The Bankruptcy law allows individuals, married couples or businesses (the 'debtor') to eliminate or restructure their debts when faced with financial difficulties. The philosophy behind the law is to allow the debtor to make a fresh start, not to be punished for the inability to pay his or her debts.
- What is CHAPTER 7 Banrkuptcy?
What is CHAPTER 13 Bankruptcy?
What type of Property can I keep?
What is an Automatic Stay?
The PROS / CONS of filing Bankruptcy
What to expect in court
Your AnswersUnder the Bankruptcy Code, certain property is exempt and cannot be taken by the Bankruptcy Trustee or Creditors to pay off debts. These exemptions allow the debtor to keep certain property so that he or she is not rendered destitute as a result of the Bankruptcy process.
The debtor must choose between the federal bankruptcy exemptions and the exemptions arising under Massachusetts and federal non-bankruptcy laws. The choice will depend on the nature and value of your assets.
The most important exemption for homeowner is the Homestead exemption under the Massachusetts and federal non-bankruptcy laws. A declaration of Homestead filed prior to the filing of a bankruptcy petition will exempt up to $500,000 of equity in the debtor’s primary residence.
Other exemptions under Massachusetts law are certain personal property, pensions, certain retirement accounts, social security benefits, veterans’ benefits, unemployment and workers’ compensation benefits
Chapter 7 bankruptcy, sometimes call a straight bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".
Chapter 13 Bankruptcy is also known as a reorganization bankruptcy. A Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.
Chapter 13 is a debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. While in a chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the plan.
One very important thing to remember about Chapter 13 bankruptcy is that you must be working or have a consistent source of income for your repayment plan to be approved by the court. Not only must you be able to pay for your monthly living expenses, but you must also be able to make a payment to the court to consolidate your debts.
Debts that are generally consolidated in a chapter 13 are mortgage arrears, balances on vehicle loans, student loans, credit card debts and other unsecured debts.
What to Expect in Court?
After the filing of a Chapter 7 or Chapter 13 petition, the Bankruptcy Court will schedule a meeting of Creditors. The Debtor is required to attend the meeting.
In a Chapter 7 case, the trustee will ask questions to verify the eligibility for Chapter 7 relief and to determine that the debtor has fully disclosed all of their debt and liabilities.
Some of the common questions are:
- Do you own a home?
- Have you transferred any property?
- Do you have the right to sue any one for bodily injury?
- Have you listed all of your debts and assets?
- Are you expecting to inherit money?
The hearing only lasts about five to ten minutes and is relatively informal.
In a Chapter 13 case, in addition to the questions asked in most Chapter 7 cases, the trustee will also ask questions to verify that the Debtor can afford the Chapter 13 payment and that he is making his best efforts to repay his creditors through the Chapter 13 payment plan.
Under the Bankruptcy Code, certain property is exempt and cannot be taken by the Bankruptcy Trustee or Creditors to pay off debts. These exemptions allow the debtor to keep certain property so that he or she is not rendered destitute as a result of the Bankruptcy process.
The debtor must choose between the federal bankruptcy exemptions and the exemptions arising under Massachusetts and federal non-bankruptcy laws. The choice will depend on the nature and value of your assets.
The most important exemption for homeowner is the Homestead exemption under the Massachusetts and federal non-bankruptcy laws. A declaration of Homestead filed prior to the filing of a bankruptcy petition will exempt up to $500,000 of equity in the debtor’s primary residence.
Other exemptions under Massachusetts law are certain personal property, pensions, certain retirement accounts, social security benefits, veterans’ benefits, unemployment and workers’ compensation benefits
The “Automatic Stay”
The filing of a bankruptcy case, under any chapter of the Bankruptcy Code, triggers an injunction against the continuance of any action by any creditor against the debtor or the debtor's property.
In Chapter 13, the stay even protects co debtors who are liable with the debtor on consumer debts.
The automatic stay prohibits the following:- Beginning or continuing law suits
- Collection calls
- Repossessions
- Foreclosure sales
- Garnishment or levies
The Pro / Con List of filling for a Bankruptcy
PROS
- Allows you to obtain a fresh start
- Stops collection efforts and annoying phone calls
- It temporarily forestalls foreclosure and
repossession proceedings - It temporarily prevents wage garnishment and
disconnection of utilities - May allow you to maintain many of your assets
(exempt assets)
CONS
- The bankruptcy will appear on your credit report for up to ten years. However, remember that many people have blemished credit report before filing.
