Questions and Answers About Personal Bankruptcy

Q. What should I consider when filing for personal bankruptcy?

A. Chapter 7 Bankruptcy gives you a fresh start by erasing many debts. You are protected from creditors suing or contacting you. You can save your home from foreclosure by filing a chapter 13 bankruptcy and including your mortgage debt in the payment plan. Nondischargeable debts have to be paid in Chapter 13. The bankruptcy filing will stay on your credit record for 7-10 years.

Q. What are the main reasons people file for personal bankruptcy?

A. People from all walks of life file for bankruptcy each year. Not surprisingly, a person’s financial health is the largest deciding factor as to whether or not they will declare bankruptcy. People experience financial difficulties for a variety of reasons, both personal and economic. Massive medical bills, a divorce, job loss or reduced income, illness, bad investments and poor debt management are just some of the reasons that people go into debt. Studies reveal that bankruptcy is most often the result of medical conditions and credit card debt. Other studies report that bankrupt households spend a greater proportion of their income than households that don’t file for bankruptcy.

There are a number of reasons why people choose to file for personal bankruptcy rather than find an alternative solution to their financial problems. Some people become overwhelmed with the amount of debt that they have accumulated and feel that they will never get out from under it. Some file because they want to stop calls from creditors or avoid wage garnishment. Many choose bankruptcy so that they can have a fresh start.

Q. What effect will bankruptcy have on a HELOC lien against my property?

A. Bankruptcy will discharge your legal responsibility for a HELOC – Home Equity Line of Credit so that the lender is prevented from pursuing you for liability. However, bankruptcy won’t eliminate the lien itself. Liens, which are recorded in the county recorder’s office, are affixed to the property, not the lender. The lender can proceed against the property for the liability. Chapter 13 bankruptcy enables you to strip the lien, which means paying less than the total lien amount.

Q. I’m filing for Chapter 7. How long will it take for my debits to be discharged?

A. In chapter 7 bankruptcy, the discharging of debt is independent of the case closing. Normally, if there are no issues, the discharge will come through about a month after the first meeting of creditors. The bankruptcy court will send a notice to both you and your lawyer to inform you of this. Although most chapter 7 cases proceed without issue, due to a number of reasons, some are held up. Two common issues that can hold up a discharge are someone challenging your right to the discharge, or your failure to complete the required financial management course. At this point, your attorney will represent you at a discharge hearing where the judge will decide whether to allow the discharge or deny it. You will receive the discharge documents within 6 -8 weeks, if the judge approves the bankruptcy discharge.

Q. What is the difference between default and bankruptcy?

A. Default is the specific event of a person, company or nation failing to repay a financial obligation when it is due. Bankruptcy is the legal process where a person, company or nation that is in default or insolvent works with creditors and the courts to oversee its finances and to pay secured creditors.

Q. After my bankruptcy, can a creditor still repossess any of my personal property?

A. No. With bankruptcy, your debts are discharged, once the debt has been discharged, the creditor has no further claim.

Q. How can a person file for bankruptcy and still be a millionaire?

A. Real estate developer Donald Trump, although a billionaire, has filed for bankruptcy three times. A common strategy that wealthy businessmen like Trump use to protect fortunes is to form a new company for each new business venture so that it is a separate legal entity. By forming separate companies or corporations, if one business fails and goes bankrupt, the others are not affected. As well, you do not necessarily have to be insolvent to declare bankruptcy by law. It is up to a bankruptcy judge whether you qualify for bankruptcy or not.