Chapter 7

FREQUENTLY ASKED QUESTIONS

If you are considering filing for chapter 7 bankruptcy you likely have more questions than answers. Perhaps you are overwhelmed with credit card debt, suffered a recent divorce or have mounting medical bills.  If so, these FAQs may hold the answers to your questions.  This website contains a wealth of information on bankruptcy. Be sure to explore the entire website and any links of interest.  For a more personal response to your questions, please contact one of our bankruptcy attorneys directly at (972) 578-1400 or via email to set up a free initial consultation.  We are conveniently located in the cities of Dallas and Plano.

What is a debtor?

What is chapter 7 bankruptcy?

Can anyone file a chapter 7 bankruptcy petition?

Do I need a lawyer to file a chapter 7 bankruptcy petition?

Does my spouse have to file chapter 7 bankruptcy with me?

Do I have to file chapter 7 bankruptcy against ALL of my creditors?

What is a chapter 7 discharge?

Can I still pay some creditors after my chapter 7 discharge?

Will I lose all my property if I file a chapter 7 bankruptcy?

What is an exemption?

What property is exempt in a chapter 7 bankruptcy?

How does the Bankruptcy Court know what I own?

Do I have to list everything I own on my chapter 7 bankruptcy schedules?

Will a chapter 7 bankruptcy stop my creditors from calling?

Will a chapter 7 bankruptcy stop a foreclosure or repossession?

If my car was repossessed will a chapter 7 bankruptcy help me get my car back?

If I am in the process of being evicted, will a chapter 7 bankruptcy petition stop the eviction?

If I have been sued by one of my creditors, will a chapter 7 bankruptcy stop the lawsuit?

Will a chapter 7 bankruptcy wipe out my second mortgage, my car loan or any other secured debt?

How does my divorce affect my ability or my former spouse’s ability to file for chapter 7 bankruptcy?

Can I stop paying alimony after I receive my chapter 7 discharge?

Can I stop paying on my student loans after I receive my chapter 7 discharge?

Will I still have to pay my past due taxes after I receive my chapter 7 discharge?

Will I have to go to bankruptcy court?

If I am considering filing for chapter 7 bankruptcy, can I still use my credit cards?

Can I pay my bankruptcy lawyer with a credit card or from a cash advance?

Should I file a chapter 7 bankruptcy petition?

Will filing chapter 7 bankruptcy affect my credit?

How long will a chapter 7 bankruptcy appear on my credit report?

Will filing chapter 7 bankruptcy affect my job?

Can I keep any credit cards after filing a chapter 7 bankruptcy petition?

Why shouldn’t I just take out a debt consolidation loan or refinance my mortgage?

What is a debtor?

A debtor is a person who owes someone else money. On the other hand, a creditor is someone who is owed money.

What is chapter 7 bankruptcy?

A Chapter 7 is commonly referred to as a “liquidation” or “straight” bankruptcy. The purpose of chapter 7 is to permit the honest debtor to discharge most of his/her obligations to his/her creditors while retaining sufficient assets to obtain a “fresh start”. A trustee is appointed to facilitate both the discharge of the debtor’s debts as well as the liquidation of all property in excess of the amount deemed necessary under the Bankruptcy Code for the debtor’s “fresh start”. The property deemed necessary for the debtor’s “fresh start” is commonly referred to as “exempt property”. The bankruptcy trustee may only liquidate the debtor’s non-exempt property. In exchange, the debtor is granted a discharge, freeing him/her of most (if not all) of his/her debt. Most debtors, especially in Texas, own only exempt property resulting in the trustee taking nothing. Such cases are commonly referred to as “no asset” cases.

Can anyone file a chapter 7 bankruptcy petition?

Almost any individual, partnership, or corporation can file for chapter 7. The debtor need only reside, have a domicile, a place of business, or property in the United States. This is not, however, to say that every chapter 7 debtor receives a discharge. Only individuals may receive a discharge. That means partnerships and corporations never receive a chapter 7 discharge.

Do I need a lawyer to file a chapter 7 bankruptcy petition?

No, but the process is not as straight forward as you might believe. The wrong answer to a simple question (i.e. Do I need to list all of my creditors?) can lead to dire results such as the denial of your discharge (often the sole reason for filing). It is highly recommended that you retain competent legal representation.

