What is bankruptcy?

Bankruptcy is a legal proceeding in which an individual who cannot pay his/her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out, according to the law.

What can bankruptcy do for me?

Bankruptcy may make it possible for you to:

• Eliminate the legal obligation to pay most or all of your debts. This is called a ‘discharge’ or debts.
• Stop foreclosure on your house or allow you an opportunity to catch up on missed payments.
• Prevent repossession of a car or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility services.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What doesn’t bankruptcy do?

Bankruptcy cannot, however, cure every financial problem, nor is it the right option for every individual or business. In bankruptcy it is not usually possibly to:

• Eliminate certain rights of ‘secured’ creditors, which take a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, some student loans, court restitution orders, criminal fines and some taxes.
• Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan – discharged debts that arise after bankruptcy has been filed.

How often can I file bankruptcy in Massachusetts?

You can file for Chapter 7 Bankruptcy again after eight years has passed from the date of your last Chapter 7 filing in which you received a discharge. A Chapter 13 Bankruptcy can be filed at any time with some exceptions. In order to be eligible to receive a discharge in a Chapter 13 you must not have filed another Chapter 13 in which you received a discharge in the past 2 years or a Chapter 7 in which you received a discharge in the past 4 years.

What different types of bankruptcy should I consider?

There are four types of bankruptcy cases provided under the law:

• Chapter 7 Bankruptcy is known as ‘straight bankruptcy’ or ‘liquidation.’ It requires a debtor to give up property, which exceeds certain limits called ‘exemptions,’ so the property can be sold to pay creditors.
• Chapter 13 Bankruptcy is called ‘debt adjustment.’ It requires a debtor to file a plan to pay debts, or parts of debts, from current income.
• Chapter 11 Bankruptcy, known as ‘reorganization’ is used by businesses and a few individual debtors whose debts are very large.
• Chapter 12 Bankruptcy is specifically designed for farm owners.

Can I own anything after bankruptcy?

Yes, many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. In fact, you can keep your exempt property and anything you obtain after a Chapter 7 bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after your bankruptcy, that money or property may have to be paid to your creditors, if the property or money is not exempt. You can also keep any property covered by bankruptcy exemptions through the bankruptcy.

Will bankruptcy wipe out all my debts?

With some exceptions – yes. Bankruptcy will not normally wipe out:

• Money owed for child support, alimony, fines and some taxes.
• Debts not listed on your bankruptcy petition.
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it, making you the loan.
• Debts resulting from ‘willful and malicious’ harm.
• Student loans owed to a school or government body, except if the court decides that payment would be an undue hardship.
• Mortgages and other liens which are not paid in the bankruptcy case, but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor.

Will I have to go to court?

In most bankruptcy cases, you will only have to attend a proceeding called the Meeting of Creditors, in which you meet with the bankruptcy trustee and any creditor who chooses to attend. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

Will bankruptcy affect my credit?

There is not clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be poor. Bankruptcy will probably not make the situation worse. The fact that you’ve filed for bankruptcy can appear on your credit for up to ten years. However, since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to apply for new credit.

Yes, there are several options available. While technically not a credit card, you could use a bank or debit card to perform activities for which you normally would use a credit card. You also may be able to keep the credit card you already have if the creditor grants approval. If these options do not work, you can get a secured credit card, which is backed by your own bank account.

One of the best resources for learning how to clean up your credit report and rebuilding credit can be found at creditboards.com. This free public forum provides a wealth of information from others who discuss and share information about all aspects of the credit world.

Yes, but your spouse will still be liable for any joint debts. If you file together you will be able to double your exemptions. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable, then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.

There are many questions surrounding the process of bankruptcy, which you may not completely understand. Massachusetts bankruptcy Attorney Lewis at the Law Office of Brian R. Lewis can assist you in filing bankruptcy, and help you make decisions that are right for you. Contact us today for your free initial consultation.