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Personal Bankruptcy
FAQs
Personal Bankruptcy Frequently Asked Questions
1. What is personal bankruptcy?
Personal bankruptcy is a legal process that allows individuals to eliminate or repay their debts under the protection of the bankruptcy court. It provides relief for those overwhelmed by financial obligations and can give a fresh start by discharging certain debts.
2. Can I keep my house and/or my car if I file for bankruptcy?
Yes. If the equity in your house or car is exempt, you are current on your payments, and you can continue making payments, you should be able to retain your house and/or car. Discuss the process called “Reaffirmation of Debt” with your attorney. Reaffirmation involves agreeing to continue making payments on a debt to keep the collateral, like a car or house, even after bankruptcy.
3. Will all my debts be discharged in bankruptcy?
Not all debts can be discharged. Debts that cannot be discharged include most taxes, student loans, domestic support obligations like alimony and child support, debts obtained through fraud, and debts resulting from willful injury to another person or property. Certain luxury debts incurred shortly before filing may also not be discharged
4. Will filing for bankruptcy stop creditors from contacting me?
Yes. Once you file for bankruptcy, an automatic stay goes into effect, which stops most creditors from contacting you or taking collection actions against you. This includes stopping wage garnishments, lawsuits, and foreclosure proceedings.
5. How long does it take to complete a personal bankruptcy case?
Chapter 7 bankruptcy typically takes about 4 to 6 months from filing to discharge. This process includes credit counseling, filing the petition, attending the meeting of creditors, and waiting for the discharge order. Chapter 13 bankruptcy involves a repayment plan lasting 3 to 5 years, during which you make regular payments to a trustee who distributes the funds to creditors.
6. How often can I file for bankruptcy?
You can file for Chapter 7 bankruptcy once every eight years. For Chapter 13 bankruptcy, you must wait two years from the previous filing date to file again. However, if you previously filed for Chapter 7 and now need to file for Chapter 13, you must wait four years from the Chapter 7 filing date.
7. Will bankruptcy affect my credit score?
Yes, bankruptcy will have a negative impact on your credit score and will remain on your credit report for up to 10 years for Chapter 7 and up to 7 years for Chapter 13. However, many individuals find that their credit score improves over time after bankruptcy, as they are no longer burdened by overwhelming debt.
8. Can I include medical bills in bankruptcy?
Yes. Medical bills are considered unsecured debts and can be discharged in both Chapter 7 and Chapter 13 bankruptcy. Including medical bills in your bankruptcy filing can provide significant relief if you are struggling with high healthcare costs.
9. What are the costs associated with filing for bankruptcy?
The costs of filing for bankruptcy include court filing fees, which are approximately $335 for Chapter 7 and $310 for Chapter 13. Additionally, there may be attorney fees, which vary depending on the complexity of your case and the attorney’s rates. Some attorneys offer payment plans for their fees.
10. What happens to my credit cards if I file for bankruptcy?
Credit card debt is typically discharged in bankruptcy, meaning you will no longer be responsible for repaying it. However, your credit card accounts will likely be closed, and it may be challenging to obtain new credit immediately after filing. Over time, you can rebuild your credit and obtain new credit cards.
11. Can I file for bankruptcy without an attorney?
Yes, you can file for bankruptcy without an attorney, a process known as filing "pro se." However, bankruptcy law is complex, and mistakes can be costly. It is generally advisable to seek the assistance of an experienced bankruptcy attorney to navigate the process and ensure your rights are protected.
12. What happens at the meeting of creditors?
The meeting of creditors, also known as the 341 meeting, is a mandatory part of the bankruptcy process where you meet with the bankruptcy trustee and any creditors who choose to attend. During the meeting, the trustee will ask you questions about your financial situation, assets, debts, and the information provided in your bankruptcy petition. Creditors may also ask questions, but they rarely attend.
13. Can filing for bankruptcy help stop foreclosure on my home?
Yes. Filing for bankruptcy initiates an automatic stay, which temporarily halts foreclosure proceedings. In Chapter 13 bankruptcy, you can include past-due mortgage payments in your repayment plan, which can help you catch up and keep your home. In Chapter 7 bankruptcy, the stay is temporary, but it can provide time to negotiate with your lender or explore other options.
14. How can I rebuild my credit after bankruptcy?
Rebuilding credit after bankruptcy takes time and discipline. Start by obtaining a secured credit card, making small purchases, and paying off the balance in full each month. Keep up with all your financial obligations, such as rent, utilities, and any remaining debts. Regularly check your credit report for errors and dispute any inaccuracies. Over time, responsible credit use will improve your credit score.
15. What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy involves liquidating non-exempt assets to pay off debts and discharging the remaining eligible debts. It is typically suitable for individuals with limited income and significant unsecured debt. Chapter 13 bankruptcy involves creating a repayment plan to pay off debts over 3 to 5 years, allowing individuals with a regular income to keep their assets and catch up on missed payments.
16. Do I qualify to declare personal bankruptcy?
To qualify for Chapter 7 bankruptcy, you must pass the means test, which compares your income to the median income for a similar household size in Michigan. If your income is below the median, you qualify. If it's above, you may still qualify based on your disposable income and expenses. For Chapter 13 bankruptcy, you must have a regular income and your unsecured debts must be less than $419,275, and secured debts must be less than $1,257,850 (these limits are subject to change). Consulting with a bankruptcy attorney can help determine your eligibility.