Does my spouse have to file chapter 7 bankruptcy with me?

No. On the other hand, it is often a good idea because of the amount of joint debts. Moreover, under Texas law, debts incurred by only one spouse during a marriage are deemed to be recoverable from the non-exempt jointly managed community property.

Do I have to file chapter 7 bankruptcy against ALL of my creditors?

Yes. Whether the debt is owed to a bank, a relative or a friend, all creditors must be listed. When you sign your bankruptcy schedules you are stating under penalty of perjury that all of your creditors have been listed. An intentional failure to list a creditor could result in a denial of your discharge. On the other hand, mistakes do happen, and in those instances you will usually be allowed to amend your schedules. Lastly, you should note that creditors not listed in your bankruptcy schedules are not discharged (there is an exception applicable to “no asset” cases).

What is a chapter 7 discharge?

A chapter 7 discharge is a release of a debtor from personal liability for certain debts. The discharge is basically a permanent injunction issued against the debtor’s creditors thereby preventing those creditors from taking any action (including telephone calls, letters, and personal contact) against the debtor or the debtor’s property to collect the debts.

Can I still pay some creditors after my chapter 7 discharge?

Absolutely. The Bankruptcy Code contains no prohibition with respect to how you handle your financial affairs after the discharge. The discharge merely eliminates the legal obligation to pay the debt. You remain free to spend your money as you see fit, including the repayment of discharged debts.

Will I lose all my property if I file a chapter 7 bankruptcy?

Most debtors who file a chapter 7 bankruptcy petition loose no property. Whether a debtor will retain all of his or her property depends upon the exemptions selected as well as the nature and value of the property owned. Also note that secured creditors retain their interest in the collateral (house, car etc.) regardless of the bankruptcy. If you wish to retain such items you will be required to continue making payments to the secured creditor.

What is an exemption?

An exemption is a state or federal statute which prevents creditors from taking certain property away from a debtor. The exemptions were created to ensure that all debtors, despite any monies owed to their creditors, retained certain essential assets such as a home or a car. Check out the “exemption” section of this website for more details.

What property is exempt in a chapter 7 bankruptcy?

Most chapter 7 debtors can exempt everything they own. Some of the items you may exempt, depending on the exemption statute selected, include: (1) homestead, (2) vehicles, (3) retirement accounts, (4) pensions, (5) sports equipment, (6) livestock, and (7) household goods. For a complete list of the exemptions available, as well as their respective limitations, you should view the “exemption” section of this website.

How does the Bankruptcy Court know what I own?

The Bankruptcy Code requires every debtor to complete a set of bankruptcy schedules. These schedules require the debtor to list everything the debtor owns or has an interest in. The Bankruptcy Code further provides very harsh penalties, including the denial of the discharge, for any debtor intentionally omitting any items. In other words, the debtor, by way of the bankruptcy schedules, tells the Bankruptcy Court everything he or she owns.

Do I have to list everything I own on my chapter 7 bankruptcy schedules?

Yes. If the bankruptcy schedules are incomplete or inaccurate you will likely not receive a chapter 7 discharge and you will be subject to fines and possible imprisonment.

Will a chapter 7 bankruptcy stop my creditors from calling?

Yes. Section 362(a) of the Bankruptcy Code (the automatic stay provision) prevents creditors from taking any action to collect debts. The automatic stay also prevents secured creditors from foreclosing, seizing, and repossessing their collateral. Once a creditor learns of any bankruptcy filing, that creditor must immediately stop all collection efforts.

Creditors receive notice of the bankruptcy shortly after the petition date based upon the addresses you provided in your schedules. Should a creditor call you after the case is filed, simply advise them of the bankruptcy filing and provide them with the case number and the petition date. Sometimes, you cannot just sit back and wait. A more proactive approach will be required. In those situations you or your attorney should contact the creditor immediately after filing the bankruptcy petition. Examples requiring immediate notification include: (1) pending litigation, (2) possible repossession, or (3) possible foreclosure.

Will a chapter 7 bankruptcy stop a foreclosure or repossession?

