Basic Bankruptcy Questions

Below are answers to some of the most common questions about the basic processes and impacts of bankruptcy. For more answers to frequently asked questions, please also visit our main frequent questions page.

This question is tricky in its simplicity. While almost every individual person is eligible to file a bankruptcy, the real consideration is eligibility for bankruptcy relief, which can vary from person-to-person. Most frequently, the question is "can I file a chapter 7 straight bankruptcy and obtain a fresh start with a discharge?"

For anyone contemplating bankruptcy, the choice of chapters ranks amongst the most important decisions in the bankruptcy process. Which is best is a complex question that involves applying the particulars of a person's financial situation to multiple bankruptcy laws and procedures. At Fabricius & Fabricius, we answer this question for a prospective bankruptcy filer only after our bankruptcy attorney has a conversation with the individual to learn about their priorities and objectives.

Bankruptcy is a federal legal process for resolving problems with debt. After planning and consultation, a bankruptcy petition is filed with the federal bankruptcy court, opening a bankruptcy case. Also filed with the court are detailed schedules and forms providing a complete picture of the debtor's finances, including assets, debts, income, and expenses.

Chapter 13 can do things that chapter 7 bankruptcy cannot. The highest profile advantage of chapter 13 bankruptcy is ability cure defaults and sometimes modify repayment terms for secured loans, but this is not the only potential advantage.

Bankruptcy, Chapter 13 Bankruptcy especially, is routinely used to save a house from foreclosure. It boils down to a two step process: (1) stay the foreclosure with the filing of the bankruptcy case and (2) catch up the past-due amount over 3 to 5 years.

In 2010, there were about 25,000 non-business (consumer debt) bankruptcy filings in North Carolina. These filings include both individual cases and joint (husband and wife) cases, so the number of persons filing was somewhat higher than 25,000. North Carolina is home to about 9.5 million people (2010 census). There are about 3.5 million households in North Carolina. This amounts to a bankruptcy rate of about 7 filings per 1000 households, or one filing for every 140 households. On a per capita basis, there were 2.6 filings per 1000 persons.

The bankruptcy code provides the option for married couples to file bankruptcy together with a single joint petition. It is only an option, and both spouses do not need to file bankruptcy. Bankruptcy remains an individual choice and option for each spouse.

At our firm, we understand that two top concerns for many people considering bankruptcy are (1) keeping their possessions and (2) obtaining peace from worry over debt collection. For most individuals, there are bankruptcy options to keep most types of property.

What property, if any, you will have to turn over to your creditors depends on several factors. First, you are entitled to certain property allowances called exemptions. Most debtors in North Carolina will be able to claim North Carolina statutory exemptions. There are several of these exemptions, but examples would include $35,000 in value for a homestead and $3,500 in value in a car. Furthermore, in a chapter 13 repayment plan, you do not have to turn over property worth more than the allowances if you pay the extra value into the plan from another source, such as future wages.

Exemptions are powerful property allowances that permit many debtors to keep most or all of their property in bankruptcy. However, some exemptions are limited in dollar value and cannot completely protect property from bankruptcy. Fortunately, there are options. Chapter 13 bankruptcy allows debtors to keep their property, paying an amount equal to the non-exempt value of their property over up to 5 years. In some cases, the plan will already require a greater payment amount and keeping the property will add no extra cost.

The answer to this question is a clear "sort of". While the filing of a chapter 7 bankruptcy will stop a foreclosure sale, it will seldom prevent the eventual foreclosure.

Bankruptcy attorneys and trustees are always asking about transfers of property, particularly in chapter 7 cases. Why do they care? A principal purpose of bankruptcy is to ensure a fair distribution amongst a debtor's several creditors. To that end, there are two kinds of pre-bankruptcy property transfers that can be a particular source of concern:

Bankruptcy is designed to provide relief from debts. However, all debts are treated the same. While what might happen to any given debt can become a very fact-particular inquiry, there's a few categorizations that are very basic to understanding the bankruptcy process.

In bankruptcy, a bankruptcy discharge ends a debtor's personal liability on all debts except those otherwise made non-dischargeable. This post contains a list of significant categories of non-dischargeable debt.

The requirements for repaying creditors in a chapter 13 are somewhat detailed. The following is a general summary that notes the basic rules without going into finer details or exceptions.

A proof of claim is the basic document that when filed asserts a creditor's right to be paid in bankruptcy. Subject to allowance and disallowance, the filed proof of claims determine who gets the money paid out by a trustee in bankruptcy. The claim form includes several basic facts about the debt and creditor.

Generally no. Bankruptcy is an all-inclusive process, requiring full disclosure of all debts and assets. However, inclusion of a debt in your bankruptcy filing does not itself determine the final treatment of that debt.

A meeting of creditors, also known as a 341 meeting, is a meeting that occurs in every bankruptcy case and permits questions to be asked of the debtor(s). Despite its name, creditors generally do not attend a meeting of creditors. Instead, the bankruptcy trustee or his or her representative will be the primary individual asking questions. Your debtor's attorney attends the meeting with you. At Fabricius & Fabricius PLLC, our standard practice is the that same attorney who assisted you pre-filing will accompany you at the meeting.

Bankruptcy debtors are understandably anxious about going in front of a judge during their bankruptcy. However, court appearances should not be major worry for most debtors. Many uncomplicated or uncontroversial cases proceed along to discharge and close without having a hearing in front of a bankruptcy judge. When there are hearings, some are routine matters that can be handled by the debtor's attorney alone and at others nothing will be asked of the debtor who is present. Only a small percentage of debtors actual speak a word in front of a bankruptcy judge.

A bankruptcy discharge is granted by the bankruptcy court and serves as a permanent injunction against collecting certain past debts from the debtor personally. The discharge is the legal vehicle that grants the debtor a fresh start and wipes out past debts. Having a discharge granted is a goal of most bankruptcy filings.