- Chapter 7 Debtors lose the right to receive another Chapter 7 discharge for six years. This might improve your records as lenders know that you cannot soon repeat the process.
*** Keep in mind you cannot be fired from your job solely because you filed for bankruptcy.
Q: What's the difference between secured and unsecured debt?
A: Secured debt is a creditor's claim that's secured by a lien of some type in your property, either by your agreement or involuntarily such as with a court judgment or taxes. A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any type of property, leaving the creditor without any claim to property.
A: Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or under Chapter 7 where the debts are discharged. Each chapter of bankruptcy spells out:
Q: What type, or chapter, of bankruptcy should I file?
- What bills can be eliminated
- How long payments can be stretched out
- What possessions you can keep
- Additional information
A: Generally, you can convert a case once to any other chapter for which you are eligible. The request to convert can be a simple one-sentence document. There are issues to watch when going from on chapter to another, though. For example, when moving from a Chapter 13 to a Chapter 7, you'll need to review whether you have acquired items that will now be considered property of the estate under Chapter 7 that wasn't part of the previous filing.
Q: Can I change from one chapter of bankruptcy to another?
A: With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition.
Q: Who can file bankruptcy?
A: A Chapter 7 bankruptcy can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13 can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing. Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application, so any decision to file must be carefully considered.
Q: How often can you file for bankruptcy?
A: You need to compile a listing of the past and present debts you have. The petition in a bankruptcy filing includes schedules of assets and liabilities as well as a statement of financial affairs. These documents are filed with the bankruptcy court, along with payment of the filing fee.
Q: What do I need to begin the bankruptcy process?
A: No. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If an individual has little in the way of property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.
Q: Do you have to have a certain amount of debt to file?
A: A joint petition is the filing of a single bankruptcy petition by an individual and the individual's spouse. Only people who are married on the date they file may file a joint petition. Unmarried partners must each file a separate case.
Q: What is a joint petition?
A: If one spouse files and the other does not, the one who does not file could possibly be responsible for the debts. Check this out carefully before filing.
Q: What happens if one spouse files for bankruptcy and not the other?
A: No. If you are a co-signor with your ex-spouse on a debt, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he or she default on the loan obligations set out.
Q: Does my divorce decree protect me from creditors if my ex files for bankruptcy?
A: Yes. The lender can require the co-signor to make payments on a loan once the principal has declared bankruptcy on the credit. This fact makes it extremely important that those considering co-signing for a loan for another be ready, and able, to pay the loan in the event that the principal signor defaults.
Q: The principal signor on a loan filed bankruptcy. Now the creditor is coming after the co-signor. Can they do that?
A: No. The debts that cannot be discharged vary slightly between the different chapters of bankruptcy. Generally, the following cannot be discharged:
Q: Can all types of debt be discharged?
- Debts for taxes owed to local, state or federal agencies
- Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
- Debts which were neither listed nor scheduled or which the debtor waived discharge
- Debts which are owed to a spouse, former spouse, or child of the debtor, for alimony, maintenance, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record
- Debts owed for willful and malicious injury by the debtor to another person or property owned by another.
- Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
- Debts for death or personal injury caused by the debtor's drunk driving or from driving while under the influence of drugs or other substances
- Debts incurred after a bankruptcy was filed
A: Exemptions allow an individual to "exempt", or keep, certain kinds of property. State law defines what assets are considered "exempt," but typically include:
Q: What can I keep, if anything, if I file bankruptcy?
- Jewelry
- Vehicles up to a certain amount
- Equity in a home up to a certain amount
- "Tools of the trade" or tools and equipment necessary to allow the individual to continue working
A: You must include all the debts you owe in your petition and schedules. You may opt to keep some debts by "reaffirming" the specific debt.
Q: Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
A: Generally, no. Retirement accounts that are ERISA-qualified aren't considered property of an estate and cannot be taken. Social Security benefits are generally protected from assignment, or garnishment for debts in bankruptcy. The Social Security Administration's responsibility for protecting benefits against legal process and assignment usually ends when the beneficiary is paid. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the "only" deposits into the account are direct deposits of Social Security benefits are "identifiable" and generally protected.
