Frequently Asked Questions and Answers
Following are some commonly asked questions by people considering filing
for bankruptcy:
Q. How Does the CARES Act Help If I’m a Small Business Owner Who’s
Considering Bankruptcy?
Q. Does the CARES Act Help Me If I’m Already in Chapter 13 &
Can’t Make My Plan Payments Due to Loss of Employment?
Q. Does Receiving a Stimulus Check from the Federal Government Impact My
Bankruptcy Qualifications?
Q. Are Unemployment Benefits Considered Taxable Income?
Q. What do I have to do to file for bankruptcy, and how does it help and
protect me? Can somebody try to collect money from me/us after I file
bankruptcy?
Q. What is the difference between Chapter 7, Chapter 11 and Chapter 13?
Q. What about my assets; can I keep my house, car and/or other assets?
Q. Can I keep my home if I file bankruptcy?
Q. Can I keep my car?
Q. What kinds of debts are discharged (wiped out) in a bankruptcy? Are
all my debts forgiven in bankruptcy?
Q. Will I be able to get a guaranteed student loan after I file bankruptcy?
Q. How is my salary affected? Will my employer be notified of my bankruptcy
petition, can I be fired from my job for filing for bankruptcy protection?
Q. How is my credit affected?
Q. Could a judge deny my bankruptcy?
Q. How Does the CARES Act Help If I’m a Small Business Owner Who’s
Considering Bankruptcy?
A. The CARES Act provides less expensive options for more businesses to reorganize
their debt under Chapter 11 when they owe up to $7.5 million. When you
qualify for Chapter 11 while the CARES Act is in effect, you will also
be able to maintain control of your company’s operations throughout
the bankruptcy reorganization process. This new streamlined approach to
Chapter 11 will be made available to all qualified small business owners
one year.
Q. Does the CARES Act Help Me If I’m Already in Chapter 13 &
Can’t Make My Plan Payments Due to Loss of Employment?
A. Yes. The CARES Act will permit modification to bankruptcy plans for those
already in
Chapter 13 bankruptcy and are experiencing new financial hardship due to the COVID-19
pandemic. For one year, qualified applicants can request extensions of
their Chapter 13 plans by up to two years or 24 additional payments.
Q. Does Receiving a Stimulus Check from the Federal Government Impact My
Bankruptcy Qualifications?
A. No. Due to the CARES Act, any stimulus payments you get from the federal
government cannot be used to determine your eligibility for bankruptcy.
Also, when you file for Chapter 13 bankruptcy, your stimulus check does
not have to be turned in to your creditors.
Q. Are Unemployment Benefits Considered Taxable Income?
A. Yes. Even before the COVID-19 pandemic, your unemployment insurance benefits
counted as taxable income. This has not changed in light of the crisis.
When tax season comes around, be sure to look out for a Form 1099G that
will be issued by the California Employment Development Department that
you will need to use to fill out your tax return.
Q. What do I have to do to file for bankruptcy, and how does it help and
protect me? Can somebody try to collect money from me/us after I file
bankruptcy?
A. We, of course, recommend that you consult with first and, if possible,
retain an experienced bankruptcy lawyer to 1st qualify you and then file a
Chapter 7 or a
Chapter 13 petition (while a debtor can file a Chapter 7 or 13 petition pro se, i.e. not being
represented by an attorney, this is strongly not recommended both due
to the many pitfalls a Pro Se file can fall into as well as the many benefits
that a Pro Se filer would likely not be aware of).
After your lawyer files your petition with the Bankruptcy Court, an
automatic stay immediately goes into effect; this prohibits almost all creditors from
taking any action against you, the debtor outside of the Bankruptcy Court
to enforce their claims. Your creditors, their lawyers and collections
agencies must immediately (1) stop all lawsuits, (2) stop making written
and/or telephone demands for payment, (3) cancel all wage garnishments,
etc. without 1st procuring written permission by way of an order signed by the U.S. Bankruptcy
Court. All creditors and their agents are prohibited from contacting you,
the debtor directly and, instead, assuming you have retained a lawyer
to file your petition and/or otherwise represent you, must communicate
only with your attorney.
Upon filing a Chapter 7 or 13 petition, a Trustee is appointed by the Bankruptcy
Court; the Trustee will review your petition, meet with you, and make
recommendations to the Bankruptcy Judge. The meeting with the Trustee
is usually not intimidating and often lasts less than 10 minutes. Of course,
having your attorney by your side is almost always going to be a tremendous
substantive and/or procedural/emotional benefit to you
Q. What is the difference between Chapter 7, Chapter 11 and Chapter 13?
A. In a successful Chapter 7 bankruptcy case a debtor(s)’ unsecured
debts are forgiven/discharged. The debtor(s) will have no further obligation
to pay any of their creditors. If, however, personal belongings, including
real estate and other assets, exceed the exemptions allowed by law; those
assets may be lost in a Chapter 7 case (this is extremely rare). On the
other hand, in a Chapter 13 bankruptcy case, a monthly payment plan is
created through a Chapter 13 Plan, which allows a person to keep assets
that he or she otherwise might lose in a Chapter 7 case; monthly payments
are made through a three or a five year plan to assure the creditors receive
at least the same amount of money that could not be protected from creditors
in a Chapter 7 case. The Chapter 13 Plan allows debtor(s) to get caught
up on past due amount owed on their mortgage(s) or other amounts owed
to secured creditors. A Chapter 11 bankruptcy is usually for business
reorganization and is most frequently filed by companies or individuals
engaged in an ongoing business.
