WHAT IS CHAPTER 7 BANKRUPTCY?
Chapter 7 and Chapter 13 are legal proceedings that
are available to a person to cope with a financial
crisis. One of the main purposes of bankruptcy is to
afford the opportunity to a person who is hopelessly
burdened with debt to free himself of the debt and start
fresh - " a new lease on life."
WILL MY CREDITORS STOP
Yes, they will! By law, all actions against a debtor
are automatically stayed and must cease once the
documents are filed. Creditors cannot initiate or
continue any lawsuits, wage garnishments, or even
telephone calls demanding payments. Secured creditors
such as banks holding a lien on a car or a mortgage
encumbering your home must ask the Court for relief from
the automatic stay if you cannot make the regular
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 may be responsible
for that debt.
Your lawyer will be able to guide you.
WHO WILL KNOW?
Bankruptcy filings are public records and are often
reported in local newspapers. However, under normal
circumstances, the only parties that receive notice from
the Bankruptcy Court that you filed a bankruptcy
petition are your creditors. The credit bureaus will
note your bankruptcy. It will remain on your credit
record for ten years. However, this is not an indelible
mark on your credit. Often you will be able to
re-establish credit within six months to a year. You are
a better credit risk after you file bankruptcy than
WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7
The most common reasons for filing bankruptcy are:
Large medical expenses;
Seriously overextended credit;
Marital problems; and
Other large unexpected
CAN I KEEP ANY CREDIT CARDS?
Whether a debtor keeps credit cards after filing
bankruptcy is up to the credit card company. If you are
discharging debts owed to a credit card, the company
will cancel the card unless you reaffirm the debt. If
you have a zero balance at the time of filing
bankruptcy, you need not list that credit card company
because it is not a creditor of yours at that time.
However, even if you have a zero balance, the credit
card company has the right to cancel the card.
WILL I EVER GET CREDIT AGAIN?
Yes! Certain 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.
Within 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 ten years. It becomes less significant as
time passes. You are a better credit risk after
bankruptcy than before.
CAN MY BOSS FIRE ME FOR FILING
No. Federal law prohibits any employer from
discriminating against you because you filed bankruptcy.
HOW MUCH AM I ALLOWED TO KEEP?
You are allowed to keep certain assets depending on
the state in which you reside. The Indiana exemption
scheme is more fully described herein.
WHAT DON'T I KEEP?
In a bankruptcy case, assets in excess of your
allowed personal exemptions (so-called nonexempt assets)
will be liquidated by the trustee.
HOW DO I GO INTO BANKRUPTCY?
There are two ways a person can become a debtor in a
bankruptcy case. The first and more common way is the
person voluntarily files a bankruptcy petition. The
second, and rarely used way, is by creditors asking the
Court to enter an Order that a person should be declared
a bankruptcy debtor. In both these cases, a bankruptcy
trustee is appointed to administer and otherwise
liquidate the nonexempt assets of the debtor.
DO I HAVE TO USE A LAWYER TO
FILE A BANKRUPTCY?
No. You do not need to use a lawyer to file Chapter 7
or Chapter 13. However, we advise that you use the
services of an experienced bankruptcy attorney as
bankruptcy proceedings and the bankruptcy laws are
complex. A bankruptcy lawyer is well worth the cost. You
will save the cost of the legal fees many times over
through peace of mind, relief from stress, and probably
actual money saved in following your attorney's advice.
WHAT ARE THE KEY OR MAJOR
EVENTS IN THE BANKRUPTCY PROCESS, AND WHEN WILL THE
BANKRUPTCY BE OVER?
Day No. 1
The bankruptcy documents are filed with the
Bankruptcy Court. There is an immediate automatic stay
imposed on all creditors and creditor actions so that
actions by creditors are prevented and/or discontinued.
Wages cannot be garnished, and other legal actions
cannot be continued.
Day No. 14
Creditors are advised by the clerk that a petition
has been filed.
Day No. 20 to 40
A meeting of creditors is held ("the 341 meeting").
The debtor must attend the 341 meeting. Creditors can
attend but usually do not. If they attend, they usually
only have a few minutes to ask questions. The trustee
assigned to the case presides. The 341 meeting is either
tape recorded or recorded by a court reporter. The
trustee will ask you questions under oath such as:
Did you read the schedules
Did you list all of your
Did you list all of your
Are the schedules accurate?
