Chapter 7 Bankruptcy FAQs

• You must reside or have a domicile, a place of business, or property in the United States or a municipality.
• You must not have been granted a Chapter 7 discharge within the last 8 years or completed a Chapter 13 plan.
• You must complete a credit counseling course and obtain a credit counseling certificate.
• Your income must fall below the median level of income determined by the means test.
• You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
• It must not be a  “substantial abuse” of Chapter 7 to grant the debtor relief.  Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7.
• It would not be fundamentally unfair to grant the  debtor relief under Chapter 7.

The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Not all debts are dischargeable. Generally speaking, the following debts will not be discharged: Taxes; Spousal and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; Student loans; Criminal fines, penalties and forfeitures. Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor’s equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.

The most common reasons for consumer bankruptcy are: Unemployment; prolonged illness; large medical expenses; seriously over extended credit; failed business ventures; marital problems and other large unexpected expenses.

Yes. One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are subject to an automatic stay. This means that debt collection efforts and foreclosure is halted. Once you have filed your case it usually takes a few weeks for the calls to stop, for the court clerk will mail notices to your creditors that you have filed for bankruptcy so you should allow a reasonable time for your creditors to receive and process the notice.

No. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. In cases where real property is involved the question regarding a joint bankruptcy is beyond the scope of this FAQ, consult with an experienced bankruptcy attorney.

No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.

No. There are no debtor’s prisons in the United States.

Under normal circumstances, unless your employer is a creditor, your employer will not know.

Once the bankruptcy is filed, all the property of the debtor at the time of the filing and certain other property to be received in the future, becomes the property of the bankruptcy estate. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt and the debtor will be able to keep it. Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation. You need an experienced bankruptcy lawyer to do this.

Residents of New Jersey can choose between New Jersey state law exemptions and federal law exemptions.  Since New Jersey does not recognize a homestead  exemption, New Jersey debtors can select the federal bankruptcy homestead exemption providing for up to $21,625 for the debtor’s principal residence.  When calculating your equity you should use a value that is based upon a fair market valuation.  Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity.

As for personal   property, in New Jersey, you are permitted an exemptions for only $1,000.00  of personal property. This includes, automobiles, household furnishings and personal effects, jewelry, tools of the trade, retirement plans, unmatured   life insurance, personal injury awards, earnings, animals and some other   miscellaneous property. The value of each exemption and which exemptions can   be used are determined by the statutory exemption scheme is selected. Again,  state laws vary.   

Depending upon which  exemption scheme is selected, you make keep your car if your equity is equal to or less than the allowed exemption. Generally speaking, depending upon the exemption scheme selected, you may exempt as little as $1,000 under New  Jersey state law, or as much as $3,450 under federal bankruptcy law.   When calculating your equity you should use the Kelly Blue  Book or a comparable guide. Once you know the value, then subtract the amount   owed from the value to calculate the equity.

Generally, most courts understand that you need a car to work to get back on your feet. Apply rules of common sense here:  If you own vintage cars which are free and clear and worth thousands of dollars, you are probably not going to be able to keep them. If, on the other hand, you have a car worth 10,000 and you owe $7,000 on it, you will most likely keep it. Again, the need to talk to an  experienced bankruptcy attorney should be evident. Most leased vehicles have no equity and therefore are entirely exempt. If you owe money on your car or it is leased you must still make the payments. In those instances you will   have to redeem or reaffirm the property to keep it.

However, in some   circumstance your representative can re-negotiate the loan or the lease to get a more favorable deal for you.

The answer depends upon how much equity you have in your home.  New Jersey state law provides a mere $1,000 exemption to be used for any assets.   Federal law provides a homestead exemption of up to $21,625 for property that the debtor  maintains as his/her principal residence.  New Jersey residents filing for bankruptcy should use the federal homestead exemption.  When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home.  Once you know the value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity.

Under some circumstances you may be able to keep your credit cards. There are many factors which must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.

Yes, so long as you  have not filed previous bankruptcy cases which may result in the automatic stay not applying.  

Even if the bankruptcy filing temporarily stops a foreclosure case, a home is an asset usually secured by a mortgage. The lender is entitled apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. Usually, to keep a home that is in foreclosure you will have to make a deal with the lender.

Perhaps. However, this will only delay the inevitable. The owner is entitled to possession of his property and at best you will be able to remain in the property until you   have received your discharge from bankruptcy or the landlord obtains an order  from the bankruptcy court. If the only reason you filed the bankruptcy is to stop an eviction then this might be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.

Yes. Most civil judgments are stopped by bankruptcy.

Under some circumstances once the bankruptcy proceedings have started, a special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an experienced bankruptcy attorney should be consulted.

In general, you will  be discharged from all dischargeable community debts. However, you should  discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action (divorce case).  Also, remember that if  you are discharged from community debts, your spouse is responsible for the entire balance owing on the debt. Put another way, they shift the responsibility on to you.

If the debt is a dischargeable debt then you will not have to pay it. However, the cosigner will become primarily responsible for the debt. Be sure to list the co-signer as a   creditor in your schedules as they have a contingent claim against you.

