• What are the main types of bankruptcy?

    For people interested in filing bankruptcy in Pennsylvania, there are two main types of bankruptcy cases that comprise the vast majority of all case filings, and then there are several other types as well.

    The first type is Chapter 7 bankruptcy, which is a good way to simply get rid of debts, such as credit cards, personal loans, repossessions, medical bills, payday loans, etc.  Chapter 7 bankruptcy cases usually take 4 to 5 months from start to finish, and generally require one short court meeting/hearing before a bankruptcy official known as a Trustee.   In Chapter 7 cases, you won’t repay any debts; they will simply be wiped out (“discharged”), however in a small number of cases, the Trustee will sell certain assets in order to repay creditors.  Not everyone is eligible for a Chapter 7 case;  for cases involving consumer debts, there are income guidelines, and if your household income falls above the guideline, then you will not be eligible to file.  This is known as the Means Test.

    The second type of bankruptcy is Chapter 13.   It is ideally suited for people who are facing mortgage foreclosures, or real estate tax sales.  Additionally, some filers who have previously (within the past 8 years) received a Chapter 7 discharge order may wish to file Chapter 13 instead.   Finally, for people who earn more than the Means Test guideline, Chapter 13 may be a good alternative.

    Chapter 11 bankruptcy is generally used for corporations or certain individuals who wish to reorganize their debts and finances.  Chapter 11 filings are much less common than either Chapter 7 or 13 cases.

  • Will I lose my assets if I file bankruptcy?

    The majority of bankruptcy filers do not lose their assets.  Most Chapter 7 cases are considered “no-asset” cases, meaning that no assets are sold by the Chapter 7 Trustee to repay creditors.  Moreover, Chapter 13 bankruptcy is specifically designed to help people repay their debts and keep their assets.   Bankruptcy however can also be used as a financial planning tool, and if there are non-performing assets, such as a car that is “underwater” with a loan, then you may choose to surrender the car in your bankruptcy case, and wipe out the underlying loan obligation.

    Specifically, however, bankruptcy laws known as “exemptions” permit individuals to protect property amounts, for assets such as residences, vehicles, household possessions, etc.  There is virtually an unlimited exemption amount for retirement funds and pensions.

  • Are there debts that I cannot wipe out in bankruptcy?

    Yes, you cannot file bankruptcy and wipe out child support, alimony, recently-incurred income taxes, payroll taxes, sales taxes and student loans.   For the most part however, the debts that most people have, such as credit cards, payday loans, personal loans, auto repossessions and medical bills, can all be wiped out.
  • Is there a minimum amount of debt that I must have in order to file bankruptcy?

    No, there are no minimum debt limits.
  • Will bankruptcy stop my creditors from contacting me?

    Yes, one of the best benefits of bankruptcy is that your creditors must refrain from contacting you or collecting money from you.   This is known as the “automatic stay” of bankruptcy.   Once you retain an attorney to represent you in a bankruptcy case, then your creditors must communicate directly with your attorney.
  • Does my spouse have to file bankruptcy with me?

    No, there is no requirement for your spouse to file with you.   On the other hand, if your spouse is jointly-obligated with you in the debts, then the creditors can still collect from your spouse.   Second, if you are considering a bankruptcy filing, bear in mind that the bankruptcy laws will require you to disclose all of your household income, even the income of your non-filing spouse.   Despite that, if you file a case in your name alone, it will not otherwise affect your spouse.
  • Are there tax consequences to filing a bankruptcy case?

    No, bankruptcy is a tax-neutral event.  You will not be required to notify the IRS that you have filed (unless you owed the IRS a debt at the time of filing).   One benefit however of a bankruptcy filing is that if you have received a 1099-C Cancellation of Debt form, then a bankruptcy filing can be used to eliminate that tax liability.
  • How can I expect a bankruptcy filing to affect my credit rating?

    Most people who are considering bankruptcy already have somewhat bad credit due to late payments and charged-off debts.  Most people who file Chapter 7 cases “straight bankruptcy” and who have credit scores in the low 500s or mid-500s will see all of their bad credit accounts be immediately archived on their credit reports.  This means that those accounts will no longer be notifying the 3 credit bureaus about late payments.   As a result, we generally see an improvement of 80 to 90 points in the average person’s credit score who has had otherwise bad credit.
  • How long does it take after a bankruptcy case filing before someone can purchase a car or a house?

    As a general rule, once someone receives their “discharge order” (the Court Order that officially wipes out the debts), then that person can otherwise immediately get a car loan if needed.  Most mortgage broker will recommend waiting two years and using that time to further rebuild a credit rating before purchasing a home.   We find that many former bankruptcy clients are qualifying for mortgages with good interest rates in a little more than 2 years after their cases have been completed.
  • Will anyone find out that I’ve filed for bankruptcy?

    In the Pittsburgh area, we do not typically see newspapers reporting anything about consumer bankruptcy filings.   In a Chapter 7 case, your employer will not be notified.  In a Chapter 13 case however, it is expected that you make your Chapter 13 plan payments with an automatic payroll deduction, so someone in your company’s Payroll Department would be notified of the filing
  • I am extremely stressed out about my debt situation, however I am worried that bankruptcy might be even worse.

    It is normal to be anxious about your finances, especially if debt collectors are not giving you good payment arrangements.   The actual bankruptcy filing process is very orderly, and our clients are often surprised about how the creditors suddenly lose their aggressiveness when they learn that you are filing for bankruptcy.
  • I think that I might be ashamed to file for bankruptcy. Is that normal?

     It is surprising to learn however that many successful people have had to resort to filing bankruptcy at one point in their lives.   The vast majority of bankruptcy cases stem from a financial tragedy of some kind, for example, job loss, loss of income, medical problem, or divorce or separation.   So, those events are nothing to be ashamed of. 
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