Q: Will I lose my retirement accounts or payments from social security?
A: Possibly. The factors that impact your ability to keep your home are:
Q: Will I lose my home if I file for bankruptcy?
- The state you are in and the exemptions allowed
- The status of your loan (current or in foreclosure)
- The type of bankruptcy you're filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)
A: Bankruptcies remain on credit reports anywhere from seven up to 10 years.
Q: How long does a bankruptcy stay on my record?
A: No. Although at your option, you can file an explanation with the credit reporting agencies briefly describing the events resulting in your bankruptcy. If an account is reported inaccurately, you can request the record be updated to reflect the actual situation.
Q: Can I do anything to remove a bankruptcy from my credit report?
A: The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor. There is no law that prevents anyone from extending credit to you immediately after the filing of a bankruptcy, but creditors aren't required to extend you credit.
Q: When can I apply for credit again?
A: Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings -- it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, "We can fix anything" credit repair companies offer very little in comparison to the fees they charge.
Q: Can a "credit repair" company really save me from bankruptcy?
A: During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, the bankruptcy code dictates that creditors must stop all collection efforts against the debtor. As soon as the bankruptcy petition is stamped "Relief Ordered" upon filing, you are immediately protected from your creditors. If a creditor continues to attempt to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with either the case name number and filing date, or a copy of the petition that shows it was filed. If the creditor still continues to collect, the debtor may be entitled to take legal action against the creditor.
Q: Can a creditor continue to contact me after I've filed for bankruptcy?
A: The bankruptcy court notifies, by mail, all creditors advising them of:
Q: Who lets my creditors know I've filed for bankruptcy?
- The filing of the bankruptcy
- The case number
- The automatic stay
- The name of the trustee assigned to the case (if filed under chapters 7 or 13)
- The date set for the meeting of creditors
- The deadline, if any, set for filing objections to the discharge of the debtor and/or the discharge of specific debts
- Whether and where to file claims
The exact information in the notice may be slightly different depending on the chapter under which the case is filed.
A: The trustee's job is to:
Q: What does a trustee do?
- Administer the bankruptcy
- Make sure creditors get as much money as possible
- Run the first meeting of creditors (also called the "section 341 meeting").
- Collect and sell non-exempt property (in a chapter 7 case) or collect and pay out money on a repayment plan (in a chapter 13 case)
- Obtain information from you and documents related to your bankruptcy
Trustees are appointed by the United States Trustee, but aren't necessarily lawyers. The courts don't pay the trustee. Their fees come from the bankruptcy filing fee or are a set percentage of the money distributed in the bankruptcy.
A: Yes. Each type of bankruptcy allows creditors to object to specific debts included in the plan or the manner in which the plan addresses the repayment or discharge.
Q: Can creditors object to a bankruptcy filing or plan?
In Chapter 7 Bankruptcy, creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court will issue the discharge order and the trustee will proceed to collect and sell the assets, then distribute the proceeds to the creditors under a predetermined system. If there are objections, the bankruptcy itself, less the objected debts, continues through to discharge. It may be necessary to have a trial before a judge to resolve the items that creditors objected to.
In a Chapter 13 case, creditors are given an opportunity to object to the plan for repayment. If there are no objections filed by creditors or the trustee, the plan may be confirmed as filed. After the plan is confirmed, the trustee will distribute the payments from the debtor to creditors until the plan is completed. Upon completion of the Chapter 13 plan, the court will issue a discharge order, the trustee will prepare a final report, and the case will be closed.
A: The debtor must attend the creditors' meeting scheduled for their bankruptcy petition. The trustee conducts the meeting. The debtor must answer questions concerning:
Q: What happens at a creditors meeting?
- How the situation evolved
- Any actions taken with the property
- Debts listed in the petition or any other financial information requested by the trustee
Failure to respond or not respond truthfully can result in the petition being dismissed or, in extreme cases, a charge of perjury. Creditors have been notified that they may attend and question the debtor about the assets of the debtor or any other matter relevant to the bankruptcy. A creditor doesn't waive any rights by not attending the creditors meeting.
