Frequently Asked Questions
We are here to help demystify the bankruptcy process for our clients, and assure you that a bankruptcy situation is not the end of the road. Read our FAQ to learn the answers to many common questions.
How does Bankruptcy impact my credit score?
Bankruptcy is one of the biggest events that can affect your credit score, and the impact is immediate and can be substantial. A person with previously solid credit (700+) will see their credit score drop by about 200 points. A below-average to average credit score won’t drop as much and can even increase as your debt decreases. That’s one important factor to keep in mind. If your credit score is good, you will be penalized more heavily than if your credit score is average or worse.
The good news is that this change is not permanent. You can start rebuilding credit immediately after your bankruptcy is filed. The process takes some time, but financial institutions offer products like secured credit cards and credit-builder loans that can help. Just be sure to make your payments regularly and on time and practice smart money habits. Financial institutions will look favorably on your efforts to rebuild credit even if you have a bankruptcy on your record.
Is there a certain amount of debt to qualify for bankruptcy?
There is no minimum amount of debt to qualify for bankruptcy. However, certain debt limits apply to Chapter 13 bankruptcy. The maximum amount changes periodically, but is $2,750,000 now. It is also important to keep in mind that there are limits on how many times you can discharge your debts in bankruptcy. If your debt amount is relatively low, it may be a good idea to consider alternatives to bankruptcy now so that filing for bankruptcy remains an option for you in the future.
Does bankruptcy eliminate all of my debts?
Possibly. Most consumer debt can be eliminated through a bankruptcy discharge. If you forget to include a debt in the paperwork, however, it will not be discharged. Moreover, creditors have the opportunity to object to the discharge of any debt. Some debts are considered “non-dischargeable,” which means you will have to pay them, and can include some tax debts, child or spousal support, criminal restitution, or fines/penalties owed to the government. Student loans are only dischargeable if you are unable to pay due to an undue hardship or you have a life circumstance such as a permanent disability that will make it impossible for you to repay that debt.
Can I wipe out medical bills by filing for bankruptcy?
Medical debt is one of the primary causes of bankruptcy for individuals. Medical bills are usually a form of unsecured debt that is dischargeable through bankruptcy.
Will filing for bankruptcy stop collections calls and creditor harassment?
Filing for Chapter 7 or Chapter 13 bankruptcy initiates an automatic stay, which states that creditors must cease all collection activities. Once the stay is in place, creditors and collection agencies must stop contacting you by phone and mail, and cannot file or maintain lawsuits against you to recover most outstanding debts. They are also prohibited from filing liens against you or garnishing your wages.
The automatic stay can also temporarily stop foreclosure proceedings, utility shut-offs, and evictions. However, the stay will likely not apply to certain proceedings, such as legal actions to collect child support or alimony, and certain IRS matters. In some cases, creditors may also ask the court to lift the stay.
Will I lose my car?
Not necessarily, there are different options available to keep your vehicle when filing for bankruptcy. First you can keep the car and continue to pay the same amount monthly. In some instances you can keep the car and reduce your monthly payment. Depending on what chapter of bankruptcy you qualify for will determine how your vehicle is handled.
If your vehicle is paid off it will depend on the chapter of bankruptcy you file for. When you file you must disclose everything you own, the values and any liens that may be associated with the item. If there is equity in an item, such as your car, your attorney will see what exemptions are available to you to protect that item.
What are bankruptcy exemptions?
Exemptions allow you to keep a certain amount of assets safe in bankruptcy. For example, your car, tools used for your work, clothing, and retirement accounts. If you can exempt an asset, you don’t have to worry about the bankruptcy trustee appointed to your case taking it and selling it for your creditors’ benefit, or paying to keep the asset.
The purpose of bankruptcy isn’t to take all of your belongings, it is to give you a fresh financial future. In addition to protecting the basics such as transportation or tools of your trade and clothing, there are exemptions for other household items such as jewelry up to a certain amount, household goods and furnishings, or collector’s items.
Should I Withdraw All the Money In My Bank Accounts Before Filing For Bankruptcy?
No. You should never make big changes before filing for bankruptcy unless advised by an attorney. There is no purpose in taking out money from a bank account, even money held as cash is required to be reported to the court in your paperwork. Keeping funds in a bank account makes it easier for your attorney to manage your case. Similarly, you should not give away personal property to relatives and friends in an effort to protect this property from creditors.
Can I Keep a Few Credit Cards When Filing For Bankruptcy?
No, you cannot pick and choose what debts you want to include in your bankruptcy. You must list all debts and everyone you owe money to, even friends and family. All unsecured debts such as credit cards, will be discharged. Secured debt, such as a car loan or mortgage, you will have an opportunity to elect to keep with the same or similar payment arrangements as you had prior to filing. It is also likely that credit cards on which you owe nothing will be cancelled.