Frequently Asked Questions

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WHAT ARE THE DIFFERENT TYPES OF BANKRUPTCY?

For  individuals, Chapter 7 and Chapter 13 are the main options. Chapter 7  is a basic type of case where many debts are discharged in about 3 to 4  months whereas in Chapter 13 a payment plan is set up to repay a portion  of the debts over 3 to 5 years.


DISCUSS THE MEANS TEST AND HOW IT WORKS?

The 2005 changes to bankruptcy law brought on the Means Test. The Means  Test is meant to be a strict test to determine how much money a person  has to repay debts. Similar to filling out a tax form, the Means Test is  filled out to decide if a bankruptcy case is allowed to proceed to  discharge.Add an answer to this item.


WHAT ARE THE INCOME LIMITS FOR DOING A CASE?

Bankruptcy laws do not have strict limits on income. Instead, a person’s  income is compared to his household expenses to determine how much  money is left to pay debts. If no money is left, then bankruptcies  proceed smoothly. If enough money is left to pay all the debt in 20  years, trustees and creditors can object to the bankruptcy.


HOW DOES THE MEDIAN INCOME FOR HOUSEHOLDS AFFECT A CASE? 

Every person filing a consumer case has to compare his or her income to  the average or median income for the same size household. If the income  is greater than the median, the Means Test requires that numerous  expenses are determined using IRS expense standards to determine how much, if any, of the debts have to be repaid.


WHAT DETERMINES HOW BIG A HOUSEHOLD IS?

IRS standards for claiming dependents are typically used to determine  who qualifies to be included in the household although some exceptions  are granted.


DOES MY SPOUSE HAVE TO FILE IF I FILE?

Married couples have the option to file individually or to do a joint  case. The combined income always has to be disclosed on the paperwork,  but a spouse does not have to join in the case if he does not wish to.


HOW OFTEN CAN A PERSON FILE A BANKRUPTCY CASE?

The 2, 4, 6, 8 rule applies. In order to get a discharge, a Chapter 13  case has to be filed at least 2 years after the last Chapter 13 case was  filed or 4 years after the last Chapter 7. A Chapter 7 case has to be  filed at least 6 years after the last Chapter 13 case or 8 years after  the last Chapter 7.


CAN A PERSON EVER GET A DECENT LOAN, ESPECIALLY A MORTGAGE, AFTER A BANKRUPTCY?

Even though the bankruptcy is on the credit reports for 10 years, it is  just one piece of data factored in among the other data such as income,  the amount of debt a person has, and the demonstrated ability to repay  debt after the bankruptcy. Every lender gets to decide what loan terms  to offer, but as time passes, the bankruptcy case becomes less important  than the other data on the credit report. In other words, the longer  one waits after a bankruptcy to get a loan, the better the loan terms  will be.


DOES A HOMEOWNER LOSE THEIR HOUSE IN A CHAPTER 7?

In Chapter 7, the debtor does not automatically lose anything they own.  The value of everything that is owned has to be listed and compared to  how much is owed on the piece of property. If the property would not  result in much money upon sale, nothing is lost.


WHAT HAPPENS WHEN REAL ESTATE IS TRANSFERRED BEFORE A BANKRUPTCY?

Generally, a property transfer has to be at least 4 years old or it can  be attacked and reversed in a bankruptcy. Transfers shortly before  filing a bankruptcy do not typically help and they can prevent a person  from being able to do a bankruptcy.


CAN THE DEBTOR CHOOSE NOT TO INCLUDE SOME DEBTS IN A CASE?

Every debt in a person’s name is part of a bankruptcy case, whether it  is listed or not. Some debt, however, can be kept and a person can  continue to pay for the loan or credit card if the court thinks it is  appropriate. Keeping a debt often requires a borrower to sign a  reaffirmation agreement that says the bankruptcy will not discharge the  debt.


WHAT IF A DEBT IS NOT REAFFIRMED IN A CHAPTER 7 CASE?

If a reaffirmation agreement is not signed, the person’s liability on  the debt is discharged unless the debt is not dischargeable (child  support and student loans are examples of non-dischargeable debt). The  creditor may retain the right to repossess the property tied to a loan,  so borrowers still have to pay for cars and houses if they are being  kept.


WHAT HAPPENS TO CO-SIGNED LOANS IN BANKRUPTCY?

Unless the co-signer files his own bankruptcy, he remains liable for the  debt. Bankruptcies operate based on the person who files, not the debt.  If necessary, a person can choose to pay a debt in order to protect the  co-signer.


WHAT HAPPENS TO PARKING TICKETS IN BANKRUPTCIES?

Parking tickets are not discharged in a Chapter 7 bankruptcy. In Chapter  13, only a portion of the tickets have to be repaid based on what the  filer can afford to repay.


WHAT HAPPENS TO DRIVER’S LICENSE SUSPENSIONS?