Q. What about my assets; can I keep my house, car and/or other assets?
A. Yes, in the overwhelming number of Chapter 7 bankruptcy cases debtor(s)
are able to keep all of their assets. All of the assets owned by the vast
majority of individuals filing for Chapter 7 relief almost always fall
under the exemption limits allowed by The Bankruptcy Code and related
state laws; if protected by the bankruptcy exemptions, neither creditors
or the Chapter 7 Bankruptcy Trustee can require debtors to sell their
assets. A different article in this website entitled "Bankruptcy Exemptions" provides specific information concerning the specific exemptions
allowed under the U.S. Bankruptcy Code, and how they are applied in Chapter
7 cases in New Jersey. As indicated in the answer to the question above,
debtors can protect all of their nonexempt assets, if they have any, assuming
they qualify for and file for Chapter 13 protection.
Q. Can I keep my home if I file bankruptcy?
A. Most people who file Chapter 7 are able to keep their homes, while having
their unsecured debts completely forgiven by the bankruptcy discharge,
provided they continue to make their normal monthly mortgage payments.
Based upon the fair market value of your home and the outstanding mortgage,
your attorney can help you determine whether you will be able to keep
your home in a Chapter 7 bankruptcy. In instances in which your house
would be in jeopardy, you can still consider a
Chapter 13 bankruptcy which would allow you to keep your home, provided you make the required
payments under the plan, along with your normal mortgage payments.
Q. Can I keep my car?
A. In almost all cases, people are able to keep their cars in bankruptcy
(should they choose), provided they continue to make the monthly payments
due on their lease or financing agreements. The issue comes down to how
much equity, if any, a debtor(s) has in his/her car and can that equity
be protected. The answer is almost always positive, but, again, the ability
to keep your car in your individual situation should be determined by
your attorney.
Q. What kinds of debts are discharged (wiped out) in a bankruptcy? Are
all my debts forgiven in bankruptcy?
A. Almost all general unsecured debts are discharged in a bankruptcy, including
credit card bills, medical bills, business and personal loans, etc…
The general rule is that unsecured debts are dischargeable and all secured
debts are not dischargeable.
Student loans are not generally dischargeable, but if there is "no reasonable likelihood"
of being able to make payments on a debtor(s) student loans in the foreseeable
future student loans can also be dischargeable.
Q. Will I be able to get a guaranteed student loan after I file bankruptcy?
A. The filing of a bankruptcy cannot legally affect your ability to obtain
a state or federally guaranteed student loan. Federal law prevents the
government or any institution dealing in guaranteed student loans from
denying a student loan or grant because of a bankruptcy filing.
Q. How is my salary affected? Will my employer be notified of my bankruptcy
petition, can I be fired from my job for filing for bankruptcy protection?
A. Unless you owe your employer money, generally your employer will not find
out about your bankruptcy. However, if you are applying for a job, an
employer may review your credit record, which would indicate your bankruptcy
filing. In any case, a private employer cannot legally terminate the employment,
or discriminate with respect to the employment of any individual solely
on the basis of that individual's bankruptcy filing. (Please note,
however, that the law is unsettled as to whether a prospective employer
may deny you employment because of a bankruptcy filing.) Also, on a similar
note, though your bankruptcy file is a matter of public record, it is
not printed in any general publications.
Q. How is my credit affected?
A.
Credit reporting agencies will list your
Chapter 7 bankruptcy filing for 10 years. A Chapter 13 filing is reported for 7
years in the reports filed by the national credit reporting bureaus, Trans
Union, Experian, Equifax... However, the credit ratings of most individuals
who are considering or need to file for bankruptcy relief is already very
poor. Debtor(s) are able to begin rebuilding their credit rating/score
immediately after filing for bankruptcy protection; many creditors will
likely seek you out and solicit credit applications. Immediately after
filing for bankruptcy protection, debtors will likely be able to procure
secured Visas or MasterCards; these secured cards can be used to begin
rebuilding credit well before debtors receive their Chapter 7 or 13 Discharge
Order. Our office supplies clients with a list of potential sources for
procuring secured and unsecured credit after bankruptcy.
After successfully receiving the Bankruptcy Court’s discharge order,
debtor(s) will likely no longer owe any unsecured debt. All general unsecured
and secured creditors whose debts have been either discharged or paid
through a Chapter 13 bankruptcy, have up to 30 days to report the debt
as paid in full to the national credit reporting bureaus. Numerous secured
and unsecured creditors have informed us that a discharged debtor can
become creditworthy as soon as one year after discharge by paying all
outstanding loans (i.e. home, car, secured and unsecured credit card obligations)
on a timely basis every month. See the article in the bankruptcy specific
section of this website entitled “receipt of the Bankruptcy Court’s
discharge order and rebuilding your credit for further information.
Q. Could a judge deny my bankruptcy?
A. A Bankruptcy Judge may deny your discharge if he or she determines that
you have the ability to repay some of your debts based upon your current
income and non-exempt assets. Also, should you conceal property with an
intent to hinder, delay or defraud creditors, destroy or conceal records,
are guilty of perjury or other fraudulent acts, the judge could also deny
you bankruptcy protection.
Call or
contact our firm today to schedule an appointment to meet with Marc G. Alster to
get answers to your specific questions concerning bankruptcy.