

Unfortunately, there are some creditors that will say anything to scare debtors into sending them money. One of the most common statements we hear is that an unsecured creditor (i.e. credit card company or collection agency) threatens to take someone's house or car if the person doesn't send them a payment.

In order for a car or home to be repossessed by a creditor, that creditor has to have a valid lien on the property before they can take it.

In many situations, the unsecured creditor does not have a valid lien and has no right to take the property. However, in some instances, the creditor has gone through the court system to place a lien on a person's property for non-payment of a debt. This is called a judgment lien. If a creditor has a judgment lien, they do have the right to repossess the property that they have a lien on.

Once I file my bankruptcy, can my creditors still garnish my wages?

No. As long as the debt is included in the bankruptcy petition, the bankruptcy attorney files paperwork with the court to stop any existing garnishments.

If the creditor is not garnishing you at the time you file a bankruptcy, they cannot start to garnish you while you are in your bankruptcy. They would first have to sue you, then get a judgment against you in order to garnish your wages. In order for this to happen, they would have to get permission from the Bankruptcy Court first, which is not typical in a Chapter 7 for an unsecured creditor.

Once you are discharged from your bankruptcy, the debt owed to that creditor goes away and they can no longer sue you.

Will a Chapter 7 bankruptcy stop my foreclosure?

If you are currently in a foreclosure and the property has not been sold at a foreclosure sale, a Chapter 7 bankruptcy will only temporarily delay the foreclosure process. It will not completely stop it.

However, if a foreclosure has not been filed yet and you are being threatened with foreclosure, a Chapter 7 bankruptcy will delay the creditor from initiating a foreclosure action in the County Common Pleas Court. Once a Chapter 7 bankruptcy has been filed, the creditor has to get permission from the bankruptcy court first before they can initiate a foreclosure. This may delay the foreclosure for a greater period of time.

What can I file on?

The following debts are examples of what can be discharged in a Chapter 7 bankruptcy:

• Credit Cards

• Medical Debt

• Utilities

• Personal Loans

• Cash Advances

• Tax Debt 3 Years or Older

• Old Foreclosure Debt

• Old Repossession Debt

You cannot file on the following in a Chapter 7 bankruptcy:

• Child Support/AlimonyStudent Loans

• Criminal Restitution

• Tax Debt Less Than 3 Years Old

• Debt Arising Out of Personal Injury Caused by Drunk Driving or Drug Influence

• Debt Arising From Property Received By Fraud

Do I have to file with my spouse?

No. We have many clients who are married, but have spouses who have previously filed for bankruptcy and do not qualify to file another Chapter 7. We also have many clients where all of the debt is in one spouse's name only and the other spouse is not liable for any of the debt. In these instances, it is not required for both husband and wife to file.

However, under the new bankruptcy code, we must submit the non-filing spouse's income information as long as the debtor and the non-filing spouse are not separated.

If the debtor is separated from the non-filing spouse, then the income information for the non-filing spouse is not required.

How does bankruptcy affect my credit?

Bankruptcy can be reported on your credit for 7-10 years from the date the bankruptcy was filed. However, this does not mean that a person will not be able to obtain credit for 7-10 years after a bankruptcy filing.

A person may find that it is a little more difficult to get a loan after a bankruptcy is filed, but it is not impossible. Most lending institutions take into account the length of time it has been since the bankruptcy was filed and what the loan applicant's credit looks like at the time of the loan application.

Generally, people needing to file a Chapter 7 have already tarnished their credit. Once they are discharged, they no longer owe their debt. A lending institution may consider a loan applicant to be more attractive if they are debt free with a previous bankruptcy than if they were deeply in debt at the time of the loan application.

Will I lose my 401k, pension or other retirement money if I file a bankruptcy?

In Ohio, all pension benefits, annuities, retirement allowances, IRA's, 401k plans, etc. are completely protected in bankruptcy. In other words, if you have been saving towards retirement and find yourself in a situation where bankruptcy is necessary, you will not lose the money that you have invested into a retirement account because you have filed a bankruptcy.

What is the means test?

When the bankruptcy laws changed in 2005, the means test and median income guidelines were implemented. Congress placed a cap on household incomes, depending on household size. This is what determines whether a debtor will be filing a Chapter 7 or Chapter 13 bankruptcy. If the debtor is over the cap, this does not necessarily mean that they will not qualify for a Chapter 7. This is where the means test comes in.

The means test is designed to determine what a debtor's disposable monthly income is. A debtor who is considered to be over median income can deduct several items in the means test, such as payroll taxes, health insurance, secured debt payments for mortgages and car loans, etc. If, after all of the deductions are claimed, the debtors disposable monthly income falls under the cap, the debtor can qualify for a Chapter 7.

In some instances, a debtor does not qualify for a Chapter 7 because they previously filed another Chapter 7 less than eight years ago. In this case, the means test and median income guidelines are used to determine what the monthly payment to the bankruptcy court would be in a Chapter 13 bankruptcy.