Your comprehensive Bankruptcy Law FAQ resource
We know how confusing it can be when navigating your bankruptcy struggles. We’ve compiled a comprehensive resource to address common inquiries, demystify the process, and guide you toward informed decisions.
Whether you’re exploring options for Chapter 7, Chapter 13, or have general bankruptcy-related concerns, our goal is to empower you with the knowledge needed to make confident choices about your financial future. Explore our frequently asked questions to gain valuable insights into the bankruptcy process and find the support you need to move forward with confidence.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a federal legal process that “discharges” (eliminates) burdensome debt, including money you owe for such things as credit-card balances, medical bills, personal loans and certain types of taxes. Chapter 7 can also be used to discharge debt relating to repossessed vehicles or foreclosures.
In many cases, choosing Chapter 7 can quickly save you tens of thousands of dollars or more. When interest rates are high, you can be stuck just making the minimum payments on your debt — which extends how long it takes to pay it off. That’s why Chapter 7 is often called a “fresh start bankruptcy.”
How it works
To start the process of filing for Chapter 7 bankruptcy on your behalf, your attorney will prepare a bankruptcy petition, schedules, and statements for your review before filing them with the federal bankruptcy court. The court will then issue a case number, appoint a bankruptcy trustee and schedule a hearing (which usually takes place in about four to six weeks). Held virtually or by telephone, the hearing is an important requirement designed to make sure no fraud is happening. Your attorney should know exactly what questions may be asked and properly prepare you beforehand to minimize stress.
Following the hearing, a 60-day waiting period is required before any final action is taken by the court. After the 60 days pass, the federal judge will discharge your debts by court order. Creditors must respect the terms of the order; if they refuse to abide by it, they must answer to the court and can be held responsible for paying you damages. Most Chapter 7 bankruptcy cases take about 3½ months to complete.
Turning over assets
In 92% of all Chapter 7 bankruptcy cases, no assets must be handed over. But in rare cases you might be required to turn over cash or an asset to a bankruptcy trustee to be sold because the available state and federal exemptions aren’t enough to protect everything you own. If you file a bankruptcy case in Pennsylvania, you can choose between the federal exemptions and the state’s own exemptions, which are a bit more limited.
But Pennsylvania bankruptcy exemptions have one very large advantage when it comes to certain marital property. For married couples who own their home jointly in its entirety, the state provides special protection for that home as long as the unsecured debts are against one of the spouses but not both. This rule applies even in cases where there’s substantial equity in the home and/or the mortgage is completely paid off. This Pennsylvania marital property rule extends to vehicles, campers, bank accounts, and any other titled or deeded assets. This special rule is not available in most states and is a very helpful way to protect assets for married couples in Pennsylvania.
When considering Chapter 7 bankruptcy, your attorney should determine before filing whether you would be required to turn over any cash or assets to the bankruptcy trustee.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is for when you’re struggling to pay back secured debt such as a car or mortgage and you intend to keep that property. This form of bankruptcy is often turned to by people who fall too far behind on their mortgage and/or car payments and can’t get caught up on their own. It reorganizes your cash flow and provides relief from creditors by creating a plan to repay over several years a percentage of (or all of) the debt owed.
How it works
When you declare Chapter 13 bankruptcy in order to keep the property you owe money on, a repayment plan is created and a bankruptcy trustee is appointed. Payment plans are spread out over the course of three to five years. The specific length of your payment plan is determined by how much excess income you’ll receive and how long it will take you to pay back the agreed-upon amount.
After your attorney files your case and a plan is created, you must continue to pay your normal mortgage and car payments. You must also make an additional payment based on your excess income to the bankruptcy trustee. That additional payment first pays back the missed payments on the secured debt and priority debts, such as recent taxes. Any remaining money from the plan payment is then used to pay back some of the unsecured debt such as credit cards or personal loans. The remaining unsecured debt is then discharged much like it would be in a Chapter 7 bankruptcy, leaving you no longer obligated to pay it. As long you stay current on your mortgage/car payments and plan payments, you retain all property within the plan.
One big advantage to choosing Chapter 13 bankruptcy is that interest doesn’t accrue on the debt. That means that your payments will be much more manageable than they were before you filed for bankruptcy.
How Much does bankruptcy cost?
Court filing fees for all bankruptcy cases are $338 for Chapter 7 and $313 for Chapter 13. Fees for attorney’s services depend on the complexity of your individual circumstances and can be structured in different ways.
Instead of filing for bankruptcy, should I consolidate my debts?
In almost all cases, the answer is a hard no for several reasons:
- Although “debt relief” or “debt consolidation” companies advertise that they can negotiate your debt down, it usually doesn’t work because the individuals or companies you owe money to are under no obligation to accept any deals they’re offered.
- Debt consolidation can be expensive because the company you hire usually charges you a hefty monthly fee.
- In many cases, these plans destroy your credit much worse than a bankruptcy case and for a longer period of time.
- Often these companies will try to alleviate your debt by making you take out a home equity loan that secures itself against your home.