After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This usually takes a couple of weeks.  If this is not soon enough, then you should have your representative inform the creditors immediately.

Yes, there are certain debts that are NOT dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: Taxes; Spousal and Child Support; Debts arising out of willful misconduct and or malicious misconduct by the   debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans and criminal  fines, penalties and forfeitures.

Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor’s equity interest in the property is exempt, the debtor may retain the   property by redemption or reaffirmation.

Yes. There are several forms.   There could be between 30 and 60 pages in your petition, schedules and other papers filed at the time of your bankruptcy. You must follow the local and federal bankruptcy court rules in completing the forms. Preparing these forms requires an understanding of both bankruptcy law and local state law in order to enter the information correctly and accurately. The forms are typed and filed electronically by a bankruptcy lawyer.   If you intend to file the forms pro se, the bankruptcy court clerk will accept your paper copy though you would be wise to personally deliver the papers yourself to the clerk.

Yes. About 30 to 40  days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. This hearing is called the First Meeting of Creditors. At this hearing the trustee will ask you to produce proof of your identification, usually in the form of a valid US Passport, driver’s license, and social security card.  The bankruptcy trustee will ask you questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Do not worry, your attorney will be there to represent you and your attorney will help you prepare for the hearing. Sometimes, after your hearing is over, various creditors will approach you to discuss the status of secured property or the your desire to retain a credit card. Your attorney will   negotiate with them, with your knowledge and approval.

After this hearing you will normally not need to return to court.  However, if a creditor files a  motion or an adversary action, most likely you will have to return to court.  This is the exception and only your attorney can determine if this is likely to happen.

Under normal circumstances, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.   However, as a condition of obtaining a discharge you must attend and complete a credit management course and your attorney must file a certificate of compliance  within a certain period of time after the creditors’ meeting.  

Your attorney deals with your creditors.  It may be the only time you ever have the luxury of saying “you’ll have to talk to my lawyer.”   

You are permitted to file an amendment to your schedules up to a certain time before discharge. If the amendment is timely filed then the omitted creditor is added to the bankruptcy. It is perjury to intentionally omit a creditor. However, if you do not know that a creditor exists and there are no assets for your creditors, the debt will be discharged.

This is a hassle after   the fact, so be sure you be thorough and list everything.

Chapter 7 bankruptcy filings stay on your credit report for a period of up to 10 years after the discharge in bankruptcy.  It usually takes between 18 -24 months to rebuild your credit after a bankruptcy, provided that you have installment debt that remains after your bankruptcy and you make every payment on time.   Car loans, car leases, and mortgage payments would be the primary examples of installment debt that you should timely pay after your bankruptcy discharge.

Sure. Because an individual can receive only 1 bankruptcy discharge over an 8 year period, consumers who have just received a bankruptcy discharge will get bombarded with unsolicited credit offers.   Be careful though, because the interest rates will likely be high.  You should also use the credit carefully – only charge what you can pay in full at the end of the billing cycle so that you avoid getting socked with high interest charges and other fees – the likely reason you filed for bankruptcy in the first place!  

There are several areas related to this question. You should consult your attorney.  In  particular there are 4 items worth mentioning.

• Consider not paying your minimum monthly credit card bills.  If you’ve decided that bankruptcy is inevitable, there is no point in spending hundreds of dollars to make minimum payments to creditors whose debts you will be attempting to discharge in bankruptcy.   Of course, if there are credit cards with nominal debts (less than a few hundred dollars) and you don’t want those creditors to cancel your credit then those debts should be paid.
• Under bankruptcy law, certain luxury purchases over $600 made on or within 90 days of the bankruptcy filing are presumed nondischargeable.
• Under bankruptcy law, cash advances aggregating more than $875 made on within 70 days of the bankruptcy filing are presumed nondischargeable.
• Debts involving materially false financial statements are nondischargeable under certain circumstances.

You must wait 8 years from the date of your last bankruptcy discharge  to file again,  or if your bankruptcy was dismissed for certain reasons then you may have to wait 180 days from the date of the dismissal to refile.

We’re just going to  say it one more time: the best person to help is an experienced bankruptcy attorney. When you discuss your situation with your bankruptcy lawyer you will need to be prepared to discuss all areas of your case. This includes each and every debt you owe and creditor you have. It is very important to list all your creditors in your bankruptcy. One of the best ways to know all your creditors is to get a credit report about your credit history. This should list the  majority of your creditors, even ones you did not know about. You should also have a post-bankruptcy budget prepared before you go to the attorney’s office.   This budget should contain your income and expenses that you will have after you file your bankruptcy.

In addition to Chapter   7 there are other alternatives available under the bankruptcy laws.  An in-depth discussion of these alternatives is beyond the scope of this FAQ. Aside   from debtor protection under the bankruptcy law there are some other alternatives. These include loan extensions, compromises, workout agreements and taking no action. NOTE: These alternatives may alert your  creditors to existence of nonexempt property that the creditor could reach.   In any event you should seek professional advise in dealing with most of these alternatives.