A: After filing the petition, if you discover that an entry is inaccurate or missing, the documents typically may be corrected by filing of an amendment. Remember, you're submitting the petition under the penalty of perjury, so take care with the initial filing.
Q: What if I've forgotten to include a debt on my schedule? Can I add it later?
A: As soon as you anticipate filing bankruptcy, you must stop using your credit cards. Bankruptcy law allows the review of questionable purchases for potential fraud. If a purchase is made 40 days prior to filing or cash advances taken within 20 days of filing, the debt may possibly be excluded from the bankruptcy.
Q: When do I have to stop using my credit cards if I'm planning on filing for bankruptcy?
A: A reaffirmation agreement legally obligates the debtor to pay all or a portion of an otherwise dischargeable debt. These are voluntary agreements not required by bankruptcy codes. You may voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid legal reasons for wanting to reaffirm a specific debt, such as a vehicle loan.
Q: What is a reaffirmation agreement?
A: Yes. Typically, a bankruptcy case is reopened by the trustee when questions arise concerning what was included or possibly omitted, or any other irregularities that surface.
Q: Can a bankruptcy be reopened?
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We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy CodeThe following is the legal and privacy policy of Forghany and Associates, hereinafter referred to as The Firm Legal Disclaimer
Unless otherwise indicated, our Massachusetts Attorneys are Not Certified by the Commonwealth of Massachusetts Board of Legal Specialization in the areas of practice listed on their profiles.
Attorney Client Relationship
The materials on this web site are intended for informational purposes only. The materials on this Web site are not intended to be, nor should they be interpreted as, legal advice or opinion. The reader should not consider this information to be an invitation to an attorney client relationship, should not rely on information presented here for any purpose, and should always seek the legal advice of counsel in the appropriate jurisdiction. Transmission and receipt of the information in this site and/or communication with the Firm via e-mail is not intended to solicit or create, and does not create, an attorney-client relationship between the Firm and any person or entity.
Transmission of Information
Electronic mail or other communications through this site or otherwise to the Firm or any of its lawyers in connection with a matter for which we do not already represent you may not be treated as privileged or confidential. If you choose to contact us through this Web site, you should be aware that any information transmitted electronically may not be secure.
Legal Warranty
The content of this web site contains general information and may not reflect current legal developments. Such content is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice or render a legal opinion. Since the law is constantly changing and since the law will vary based on different facts and circumstances, statements on this Web site regarding the status of a given law or legal issue may not be current or applicable to your particular situation. You should not take any action based on the information in this Web site.
Bar Membership
Although this Web site may be viewed from any of the 50 United States of America and territories, as well as any country, the Firm primarily practices in the State of Commonwealth of Massachusetts. Lawyers named in the web site may not be authorized to practice law except in jurisdictions where the Firm maintains offices.
Links
This web site occasionally contains links to other web pages; however, the inclusion of such links does not constitute referrals or endorsements of the linked entities. Links to organizations and governmental agencies are provided as a convenience to our readers. The Firm does not endorse and is not responsible for any third-party content that may be accessed from its Web site and does not recommend or endorse the use of any third-party's services. The links are to be accessed at the user's own risk, and the authors of this web site make no representations or warranties about the content of these links.
Liability
The Firm assumes no responsibility for computer viruses resulting from use of our Web site. Under no circumstances, including, but not limited to, negligence, shall the Firm be liable for any special or consequential damages that result from the use of, or the inability to use, the materials in this web site, even if the Firm has been advised of the possibility of such damages.
Indemnification
You agree to indemnify, defend and hold harmless the Firm and its members, managers, officers, employees, agents and the assigns of same, from and against any and all loss, costs, expenses (including reasonable attorneys' fees and expenses), claims, damages and liabilities related to or associated with your use of the web site and any violation of these Terms and Conditions by you.
Jurisdiction
By accessing this Web site, you agree that any disputes or matters arising out of or related to your viewing or use of this Web site shall be governed under the laws of the State of Commonwealth of Massachusetts without regard to the conflict of laws.
Changes
The Firm may change these policies at any time without written notice to users. The changes will become effective upon posting of the changes to the web site.
Last Update
These Terms and Conditions were last updated on August 8, 2009.