- Even when these companies negotiate your debt down, you must pay tax on whatever debt is forgiven — meaning that the more successful your debt consolidation company is, the more tax you will still need to pay. Even if you decided to file for bankruptcy afterwards, those taxes would not be dischargeable and would need to be paid. For example, if you owe $50,000 and they negotiate down your debts to $10,000, you will receive a 1099 tax form where you have to claim the $40,000 as unearned income. On top of paying the non-dischargeable taxes on this amount, you will also have to pay the fees that the company charges and still pay on the amount left over.
In bankruptcy, all unsecured debt disappears without any tax obligations on the discharged amount. You only pay attorney and court filing fees, which together are usually lower than what you end up paying if you choose debt consolidation.
If I file for bankruptcy, must my spouse file as well?
Not necessarily. Bankruptcies can be filed by an individual or jointly by a married couple. But if only one person files, their spouse is still responsible for paying any debt for which they are listed as a debtor. Filing individually can be advantageous if all the debt is in one spouse’s name only; if it’s in both spouses’ names, then it would cost significantly less to file together than to file separately at different times.
Will bankruptcy appear on my credit report?
Yes, a bankruptcy will remain on your credit report for seven to 10 years. But because bankruptcy is only one of many factors that affect your credit, in many cases your credit score will go up dramatically within just a few years. After two years of rebuilding credit following bankruptcy filing with RQP Law, most of our clients’ credit scores are close to 600 and can even be 700 or higher. Once we perform a financial analysis, we can give you an estimate of how your score might look after a case is filed.
Are there disadvantages to filing for bankruptcy?
There are always advantages and disadvantages. After filing for bankruptcy, your ability to get credit will be lower. But in most cases, eliminating debt through bankruptcy will allow you to create a better budget that doesn’t require you to use credit for everyday expenses. Because you’ll be able to pay off your bills every month, it will be much easier to obtain credit in the long term because your credit score will reflect those repeated on-time payments.
Can people find out if I file for bankruptcy?
The ability for people to discover your bankruptcy is limited. Debtor privacy in Pennsylvania bankruptcy cases is protected, so only a credit check will reveal your bankruptcy. Although court proceedings are publicly accessible, someone would need to specifically look in the bankruptcy courts for your case. The only parties notified of your filing are your creditors.
If I declared bankruptcy in the past, can I file again?
The law specifies what length of time must pass before you can file for bankruptcy again, and it depends on what type of bankruptcy your previous case was. You also may not have a previous bankruptcy that was dismissed with prejudice. The best way to determine if you’re eligible to file again is to schedule a free consultation with one of our attorneys.
What information will my attorney need to file a bankruptcy case?
Generally speaking, to file for bankruptcy you’ll need to provide your attorney with:
- Proof of income for the six-month period before you file
- Proof of home, auto, or other insurance related to the property in question
- Copies of medical bills and any other debts not listed on a standard credit report
- Copies of your bank statements
- Tax returns for the two-year period before you file
How long does it take to file a bankruptcy case?
As soon as you provide all requested information and complete a government-required credit counseling course, your attorney may file for bankruptcy.
How much credit card debt can be discharged through bankruptcy?
There is no limit! If you use a credit card for a major purchase such as large appliances, expensive electronics, or furniture sets within a month or so before filing for bankruptcy, that amount may be excluded. Otherwise, all other debts, including credit card use for essential items like gasoline and groceries, generally should be dischargeable regardless of the amount.
I have a lot of student loans. Is it possible to get rid of them?
For most debtors, student loans are non-dischargeable except in very specific cases. (This may change pending the outcome of court cases, government actions and legislation currently being debated and pursued). But if you took out regular personal loans through your bank and used them to pay for school expenses, it’s possible to classify those loans as dischargeable debt.
What is a means test?
In bankruptcy law, a “means test” is used to determine if you have too much income to declare bankruptcy. The means test is somewhat like a tax return that determines your eligibility. It’s based on the average cost of living expenses and income for the county where you live and also takes into consideration the number of dependents you have, your spouse’s financial position, the number and age of any vehicles you own, your medical expenses and other key factors.
What is a 341 meeting?
About four to six weeks after you file for bankruptcy, the appointed bankruptcy trustee will schedule what’s known as a “341 meeting” or “meeting of the creditors.” At the meeting, the trustee will ask questions regarding your debt and examine the petition your attorney has filed with the court. These questions will require full disclosure about your income, expenses and assets.
Understanding your options when filing for bankruptcy
Learn about the bankruptcy options available to you and how we can help.
Chapter 7 Bankruptcy
Learn about unsecured debt and if Chapter 7 makes the most sense.
Chapter 13 Bankruptcy
Reorganize cash flow and provide debt relief from your creditors.
Filing for bankruptcy isn’t always the best solution for debt relief.
Schedule a FREE Consultation
Dealing with debt issues on your own is stressful. Often it’s best to turn to a law firm for help — but finding the right one can be confusing. We make that easier by offering free consultations.
We are pleased to meet with you in either of our Pennsylvania offices to discuss your financial challenges.
192 South Hanover Street
Pottstown, PA 19464
Lancaster, PA 17603