IF I FILE A CHAPTER 7 BANKRUPTCY, CAN I KEEP MY HOUSE?
If you are current on your mortgage payments and can continue to make them, whether you keep your home in a chapter 7 case depends on the amount of equity you have in the home. If the equity in your home is fully exempt, you should be able to keep it. This is an issue that must be carefully analyzed prior to filing a bankruptcy case. If your home is underwater or if you can’t afford the mortgage payments, see below.
IF I FILE A CHAPTER 7 BANKRUPTCY, CAN I KEEP MY CAR?
That depends on several factors, including the car’s value and how much of the value is exempt.
If you have a balance on a standard auto loan, you can reaffirm the debt (promise to repay the loan during and after bankruptcy). There are pros and cons to reaffirming, but that is one of the ways you can keep the car.
Another option is to redeem the car by paying its current value to the lender. This is a more complicated procedure because the lender has to agree to the amount, but could benefit you if you owe more than the car is worth. You must have funds available to pay the lender.
Finally, you have the option of filing a chapter 13 or converting to a chapter 13 for the purpose of paying the amount you owe on the car loan over 3 to 5 years.
I CAN’T AFFORD MY MORTGAGE PAYMENT AND I WANT TO GET OUT OF THIS OBLIGATION. IS BANKRUPTCY AN OPTION?
There are a number of options when your home is unaffordable. Selling the house for at least the amount owed on the mortgage may be the best option. A short sale may also be an option, but personal and/or tax liability may result from that type of transaction. This is a complex analysis, so you should consult with an attorney before moving ahead with a short sale.
Bankruptcy may be a good option when, in addition to the unaffordable mortgage, you have unsecured debts (such as credit cards, unsecured loans and medical debts) that are also problematic. Bankruptcy can discharge these debts and release you from an unaffordable mortgage, if that is your choice.
I’M MARRIED. DOES MY SPOUSE HAVE TO PARTICIPATE?
You can file bankruptcy as an individual, but your spouse will participate by providing information, which will be included in the bankruptcy petition and schedules.
Filing a bankruptcy case creates a set of property called the bankruptcy estate. As a married person, all community property (jointly-owned property) becomes part of the bankruptcy estate. Therefore, while your spouse does not need to enter into bankruptcy with you, his or her cooperation is important. The non-filing spouse benefits from the bankruptcy by having certain shared debts discharged, while retaining his or her right to file a separate bankruptcy case at any time in the future.
WHAT IS A TRUSTEE IN A CHAPTER 7 CASE, AND WHAT DOES HE OR SHE DO?
The trustee is an officer of the court who is appointed to examine the debtor, collect nonexempt property, liquidate nonexempt property and pay creditors with any funds that are available. In addition, the trustee is responsible for seeing that the debtor fulfills his or her legal requirements during the case. If a debtor does not provide necessary information or complete a required step, the trustee may move to dismiss the case.
WHAT WILL HAPPEN TO MY CREDIT IF I FILE FOR BANKRUPTCY?
In most cases, bankruptcy will cause your credit score to drop. However, that is not always the case. If you have made late payments or no payments on your debts, your credit has already been impacted. Your credit score is likely to take another hit due to bankruptcy, but keep in mind that you can start rebuilding your credit as soon as the case is concluded. Some companies actively solicit business from recent bankruptcy filers because he or she cannot get another discharge for the next 8 years. By using these sources of credit (carefully!) you can start to rebuild your credit. Most creditors consider recent credit history when deciding whether to extend credit. The fact that you filed a case and received a bankruptcy discharge in the past will not be a bar to future loans and credit accounts.
IF I FILE FOR BANKRUPTCY, WILL I BE ABLE TO BUY A HOUSE IN THE FUTURE?
Most lenders will not approve a mortgage loan if you apply within two years of your bankruptcy discharge. During these two years, you can improve your credit by obtaining new credit accounts (such as a car loan or credit card) and making debt payments on time. After two years and a conscious effort to improve your credit score, a home mortgage is certainly possible.
I HAVE NO SAVINGS AND VERY LITTLE CASH RIGHT NOW. HOW CAN I AFFORD TO PAY A BANKRUPTCY ATTORNEY?
One way to afford bankruptcy is to stop making payments on credit cards and other unsecured debts. The money previously used to pay those bills can be saved and used to pay attorney’s fees. Also, once you have firmly decided to file for bankruptcy, you might be able to get help from friends or family members. Although personal loans are discharged like other unsecured debts, that does not prevent you from voluntarily repaying a friend or family member after the bankruptcy case is concluded. If you are considering a chapter 13 case, you can pay a portion of the fees prior to filing, and the remainder through your chapter 13 plan.