Yes. However, a chapter 7 bankruptcy case will never permanently stop a creditor from foreclosing or repossessing their collateral. A secured lender, shortly after learning of the chapter 7 bankruptcy case, will likely file a motion with the Bankruptcy Court for permission to continue the foreclosure proceedings or repossession (a motion for relief from the automatic stay). If you wish to permanently retain the collateral you will need to make arrangements with the secured lender. This can sometimes be accomplished through a reaffirmation agreement.

If my car was repossessed will a chapter 7 bankruptcy help me get my car back?

Sort of. A secured creditor, upon learning of the chapter 7 bankruptcy case, has an affirmative duty to return the vehicle if the vehicle was not previously sold at auction and the value of the vehicle to the bankruptcy estate is inconsequential. Moreover, a secured creditor’s continued retention of a repossessed vehicle after learning of the chapter 7 bankruptcy case is a violation of the automatic stay. Nissan Motor Acceptance Corporation v. Baker, 239 B.R. 484, 487-488 (N.D.Tex 1999). However, a debtor lacks the requisite standing to force the return of the vehicle from the secured creditor. In re Calvin, 329 B.R. 589, 593 (Bankr. S.D. Tex. 2005).

If I am in the process of being evicted, will a chapter 7 bankruptcy petition stop the eviction?

The filing of a chapter 7 bankruptcy petition to stop an otherwise rightful eviction is not recommended. The landlord is entitled to possession of his property. Chances are, within days of learning of the chapter 7 bankruptcy case, the landlord will file a motion for relief from the automatic stay and request that the matter be heard on shortened notice. In such a case, you will likely gain little more than an additional couple of weeks in the premises. Additionally, the filing a Chapter 7 bankruptcy case for the sole purpose of avoiding an eviction constitutes an abuse of the bankruptcy process and may result in the dismissal of your bankruptcy case.

If I have been sued by one of my creditors, will a chapter 7 bankruptcy stop the lawsuit?

A chapter 7 will stop most civil lawsuits and IRS proceedings. On the other hand, there are some exceptions regarding certain divorce or criminal proceedings.

Will a chapter 7 bankruptcy wipe out my second mortgage, my car loan or any other secured debt?

Generally speaking, no. While there are some liens that can be removed under chapter 7 (i.e. certain statutory liens, judicial liens and nonpossessory, nonpurchase-money liens) most secured creditors (typically those with liens upon your home and car) will retain their lien rights.

How does my divorce affect my ability or my former spouse’s ability to file for chapter 7 bankruptcy?

A divorce does not prevent either spouse from filing bankruptcy. In fact, divorce is one of the primary reasons given by debtors for filing bankruptcy. If your spouse does elect to file for bankruptcy, you will need to seriously examine your financial condition. Chances are you and your spouse incurred numerous joint debts during the course of your marriage. Regardless of the terms of your divorce papers, you remain liable for those joint debts. As such, since your spouse’s creditors can no longer pursue him or her because a chapter 7 bankruptcy case, they will look to you for payment.

Can I stop paying alimony after I receive my chapter 7 discharge?

Generally speaking you must continue making alimony, maintenance and child support payments (“domestic support obligations”). As regards other financial terms of the divorce, the Bankruptcy Code provides that such payments are generally not dischargeable.

Can I stop paying on my student loans after I receive my chapter 7 discharge?

No, absent arrangements with your student loan lender. Generally speaking, students loans are not dischargeable under chapter 7. Only if the repayment of the student loan represents an undue hardship (very high standard) to the debtor and the debtor’s dependents could a student loan be discharged.

Will I still have to pay my past due taxes after I receive my chapter 7 discharge?

Maybe, maybe not. There is no straight forward answer and you will need to consult with a an expert in these matters. Each situation is fact dependent. Follow this link for a more detailed discussion on taxes.

Will I have to go to bankruptcy court?

After filing a chapter 7 bankruptcy petition, a meeting of creditors (the 341(a) hearing) is scheduled before the chapter 7 bankruptcy trustee. The purpose of the meeting is to meet the debtor and ask questions of him or her. During this meeting creditors may be present and may ask questions of the debtor, though most do not. Typically, the meeting lasts less than ten minutes and takes place in an office of the federal courts building or some other meeting room. The meeting does not take place before a bankruptcy judge and is not located in a Bankruptcy Court. The meetings are generally scheduled within 30 days of a Chapter 7 bankruptcy filing, and within 45 days of a Chapter 13 bankruptcy filing. Your attorney will be present at this meeting with you. Other than the first meeting of creditors, you will likely have no other hearings.

