Frequently Asked Questions and Answers

1. What kinds of bankruptcies are there?
2. Which type of bankruptcy is best for me?
3. Do I get to keep any of my property?
4. What about property that was put up for collateral?
5. What about credit cards?
6. How long does bankruptcy take?
7. What is the procedure like?
8. How long does a bankruptcy stay on my credit record?
9. If I am married, does my spouse have to file bankruptcy?
10. Can I run up my credit cards immediately before filing bankruptcy?
11. What exactly is the automatic stay?
12. Do I have to maintain insurance during bankruptcy?
13. How do I know if I need to file bankruptcy?
14. I have written personal checks to check-cashing companies upon which they have given me the money but have held the check.  Can I put this in my bankruptcy?
15. If I put a check-into-cash obligation into my bankruptcy, can I be prosecuted under the bad check law?
16. Will my employer find out about about the bankruptcy?
17. What kind of restrictions am I under while in bankruptcy?
18. Can I put taxes in bankruptcy?
19. What about student loans?
20. What about the pending changes in the bankruptcy laws that I keep hearing about?

1. Q. What kinds of bankruptcies are there?

A. Generally speaking, for consumers there are two types - Chapter 7, which is total liquidation and wipes out most debts, and Chapter 13, which is debt reorganization where all or part of the debts are repaid.

2. Q. Which type of bankruptcy is best for me?

A. This is a decision which should be made between you and your attorney.  In general, a Chapter 13 is adviseable if your income is sufficiently high enough to justify a Chapter 13, if you lose property in a Chapter 7 bankruptcy, and you desire to keep that property, or if you have debts which cannot be discharged in Chapter 7.  In general terms, you may wish to consider a Chapter 7 if you have no income, if all or most of your debts are dischargeable, and if you either stand to lose no property or don't mind losing the property that you will lose in a Chapter 7.

3. Q. Do I get to keep any of my property?

A. Yes.  Few people lose property in bankruptcy.  In Chapter 7, property may be lost either because there is a substantial amount of equity which cannot be protected, in which case the bankruptcy Trustee will sell the property, or because the property is collateral on a debt, and the secured creditor wants the collateral back. You should advise your attorney of what property you want to keep, and why.  If this is not possible, he will then advise you of your rights under Chapter 13.

Top

4.   Q. What about property that was put up for collateral for a loan?

A. In Chapter 7, property that is put up as collateral may be surrendered to the creditor or, if the creditor agrees, you may keep the property through a process called "reaffirmation."  Reaffirmation is where you sign a document indicating that you will remain personally liable for the debt.  In other words, the debt passes through bankruptcy.  This allows you to keep the property, but it also protects the creditor.  If you get behind on your payments at a later date, the creditor has the right not only to pick up the property, but to sue you for any deficiency.  In Chapter 13, all collateral is paid for through the bankruptcy, and there is no risk of losing that property as long as you keep the property insured and as long as you make your payments to the Chapter 13 Trustee.

5. What about credit cards?

A. Most credit cards are unsecured and usually are not reaffirmed in Chapter 7.  Some credit cards, if issued by a particular store such as Circuit City or H.H. Gregg, can be reaffirmed, because the property that was purchased on those cards is considered collateral.

6.   Q. How long does bankruptcy take?

A. A Chapter 7, assuming there are no problems, takes approximately three months from start to finish.  A Chapter 13 debt repayment plan can last up to five years.

Top

7.   Q. What is the procedure like?

A. A detailed petition listing ALL of your property, ALL of your debts, and various other financial information is filed with the Bankruptcy Court.  Approximately thirty days later, there will be a meeting with the Bankruptcy Trustee that you must attend. In Chapter 7, this is usually the only required appearance.  In Chapter 13, which can last for up to five years, there are usually several court appointed appearances, but these will vary, depending on the complexity of your case. 
See What Happens in Bankruptcy Court

8.   Q. How long does a bankruptcy stay on my credit record?

A. A Chapter 7 stays on your record for ten years, and a Chapter 13 stays on your record for seven years.

9.   Q. If I am married, does my spouse have to file bankruptcy?

A. No.  However, problems can arise concerning joint property and joint debt.  You should make sure and discuss with your attorney whether it is advisable to file by yourself or with your spouse.

10.   Q. Can I run up my credit cards immediately before filing bankruptcy?

A. No.  This would probably result in the credit card companies filing an objection to your bankruptcy and forcing you to pay them, bankruptcy or no bankruptcy.  Once you have decided to file bankruptcy, it is wise to cut up your credit cards, send them back to the creditors, and cancel the account.

