When You File Bankruptcy:
You can choose the kind of bankruptcy that best suits your needs:
- Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the state where you live.
- Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The Court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
- Chapter 12 – Like chapter 13, but it is only for family farmers.
- Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the Court must approve a plan to repay your debts. There is no trustee unless the Judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property. If you have filed bankruptcy under one chapter, you may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.
What Is a Bankruptcy Discharge and How Does it Operate?
One of the reasons people file is to get a “discharge.” A discharge is a Court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for —
- child support;
- most student loans;
- Court fines and criminal restitution; and
- personal injury caused by drunk driving or under the influence of drugs.
The discharge only applies to debts that arose before the date you filed.
Also, if the Judge finds that you received money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged.
The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a Court order.
You can only receive a chapter 7 discharge once every six years. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement or any other kind of document to do this.
Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.
What Is a Reaffirmation Agreement?
Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay the debt, you must sign and file a reaffirmation agreement with the Court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements —
- must be voluntary;
- must not place too heavy a burden on you or your family;
- must be in your best interest; and
- can be cancelled anytime before the Court issues your discharge or within 60 days after the agreement is filed with the Court, whichever gives you the most time.
If you are an individual and you are not represented by an attorney, the Court must hold a hearing to decide whether to approve the reaffirmation agreement. You must file the agreement with the Court and request a hearing. At the hearing, the court must find that the agreement is in your best interests and enter an order approving the agreement. The agreement will not be legally binding until the Court approves it.
If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.