Do you want to make any
corrections to the schedules?
Are your cars insured?
Do you own real estate?
The trustee either orally or by giving the debtor
written information will ensure that the debtor is aware
the effect on credit history;
the effect of receiving a
the effect of reaffirming a
the ability to file a petition
under a different chapter.
Note: The typical 341 meeting lasts about 4 to 5
The trustee will sell any nonexempt assets of the
debtor available for the benefit of creditors.
The trustee has the authority to:
pursue causes of action
(lawsuits belonging to the debtor);
set aside preferential
transfers made to creditors within days before the
filing of the petition;
unwind secured transactions
and other pre-petition transfers of property that
were not properly perfected.
Day No. 60 to 90 after the 341 meeting
The debtor is discharged of all debts (with some
More than 99 percent of all debtors who file
bankruptcies receive discharge Orders from the Court.
WHAT IS CHAPTER 13, AND WHEN
CAN IT BE USED?
Individuals may file Chapter 13 bankruptcy petitions
if they reside, have a domicile, a place of business, or
property in the United States, or a municipality; have a
source of regular income; and on the date the petition
is filed owe less than $307,675 in unsecured debts and
less than $922,975 in secured debts. Note: The amounts
given here are amounts as of October 2005.
Corporations and partnerships may not file a Chapter 13
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 you
should read 11 U.S.C. Section 109(g).
WHAT DEBTS ARE NOT DISCHARGED
BY A BANKRUPTCY?
The following debts are not discharged in both
Chapter 7 and Chapter 13. If you file under Chapter 7,
these will remain due and owing when your case is over.
If you file under Chapter 13, these debts will have to
be paid in full during your plan. If they are not, you
will still owe the balance at the end of your case:
debts you forget to list in
your bankruptcy papers unless the creditor learns of
your bankruptcy case; see In re Madaj
child support and alimony;
debts for personal injury or
death caused by your intoxicated driving;
student loans unless it would
be an undue hardship for you to repay;
fines and penalties imposed
for violating the law such as traffic tickets and
recent income tax debts and
all other tax debts. This is a complicated area of
the bankruptcy law, and an attorney should be
consulted. You can discharge debts for federal
income taxes in Chapter 7 bankruptcy only if all of
these five conditions are met:
The IRS has not recorded a
tax lien against your property. (If all other
conditions are met, the taxes may be discharged,
but even after your bankruptcy, the lien remains
against all property you own effectively
affording the IRS a way to collect.)
You did not file a
fraudulent return or try to evade paying taxes.
The liability is for a tax
return (not a substitute return) actually filed
at least two years before you file for
The tax return was due at
least three years ago.
The taxes were assessed
(you received a notice of assessment of federal
taxes from the IRS) at least 240 days (eight
months) before you file for bankruptcy. (11
U.S.C. Sections 523(a)(1) and (7).
In addition, the following debts may be declared
non-dischargeable by a bankruptcy judge in Chapter 7 if
the creditor challenges your request to discharge them.
Some of these debts may be discharged under Chapter 13.
You can include them in your plan, and at the end of
your case, the balance is discharged:
debts you incurred on the
basis of fraud such as lying on a credit
credit purchases of $500 or
more for luxury goods or services made within 90
days of filing;
loans or cash advances of $750
or more taken within 70 days of filing;
debts from willful and
malicious injury to another person or another
debts from embezzlement,
larceny, or breach of trust; and
debts you owe under a divorce
decree or settlement unless after bankruptcy you
would still not be able to afford to pay them or the
benefit you would receive by the discharge outweighs
any detriment to your ex-spouse (who would have to
pay them if you discharge them in bankruptcy).
WHAT DOES IT COST?
A bankruptcy lawyer's fee for Chapter 7 consumer
representation varies but should be in the range of
$1000 to $2,000. In addition, the filing fee for a
Chapter 7 required by the Bankruptcy Court is presently
$299. The cost of Chapter 13 representation and business
representation is higher than the fees charged for
Chapter 7 consumer representation. We will give you a
free initial consultation. You can keep the fees down by
being well-organized and well-prepared for your initial
consultation and Court.