At The Buchalter Law Group, we take our clients’ questions very seriously. We work every day to empower those we serve with the knowledge they need to make smart decisions and build the lives they deserve.
The following answers are intended as general guidance, and they may not take your unique circumstances into account. If you’d like a personalized assessment of your situation and how bankruptcy may affect you, please do not hesitate to get in touch with us. We look forward to assisting you during these stressful times.
1. What does it mean to declare bankruptcy?
When you file bankruptcy, you send the Bankruptcy Court a petition that says you are currently unable to repay your debts. If the court accepts your petition, it may reorganize your debt, discharge it, or both. The exact process and result depend on many factors, including which chapter you file.
2. Can bankruptcy wipe out my debt?
Elimination of debt—formally called the debt discharge—is the central goal of bankruptcy. However, bankruptcy may not discharge all your debt. Some debt is considered non-dischargeable, and other debt is simply very difficult to discharge.
When you file bankruptcy, you can generally expect to eliminate the following:
- Medical bills
- Credit card debt
- Utility bills
- Unsecured loans
“Unsecured” is key here. The court cannot discharge secured debt, such as automobile loans and mortgages, because this type of debt is backed by collateral. In other words, your lender can seize the collateral (e.g. your vehicle or home) if you fall behind on payments.
3. How long does the bankruptcy process take?
The length of your bankruptcy process depends mostly on the chapter you file. Chapter 7 is the shortest bankruptcy process, generally taking no longer than 6 months from petition to discharge. Chapter 13, meanwhile, is not over until you complete your repayment plan (3-5 years). Chapter 12 and Subchapter V of Chapter 11 use roughly the same timeline as Chapter 13. Regular Chapter 11 (not Subchapter V) varies, taking anywhere from six months to several years.
4. Will I lose my property if I file bankruptcy?
It depends. The only type of bankruptcy that formally involves a liquidation process is Chapter 7, but you can use state or federal exemption laws to protect what you own. Most Chapter 7 filers can exempt everything they own from the liquidation process, thereby obtaining a debt discharge without losing any property.
Filing bankruptcy, however, may not keep you from losing property attached to a lien or secured loan. If you cannot remove the lien, or you do not catch up on arrears by the end of your bankruptcy, your lender can seize your property once the case closes and the automatic stay lifts.
5. What is the automatic stay?
When you file your bankruptcy petition, the court issues an automatic stay, which orders all creditors and debt collectors to stop contacting you or pursuing your debt. In most cases, the automatic stay lasts as long as your bankruptcy case is open.
6. My wages are being garnished. Will bankruptcy help me?
Yes! Because of the automatic stay, all forms of debt collection will temporarily cease. This means you will once again have access to your bank accounts and wages. The automatic stay will even halt an open foreclosure proceeding.
7. Does bankruptcy clear student loans?
For most, no. However, times may be changing. Student loan debt is at an all-time high, and a judge recently discharged $200,000 in student loans for a single borrower.
To discharge student loans, you would need to file an adversary proceeding (a separate lawsuit) arguing that repaying your loans would put you through “undue hardship.” Learn more about discharging student loan debt here.
8. Can bankruptcy discharge tax debt?
Most (but not all) tax debt is non-dischargeable. In certain circumstances, personal back taxes owed can be discharged in bankruptcy. Get in touch with us to determine whether bankruptcy may help you with tax debt. As tax attorneys, we can also help you take advantage of other solutions that may resolve this financial burden.
9. Is bankruptcy the only way to stop debt collectors from harassing me?
No. You may benefit from one or more bankruptcy alternatives. Additionally, creditor harassment refers to a set of collection tactics that violate your rights under various consumer protection laws. If a debt collector has committed creditor harassment, you may have legal recourse—in other words, we could file suit and potentially obtain compensation on your behalf.
10. Will bankruptcy permanently ruin my credit?
No. Because bankruptcy ultimately improves your financial situation, it serves as an opportunity to rebuild your credit. Your score may take a hit immediately after filing (especially if you had a good score when you filed your petition), but most people see improvements within 1-2 years.
11. But won’t bankruptcy stay on my report for years?
It will. For example, bankruptcy will remain on your report for ten years if you file Chapter 7 and seven years if you file Chapter 13. However, the impact of bankruptcy on your ability to take out new credit cards or loans will diminish over time. In other words, the more years pass after you file, the less of an effect it will have.
12. Which chapter is right for me?
This is a question that only you and your attorney can answer. Every chapter has different requirements and processes, and what works for one person or business might not work for another. For a comprehensive analysis and recommendation, seek professional guidance.
Ready to Get Started?
No matter what level of financial stress you may be experiencing, freedom may be closer than you believe. At The Buchalter Law Group, our attorneys have spent decades assisting individuals and businesses through various debt-relief processes. As a result, we can assess your situation with accuracy and guide you through bankruptcy (or a suitable alternative) with maximum efficiency.