You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):
Chapter 7 – A trustee is appointed to take over your property – you can think of them as protecting the best interest of the creditors. Any property of value will be sold or turned into money to pay your creditors. Usually the bankruptcy protects your property and it will not be sold. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.
Chapter 13 Bankruptcy – You can usually keep your property, but you must earn wages or have some other source of regular income such as social security, pension, etc. and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
Chapter 12 Bankruptcy – Like chapter 13, but it is only for family farmers or family fishermen.
Chapter 11 Bankruptcy– This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appoints, the trustee takes control if your business and property.
If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit report for as long as ten years. It can affect your ability to receive credit in the future but in most cases it ends up raising your credit score.
WHAT IS BANKRUPTCY DISCHARGE AND HOW DOES IT OPERATE?
One of the reasons people file bankruptcy is to get a “discharge”. A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for—
- most taxes;
- child support;
- most student loans;
- court fines and criminal restitution and;
- personal injury caused by drunk driving or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.
You can only receive a chapter 7 discharge every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property. In most cases you can continue to voluntarily pay the debt and keep the property.
WHAT IS A REAFFIRMATION AGREEMENT?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They tend to be automatically generated and send to the attorney’s office; if not, one can be requested. They are not required by bankruptcy law or any other law. Reaffirmation agreements—
- must be voluntary;
- must not place too heavy a burden on your or your family;
- must be in your best interest; and
- can be canceled any time before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.
Reaffirmation agreements usually contain the same terms you agreed to when you first signed the mortgage or car loan and in most cases you do not have to pay more than you are already paying – unless you have fallen behind in the payments.
If you are in individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. Which means if you signed a reaffirmation agreement on a car then did not continue paying for the car, the finance company would then be allowed to repossess the car. The creditor can also take legal action to recover a judgment against you.
Bankruptcy Law is Federal law. This sheet provides you with general information about what happens in a bankruptcy case. The information is not complete. For more information please feel free to contact us at 248-559-9529.
This information is provided to all debtors by the US Trustee