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How do I know whether to file a chapter 7 or a chapter 13

To do a thorough means test and evaluate your potential for filing bankruptcy an attorney needs all of your financial documentation and needs the answers to a lot of questions including what all your assets are worth, and what all your debts are. As an attorney I usually find out something while interviewing you that will make you have to make another trip to my office no matter how many documents you bring with you. You can’t bring enough legal documents with you to help the lawyer. Many lawyers have access to many services. For example we check with one service provider that we pay for monthly to run a lawsuit check. We are also signed up with a credit reporting agency so we can run credit reports. We also are signed up with a service to run vehicle appraisals. We also routinely check to see how many prior bankruptcies you have filed. It takes several hours of preparation to make an accurate determination of which type of bankruptcy you can file.

Can I go file bankruptcy for myself?

The short answer is yes. The long answer is any time I see a pro se debtor in bankruptcy court I feel sorry for them because I know there are so many things they don’t know that can and will probably hurt them. It took me a year of filing bankruptcies and several seminars before I felt comfortable filing them. Bankruptcy is a area of law where what you don’t know can hurt you. I remember in 1988 when I took bankruptcy in law school the professor telling us not to file one if we didn’t know what you were doing. I didn’t know why then but I do now. There’s no way in a guide like this to go over every possible scenario that could happen in a bankruptcy to properly advice someone how to file one. The best advice for anyone considering filing bankruptcy is to hire a bankruptcy attorney.

Can a bankruptcy stop the IRS?

The short answer is yes. Whether the bankruptcy will discharge the taxes depends on several factors including how old the tax debt is. Now a chapter 13, if you can afford the payment, will stop the interest and penalties of the IRS as long as you pay it off. A bankruptcy of either type will stop a levy on your wages at least temporarily. If both spouses owe taxes and only one files the other one will still owe all the interest and penalties and the IRS will come after that spouse after the bankruptcy is paid off.

Can a bankruptcy stop a foreclosure?

Yes assuming you have only filed one or no prior bankruptcies in the past year. Usually a debtor court will allow you to pay the arrearage back at 0% over five years. You need to give a debtor court attorney at least a couple of days to get the paperwork done to stop the foreclosure for you.

Can a bankruptcy stop a garnishment?

The short answer is yes. Sometimes you can arrange a debtor court payment plan to pay all or part of the garnishment back. Sometimes you can file a chapter 7 and wipe all the debt out. The ability to file either type of bankruptcy involves asking many questions and reviewing many documents. Also depending on how quickly the bankruptcy is filed you may be able to get back part of the money that has been garnished.

How long is bankruptcy on my credit?

10 years.

How often can I file bankruptcy?

You can file a complete chapter 7 bankruptcy every 8 years. You can just about live in a debtor court the rest of your life if the court does not put a refiling bar on you. Generally a debtor court lasts 3-5 years.

Can I pay just a part of my debts back?

A repayment plan can be based on your ability to pay. If you cannot pay back 100% of your debt sometimes you have to make choices on what assets you surrender. For example, the court may not let you keep two cars for personal use and pay for both cars while not paying back money to unsecured creditors. What you can do often depends on your entire financial situation, your credit history, your prior bankruptcy history and your financial ability. W

Bankruptcy is a last resort for people and businesses, including Gawker Media, the company that owns this site. Many companies, like United Airlines and General Motors, file for bankruptcy and continue business as usual. Individuals file for bankruptcy and often emerge in one piece, too. Bankruptcy is poorly understood, so let’s talk about how it affects your finances, or the finances of a company you follow.

The Differences Between Chapter 7, 13, and 11
In general, people file for bankruptcy when there’s no way in hell they can meet their debt obligations. Popular assumption is that those people are bad with money and take out too much credit card debt. Sure, that happens, but often, people and companies file bankruptcy after a major financial blow. It might be a lawsuit debacle. It might be digital obsolescence. It might be an unexpected illness.

A lot of people think bankruptcy wipes out any and all debt obligations, but that’s not the case. You still have to pay up, and how you’ll pay up depends on what kind of bankruptcy you file: Chapter 7, Chapter 13, or Chapter 11. There are other types of specific bankruptcies, too (Chapter 12 is for farmers and fishermen, for example), but these three are the most common.

