Bankruptcy FAQs

Bankruptcy is the legal method for a debtor to discharge or relieve debt. Bankruptcy is a way for people or businesses who owe more money than they can afford to either work out a plan to repay the money over time or to have their debt discharged in its entirety. While no debtor is guaranteed a total discharge, most debtors who file for bankruptcy are given such relief. One of the primary purposes of the bankruptcy act is to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start. Throughout the whole bankruptcy process creditors must stop their collection efforts. The Bankruptcy Code is categorized by several chapters with Chapter 7 and Chapter 13 being the most common. Debtors have different responsibilities for dealing with creditors under each of these chapters.

You do not have to qualify to file bankruptcy. Any person, partnership, corporation or business trust may file bankruptcy as long as you are willing to follow what the law requires. United States citizenship is not a requirement. Job loss, loss of income, medical difficulties, and divorce are among the most common reasons people consider a bankruptcy; however, they are not legal prerequisites. A common scenario is that many working people find it difficult or impossible to pay high credit card interest and fees, particularly in light of the credit card industry’s penchant to unilaterally increase minimum monthly payments and interest rates. Bankruptcy offers an alternative to the chronic harassment of creditors who are unwilling to work within your financial limitations. Since credit cards make it very difficult to regain your financial stability once you get behind in payments, a bankruptcy makes sense if you see this situation becoming chronic without an end in sight. The clients who fare the best are those who do not wait until they are facing a foreclosure or lawsuit. Those who investigate their rights before they have this kind of pressure seem to find the filing process easier because any bankruptcy planning that needs to precede a bankruptcy filing is more easily completed. Those who wait until forced into a bankruptcy by their creditors sometimes face the ‘catch 22’ of needing to file as soon as possible, but not having the luxury of time to plan for all of the contingencies in their case.

This is often called a “straight” bankruptcy. Chapter 7 bankruptcy is the quicker of the two bankruptcy forms to file and complete. Debtors usually receive their discharge soon after they file and they are allowed to keep any money they earn after they file. In Chapter 7, debtors are required to give up “non-exempt” property and laws in New Hampshire and Massachusetts have different requirements. Some debts will be dischargeable while others will not. Determining exempt property (or property you are allowed to keep) and knowing how to handle the issues of dischargeable and non-dischargeable debts are the most important reasons to be fully prepared before you file, and since Attorney Gaudreau is board certified in Consumer Bankruptcy Law, he is highly experienced and will be able to address these issues for you.

Chapter 13 bankruptcy is the “wage earner” chapter. Debtors who have a regular source of income repay some or all of their debts over a three-to-five year period during which they are free from harassment from their creditors. The most common reason people file a Chapter 13 is that debtors have a pending foreclosure because the bank refuses to work out a reasonable repayment plan. A Chapter 13 filing forces the bank to accept back-due mortgage payments over 3 to 5 years. At the end of the repayment period, debtors are issued a discharge order.

While Chapter 13 is a far more involved process than a Chapter 7, it will discharge debts that Chapter 7 will not, and sometimes it is the only way for people to protect their home or other assets from their creditors. Will my spouse be responsible for my debts if I file bankruptcy? Generally not unless he/she is personally liable on any of the debt you hope to discharge in a bankruptcy. It is important to make sure that there are no courtesy credit cards issued to your spouse that make him/her liable. If you have a joint credit card or car loan with a spouse that is listed in a bankruptcy, this will not affect your spouse’s credit as long as the payment continues to be paid when due.

Not unless he/she is personally liable on any of the debt you hope to discharge in a bankruptcy. It is important to make sure that there are no courtesy credit cards issued to your spouse that make them liable. If you have a joint credit card or car loan with a spouse that is listed in a bankruptcy, this will not affect your spouse’s credit as long as the payment continues to be paid when due.

It is a popular misconception that bankruptcy necessarily leads to the loss of all property, no doubt propagated by the lending industry. People frequently keep their homes, cars and other assets in bankruptcy cases as long as they continue to repay their loans. Each state has a limit on allowable property values and you want to make sure your property is within these guidelines. You will be best served by a qualified and certified bankruptcy lawyer who understands what those limits are and who can advise you accordingly.

Chapter 7 bankruptcy and Chapter 13 bankruptcy will stay on your credit report for seven (7) years. Another misconception about bankruptcy is that this means you will not receive credit for ten years. If you are currently contemplating bankruptcy, it is likely that your current credit rating has already been affected. Being legally liable for debt which you cannot repay will lower your credit score progressively over time. Ironically, a bankruptcy may help restore your credit faster rather than letting chronic debt continue to go into default. The lower your credit score goes before you file a bankruptcy the longer it may take to restore it once a bankruptcy is completed. It is quite common for people to be offered credit cards shortly after completion of a bankruptcy and for people to purchase homes within several years of completing a bankruptcy. Lenders will tell you that it is easier to secure a major loan after a bankruptcy if your credit report reflects steady, regular payments on your accounts. If you want to obtain a mortgage within two years of discharge and have reestablished your credit, the size of your down payment and the stability of your income may be more important factors to your loan officer than the fact that you filed bankruptcy. Once your bankruptcy has been discharged, your creditors have to report to credit agencies that your accounts now need to read as zero balances.

Every debtor, no matter what chapter is filed, must attend a meeting of creditors. In almost all Chapter 7 bankruptcies, this is the only hearing that is required. A trustee is appointed by the United Trustee’s Office to oversee each case. The trustee is a lawyer, not a judge. A judge does not attend the creditors’ meeting. This hearing (known as the 341 meeting from the federal code that it refers to) allows the trustee to look at your bankruptcy papers while asking you various questions about them. Attorney Richard Gaudreau will prepare you for these hearings and will attend them with you. 341 hearings are usually fairly short.

Reaffirmation agreements are normally used to allow debtors to keep things such as a home and cars by continuing to make timely payments to their creditors. This debt will no longer be dischargeable and the agreement cannot put an undue burden on debtors or their dependents. These agreements should be carefully and fully considered before entering into them. We are sure you have other questions that are specific to your case.