Typically, a suspension has to be lifted as soon as a bankruptcy case is  filed. The Secretary of State can usually lift the suspension right  away if the bankruptcy papers are brought to them and a reinstatement  fee is paid. In Chapter 7, however, the licenses gets suspended at the  end of the case unless the tickets are paid. If a license is suspended  due to a DUI or moving violations, the license stays suspended.


WHAT HAPPENS TO TOLLS AND IPASS BILLS?

Similar to tickets, the debt will generally not get discharged in a  Chapter 7 but only a portion of the debt has to be repaid in Chapter 13.


WHAT HAPPENS TO A CAR LOAN IN CHAPTER 13?

Usually, the amount to be repaid can be reduced. The interest rate can  be drastically reduced from what is in the contract, and if a car is  owned for at least 2 and 1/2 years before the bankruptcy case is filed,  just the value of the car has to be repaid if that is less than what is  owed.


WHAT HAPPENS TO A CAR LOAN IN CHAPTER 7?

The borrower can continue to pay the loan and keep the car as if the  Chapter 7 was never filed. The car can also be surrendered and the debt  discharged. Other options exist to keep the car and pay just the value  of the car, but the full value has to be repaid in one payment soon  after the case is filed. Some people successfully qualify for a loan to  pay the value and save lots of money on the cars if the value is less  than the amount owed.


CAN TAXES OWED TO THE IRS EVER GET DISCHARGED?

Yes. If taxes have been due for at least 3 years, and the return was  filed at least 2 years ago, the taxes can be discharged. Time spent in a  repayment plan with the IRS, or in a previous bankruptcy, does not  count toward the 3 year period.


HOW IS CHILD SUPPORT TREATED IN A CASE?

Usually, child support has to be repaid exactly as it was paid before  the bankruptcy case was filed. Child support will not be discharged in  bankruptcy, however, the back child support can be repaid through a  Chapter 13 case.


WHAT CAN BE DONE ABOUT PAYDAY LOANS?

Most payday loans are discharged in bankruptcy, and your paychecks and  bank accounts are protected once you file the bankruptcy case. If a  payday loan was taken out shortly before filing the bankruptcy, you will  need advice on what will happen.


HOW QUICKLY CAN BANKRUPTCY STOP A WAGE GARNISHMENT?

Robert J. Adams & Associates can get notice of your bankruptcy case  to your employer on the day your case is filed. You are protected as of  the filing of the case, and garnishments have to stop. In some cases,  the creditor may still receive the garnishment for 1 paycheck after the  case is filed, but then the garnishment has to stop. This protection  does not apply to child support.


WHAT HAPPENS WHEN A CREDITOR PUTS A LIEN ON A DEBTOR’S HOUSE?

Many liens can be avoided and discharged in bankruptcy. A lien is like a  mortgage on the house, and only gets paid if the house is worth enough  to pay all the previous mortgages. If the house is not worth enough to  pay the mortgages in full, the house can be freed from the lien.


WHAT IF THE DEBTOR IN A CHAPTER 13 PLAN FALLS BEHIND ON PAYMENTS?

People are given a chance to get caught up on the payments. If a person  falls behind and can’t catch up on their own, a motion to modify the  terms of the plan can be filed and usually approved by the court. If a  person lost the ability to make the payments, the payments can possibly  be reduced, or a hardship discharge can sometimes be granted.


WHAT HAPPENS IF A DEBTOR INCURS SOME NEW DEBT DURING A CHAPTER 13?

Most debts obtained after the Chapter 13 case is filed have to be repaid  directly. Some debts, such as taxes, can be added onto the case later  for repayment through the plan, but only if the debt does not cause the  Chapter 13 case to run beyond 5 years from when it was originally filed.


WHAT HAPPENS TO 401(K) LOANS?

In Chapter 13, a 401(k) loan can continue to be repaid or it can be  treated like other debt and discharged. In Chapter 7, the debt can be  discharged, but stricter rules apply to continuing to repay the debt.  Tax consequences arise if the debt is discharged so you need to discuss  your situation with your attorney.


WHAT IF A CREDITOR IS NOT LISTED ON THE BANKRUPTCY PAPERS?

All debts in a person’s name are part of the bankruptcy case. Usually,  the listing of debts can be updated to add a forgotten creditor as long  as the debt was owed when the case was filed. A fee applies to adding  the debt, but the debt can be addressed even after the case has ended.


WHAT CHANGES HAPPENED WITH THE 2005 REVISIONS TO THE BANKRUPTCY CODE?

The main changes call for much more paperwork to be filled out at the  time the case is filed. Paystubs and tax returns now have to be  furnished to prove income. The revisions also restrict how long a person  has to wait to file a second bankruptcy after the first one completed,  or reduce the protection from creditors one gets in the second  bankruptcy. For someone filing his first case, however, bankruptcy  remains a great means of reducing a person’s debt, and Robert J. Adams  & Associates can let you know all of your options.

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