If I am considering filing for chapter 7 bankruptcy, can I still use my credit cards?

If you are considering filing for chapter 7 bankruptcy you should immediately stop using your credit cards. The continued use of any credit cards from this point forward could result in those debts not being discharged.

Can I pay my bankruptcy lawyer with a credit card or from a cash advance?

No. It would be unethical for any consumer bankruptcy lawyer to accept payment by credit card knowing that such debt might be discharged through subterfuge. By agreeing to accept legal fees on a credit card, or indirectly from a cash advance obtained for paying a bankruptcy attorney, the bankruptcy attorney is participating in a fraud upon the Bankruptcy Court as well as upon the issuer of the credit card. This is perhaps best illustrated by the following hypothetical question: Would a credit card issuer, knowing that the credit card charge proceeds would be used to pay your bankruptcy attorney, authorize the charge? Of course not! Don’t do it.

Should I file for bankruptcy?

There is no easy answer to this question. Bankruptcy might be viable if:

• You or your spouse have been unemployed for the last six months;

• Employment for you or your spouse has not been steady over the last year and your credit balances continue to rise;

• If you are using one credit card to pay down on another credit card (robbing Peter to pay Paul);

• You are receiving several collection letters every month;

• You received a letter from your mortgage company threatening foreclosure;

• Your vehicle has been repossessed or you fear that it might be repossessed because you are behind on you monthly payments;

• You are considering a home equity loan to pay off your credit card debt;

• The IRS is threatening to garnish your wages or levy your assets;

• You are considering cashing in part or all of your 401k or IRA to pay your creditors;

• You have been sued or fear that you might be sued;

You have substantial medical bills that you are unable to pay;

If you fall into one of the above listed categories then bankruptcy is at least something you should learn about. It is in your best interest to seek advice from a bankruptcy attorney who can evaluate your individual circumstances and provide you with the information to make the right decision.

Will filing chapter 7 bankruptcy affect my credit?

Yes. All events affecting your credit are recorded. That includes prompt payments, slow pays, charge-offs, and judgments as well as a bankruptcy filing. On the other hand, if you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been negatively impacted.

While record of your bankruptcy filing may show on your credit report for up to 10 years, the reality is that most people find they are able to completely rebuild their credit within 3 years. Depending upon the lender and the reason for incurring new debt, your ability to obtain credit will likely improve shortly after you receive your chapter 7 discharge. If for no other reason than the fact that your financial condition has been dramatically improved. However it is up to you to make sure you rebuild and maintain your credit rating. If you fail to make steady, regular payments on new or reaffirmed debts you will likely make a bad situation worse.

How long will a chapter 7 bankruptcy appear on my credit report?

A chapter 7 bankruptcy discharge will usually remain on your credit report for a period of ten years.

Will filing chapter 7 bankruptcy affect my job?

No. First, you should note that although bankruptcy records are public, most employers will never learn of the bankruptcy unless you a tell them. More importantly, the Bankruptcy Code specifically prohibits any employer from discriminating against you because you filed a chapter 7 bankruptcy petition.

Can I keep any credit cards after filing a chapter 7 bankruptcy petition?

As a practical matter, no. Whether or not you will be able to keep any credit cards after the discharge is a matter between you and your credit card company. Understandably, most credit card companies will not allow you to retain a credit card if you discharged your debt to them.

Why shouldn’t I just take out a debt consolidation loan or refinance my mortgage?

This is an excellent question, and one I wish more people would ask. It is unfortunate, but many people who take out debt consolidation loans to pay off credit card debt often lose their homes to foreclosure. You can never borrow your way out of debt. Robbing Peter to pay Paul solves nothing.

On the surface, a debt consolidation loan appears to be a good thing. While this looks great, looks can be deceiving.

First, though the interest rate on a debt consolidation loan is lower than that on your credit cards, you will pay more in interest and finance charges over the life of the loan than you might realize because of the extended term. Second, and more importantly, you have converted an unsecured debt that could be wiped out in bankruptcy into a secured debt (often a second mortgage) that cannot be wiped out in bankruptcy. If the debt consolidation loan does not completely solve all of your financial challenges, you made a costly mistake and, at simply delayed the inevitable.