Bankruptcy FAQs
Bankruptcy laws can be confusing, which is why working with a bankruptcy lawyer can be helpful. The questions on this page address some of the most common questions related to bankruptcy.
If you need to find a bankruptcy lawyer to examine such questions in more detail, Bankruptcy Central is here to help. Just fill out the below form to be connected with a nearby sponsoring bankruptcy lawyer to ask your questions directly.
What is the New Bankruptcy Law?
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is the "new bankruptcy law" that got a lot of media attention when it was passed a few years ago.
The new law introduced a pre-filing credit counseling requirement and a pre-discharge financial management requirement for all filers, changed the qualification standards for filing under Chapter 7 and modified a few other terms of the bankruptcy law.
But don't worry--most people still qualify to file bankruptcy under the new law.
If you're interested in getting a more in-depth understanding of BAPCPA and how it may impact your case, a bankruptcy lawyer may be able to help you out.
How Does Chapter 7 Bankruptcy Work?
Chapter 7 bankruptcy, sometimes referred to as liquidation bankruptcy, is a type of personal bankruptcy that allows filers to be excused from many of their unsecured debts (debts not tied to property, such as credit card debt, medical bills, utility bills and payday loans).
Once a debt is excused (discharged) the filer is no longer responsible to pay it.
The "liquidation" comes in because a filer's bankruptcy trustee may sell a filer's non-exempt property in order to raise money to pay back creditors. The act of converting an asset to cash (by selling it) is called liquidation. But in many Chapter 7 cases, filers don't have any non-exempt assets so the liquidation doesn't usually take place.
Chapter 7 bankruptcy cases tend to move quickly and many filers receive their bankruptcy discharge within six months of filing their original petition.
Can I File Chapter 7 Bankruptcy?
One of the changes introduced by BAPCPA was the qualifying means test for those interested in filing under Chapter 7 of the Bankruptcy Code.
To be eligible for Chapter 7 protection, you must "pass" this means test. The test involves a comparison of your income to the median income in your state for a family your size.
Those whose incomes fall below the median qualify to file for Chapter 7 bankruptcy; those whose incomes are above the median must calculate their disposable income and determine whether it falls within strict government guidelines.
Because the calculations required of the Chapter 7 means test require significant knowledge of bankruptcy law and state income levels, working with a bankruptcy attorney is generally recommended.
How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy is the other type of personal bankruptcy offered in the United States.
Known as a "reorganization of debts", it allows filers to catch up on secured debts through a three- to five-year repayment plan.
The repayment plan includes past-due debts as well as currently due debts, so that by the end of the period of repayment, filers are caught up on all their financial obligations.
If a filer makes payments in a timely matter throughout the life of the repayment plan, the bankruptcy court may discharge any remaining unsecured debts.
Can I File Chapter 13 Bankruptcy?
Although there's no explicit "means test" for Chapter 13 filers, you do have to meet certain criteria to make Chapter 13 bankruptcy a feasible option.
Since you'll be expected to make regular payments under your repayment plan, it's important for you to have a steady, reliable source of income that lets you afford basic necessities and have some money left over each month.
Chapter 13 is the traditional choice for those looking to prevent foreclosure or who own non-exempt property they're not willing to part with through a liquidation sale.
A bankruptcy attorney can advise you whether or not Chapter 13 bankruptcy is a viable option for your debt struggles.
Which Type of Bankruptcy is Right for Me?
This is a tricky question, since each individual has different financial circumstances and goals for a bankruptcy filing.
Broadly speaking, Chapter 7 bankruptcy tends to be a better fit for individuals with a significant amount of unsecured debt (from medical bills, credit cards, etc.), a fairly low income and little property.
Chapter 13 bankruptcy usually fits better for those who have a fairly steady regular income and substantial non-exempt property they're interested in keeping.
This brings us to our next question:
Should I Work with a Bankruptcy Lawyer?
While you are not obligated to work with one, a bankruptcy lawyer can help you answer any questions that you still have after reading this page.
Once your attorney helps you determine which chapter of bankruptcy would best suit your financial needs, he or she can help you fill out the necessary paperwork, file forms with the court, meet deadlines, interpret abstract or complex legal language and more.
If you're interested in speaking with a sponsoring bankruptcy lawyer in your area who can help you figure out the details of your financial situation, all you have to do is call us at 866-288-7281 or fill out our free form.
We'll connect you with a sponsoring bankruptcy lawyer in your area so you can start having your questions answered!