11.   Q. Do I have to maintain insurance during the bankruptcy?

A. Yes.  It is very important to maintain both house and car insurance.  A lapse of insurance can result in the loss of the property either to the creditor or to the Trustee.  If you have a car that you do not desire to keep and wish to let the insurance lapse, you may do so, but you should immediately park the car and call the creditor and advise them to come pick it up.

Top

12.   Q. What exactly is the automatic stay?

A. The automatic stay is a law that goes into effect immediately upon filing bankruptcy.  This means that your creditors may take no more action to collect their debts from you.  They cannot call you; they cannot sue you; they cannot garnish your paycheck, and they cannot write you.  From a more practical standpoint, it takes about ten days to two weeks for most creditors to receive their notices.  During this time, once you have filed bankruptcy, you should feel free to tell any creditors that contact you that you have filed.  Always make sure and give the creditors your case number, as some people will tell creditors they have filed bankruptcy even when they have not.

13.   Q. How do I know if I need to file bankruptcy?

A. That is ultimately a decision you need to make yourself.  Generally, if you cannot pay your bills as they come due, you owe it to yourself to look at filing bankruptcy.  See Do You Need To File Bankruptcy?

Top

14.   Q. I have written personal checks to check-cashing companies upon which they have given me the money but have held the check.  Can I put this in my bankruptcy?

A. Yes.  First, it should be made clear that any debt, no matter to whom it is owed, no matter how big, how small, or for what purpose MUST be put on your bankruptcy.  However, check-into-cash type debts can be put on either a Chapter 7 or a Chapter 13.

15.   Q. If I put a check-into-cash obligation into my bankruptcy, can I be prosecuted under the bad check law?

A. No.  Under Tennessee law, check-into-cash type obligations are not bad checks.  If you did have a bad check, such as an obligation to Kroger or K-Mart, you would have to put that on the bankruptcy, although you could still be prosecuted if that particular creditor chose to do that.

16.   Q. Will my employer find out about the bankruptcy?

A. Your employer will certainly find out if you file a Chapter 13 since your payments into the Chapter 13 plan are payroll deducted.  Your employer may or may not find out about a Chapter 7.  However, you should keep in mind that a bankruptcy is a public record, and anybody who wants to know about it can find out simply by calling the courthouse.

17.   Q. What kind of restrictions am I under while in bankruptcy?

A. In Chapter 7, the only real restriction is that you cannot transfer any property.  While you are in Chapter 7, your property technnically does not belong to you, but to the Trustee until such time as he/she chooses to release it.  Usually, this takes place about thirty to thirty-five days.  However, your property is not yours to give away or sell until such time as the Trustee has released it.  In Chapter 13, not only can you not transfer property, but you cannot incur any debt.  That is, you cannot borrow money without the permission of the bankruptcy court.  Furthermore, while in Chapter 13, you are required to keep your house, cars, and mobile homes insured.  Failure to do this could result in dismissal of your Chaper 13.

Top

18.   Q. Can I put taxes in bankruptcy?

A. First of all, let me reiterate that ALL of your debts must be listed on your bankruptcy.  This does include taxes.  Generally, taxes can only be discharged in bankruptcy if they are in excess of three (3) years old.  The key is calculating the date from which this three year period runs, and to do this, you would need to consult an attorney.  Back taxes can be paid through Chapter 13, and there is a distinct advantage in doing this.  Any back taxes put into a Chapter 13 are paid only to the extent of the principal amount due.  Interest and penalties do not accrue on back taxes while you are in Chapter 13.  Your current taxes that you incur while in Chapter 13, however must be paid and must be paid on a timely basis.  Failure to do this will result in dismissal of your Chapter 13.

19.   Q. What about student loans?

A. Student loans are the dark side of bankruptcy for most debtors.  There is little that can be done about them.  At one time, student loans in excess of seven years old could be discharged in either a Chapter 7 or a Chapter 13.  That is no longer the case.  The only way to discharge student loans in Chapter 7 is to prove through litigation that payment of these student loans would work a hardship on you.  This is difficult to prove.  Student loans may be paid through the Chapter 13, but to the extent that they are not paid, they remain non-dischargeable.  Therefore, a prudent Chapter 13 plan would propose to pay student loans in full with interest.

20.   Q. What about the pending changes in the bankruptcy laws that I keep hearing about?

A. There is a bill in Congress that has recently passed the House and is before the Senate that would radically change the bankruptcy laws in this country.  Since it has not passed the full Congress at this time, it is too early to speculate how this will affect someone filing bankruptcy.  However, it is clear that this law will make it more difficult for everyone to file bankruptcy.  Therefore, if you are contemplating bankruptcy, it would behoove you to contact an attorney to discuss your rights before the changes take place.

Top