Bankruptcy FAQ

A: I get asked this question every day.  The answer may surprise you.

Your credit scores are affected by many different factors.  Among the most important are:  How much overall debt you are carrying; how much of your available credit limits are you using; and, whether you are making your payments in a timely manner.

What most people do not realize is that bankruptcy may actually improve their credit scores … not after years of rebuilding their credit, but right away.

This is because bankruptcy discharges your debts.  Even a million-dollar mortgage on a home you are keeping.  So where before you were carrying a million-dollar debt on your credit report, now your credit report reads “$0 (discharged in bankruptcy)” — and this is the case for all of your discharged debts.  (Keep in mind that you won’t get a free house because the bank still has the right to foreclose on the property if you fail to pay under the terms of your mortgage note.  But the debt will no longer show as owing on your credit report.)

So, since the amount of debt you are carrying decreases significantly and as you establish new lines of credit the ratio of debt is closer to 0% than 100%, your score may increase quite a bit.

The only people who need to worry about a serious drop in their credit scores are those with extremely good credit to begin with.  If you’ve never been late on a payment, your score will drop from the 700+ range into perhaps the middle 600’s.  But your score will not plummet as quickly or as low as it would if lack of funds forces you to start missing payments or suffer a foreclosure or worse.  So if things are heading that way, bankruptcy can actually help you to preserve your good credit.

A: Actually, this is another unfounded myth.

Having a bankruptcy on your credit report tells the banks a number of things:

1.  You don’t have any debt;

2.  You cannot get another bankruptcy discharge for about 8 years; and

3.  The banks consider folks who’ve been through bankruptcy as having what they call “a taste for credit” i.e. you are comfortable carrying a balance, making minimum payments … in short, you are their best customer.

Make no mistake, consumer lending is obscenely profitable.  And the banks want you, their best customer, to acquire as much debt as possible as quickly as is feasible as soon as you get your old debts discharged.  You’ll have higher interest rates (if that is possible) and you’ll have lower limits, but you’ll also start receiving offers as soon as your bankruptcy is finished

A: Chapter 7 is normally the cheapest bankruptcy, followed by Chapter 13.

A: Yes. Once you file the judge will issue a “stay order” which will stop all attempts to collect your debts.

A: When you file bankruptcy it is entered into the court’s docket which is a public record.  Anyone with access to the court’s system will be able to see that you filed bankruptcy.  However, there is no publication requirement so it will not be necessary that the information be published in the local newspaper.  Also, although it is unlikely anyone will know you filed, the bankruptcy will be reflected on your credit reports.

A: Things that cannot be discharged include:  recent federal and state income tax claims, payroll and sales taxes, spouse and child support, student loans, fines or penalties imposed by government agencies (i.e. traffic tickets), and certain other types of debts.  Non-dischargeable debts will survive the bankruptcy proceedings and remain collectible after the bankruptcy is over.

A:  In most cases the answer is no.  Unless there are issues that require your direct testimony, you will never appear before a judge.  However, you will be required to meet with the trustee assigned to your case about a month into the bankruptcy process.

A: Yes.  Bankruptcy is a process that relies on full disclosure.  It is not permissible for you to pick and choose which debts will be included in the bankruptcy.  However, there is also nothing to keep you from paying back debts that have been discharged after the bankruptcy is concluded.  So you can pay your mom or the doctor you want to pay after the bankruptcy is completed, but it will be your choice … they will be unable to compel you to do so.

A:  Yes.  A foreclosure is a form of collection of a debt you owed prior to filing the bankruptcy.  As such, the automatic stay makes it unlawful for the foreclosure to proceed unless and until the creditor wishing to foreclose can get permission from the court to proceed with the foreclosure sale.

If you or a loved one is facing foreclosure you should come and see me right away.  As a bankruptcy attorney I have a very clear understanding about how the mortgage industry works and have people ready to help if you are a candidate for modification.

A:  No.  Again, bankruptcy requires full disclosure.  You are required to disclose all of your assets.  Not doing so can result in serious repercussions.

A:  Yes, in the vast majority of cases I’ve handled the debtors keep most if not all of their vehicles.

A: Filing for Chapter 7 is the fastest, usually taking about 3-8 months to complete. Chapter 13 bankruptcy can take several months just to settle on a payment arrangement. Once that is done it isn’t considered finished until you make all your payments. This can take 36-60 months.