With Chapter 7, you may have to liquidate certain assets (like a car or a second home) to pay off at least some of the debt. Most of your assets are probably exempt, but it depends on your state, your financial situation, and whether or not that asset is essential. You have to meet certain eligibility requirements to file, and income is perhaps the most important one. As legal site Nolo explains, there’s a whole set of criteria to determine your income eligibility, but generally, you have to have little to no disposable income.

With Chapter 13, you get a plan to pay off your debts within the next three to five years, but you get to keep your assets. After it’s all said and done, some of those debts will likely be discharged. You have to qualify, though, and that means your secured debts can’t be more than $1,149,525 and your unsecured debts cannot be more than $383,175. Secured debt is debt that’s backed by collateral, like your house or car.

Chapter 11 bankruptcy works kind of like Chapter 13, but it’s typically reserved for businesses, and basically means a reorganization or restructuring for the company. Businesses can file for Chapter 7 bankruptcy, too, but again, that means a liquidation of assets, so Chapter 11 is usually a more attractive option. Companies get to keep their stuff and keep their creditors at bay while they continue their operations, but they have to come up with a plan to pay off at least some of their debt, or get it forgiven.

What Happens When You File
When you file for bankruptcy, you get an “automatic stay.” Basically, this puts a block on your debt to keep creditors from collecting. While the stay is in place, they can’t garnish your wages, deduct money from your bank account, or go after any secured assets.

Ironically, bankruptcy isn’t free. The filing fee alone is a few hundred bucks for Chapter 7 and 13, and nearly $2,000 for Chapter 11. And then there are the attorney fees. You can file without a lawyer, but it’s not recommended since bankruptcy laws can be tough to navigate. Upright Law estimates the fees for Chapter 7 are $1,000-$2,000, and Chapter 13 are $2,200-5,000. Chapter 11 costs a lot more. Over at Forbes, attorney Robert Bovarnick explains:

In my experience, attorney’s fees run about 4% of annual revenue. If your company has $2,000,000 in revenue, expect to pay between $75,000 and $100,000 to your bankruptcy lawyer–and there may be expenses for accountants and other professionals on top of that.

You’ll also have to take a class or two. The government requires individuals to take credit counseling 180 days before you file, and you also have to take a debtor education course if you want your debts discharged.

A couple of weeks after filing, you’ll have to attend a “creditors meeting,” which is basically what it sounds like: a court meeting between you, your bankruptcy trustee, and any creditors who want to attend. They’ll all ask you questions about your financial situation and decision to file bankruptcy.

Your Assets Get Liquidated With Chapter 7

Nolo says that in most cases, Chapter 7 debtors don’t have to liquidate their property (unless it’s collateral) because it’s usually exempt or it’s just not worth it. They explain:

If the property isn’t worth very much or would be cumbersome for the trustee to sell, the trustee may “abandon” the property — which means that you get to keep it, even though it is nonexempt…Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt…

After the creditors meeting, your trustee will figure out whether or not to liquidate your stuff. If it does get liquidated, that means you’ll have to either surrender it or fork over its equivalent cash value to pay back your debt.

You Get a Payment Plan With Chapter 13
With Chapter 13, you get a plan to pay off your debts, and some of them have to be paid in full. These debts are “priority debts,” and they include alimony, child support, tax obligations, and wages you owe to employees.

Your plan is based on how much you owe and what your income looks like, and it will include how much you have to pay and when you have to pay it.

The “Best Interests Test” for Chapter 11

After filing for Chapter 11, the company has to come up with a reorganization plan for their business and finances. While they can continue operating as normal, they do have to run major financial decisions, like breaking a lease or shutting down operations, by the bankruptcy court. Creditors and shareholders can offer their input on these decisions, too. This plan is basically an agreement between the debtor and creditors about how the company will pay its future debts.

The plan also has to pass a “best interests” test. This test ensures creditors will get as much money under the Chapter 11 as they would if the debtor filed for a Chapter 7 liquidation.

Filing usually takes a couple of months to wrap up, but it takes considerably longer for the actual bankruptcy to come to a close. According to Credit.com, Chapter 7 bankruptcy is generally pretty quick and closes in a few months. This makes sense, since Chapter 7 liquidates your stuff to pay off debts quickly. Chapter 13, on the other hand, can last up to five years. According to Nolo, some Chapter 11 cases can wrap up in a few months, but six months to two years is a more common time frame.

What Happens to Your Credit
Your credit score will plummet with a bankruptcy. The higher your score, the more you’ll fall. FICO estimates someone with a score in the mid 700s might see a drop by over 100 points. Of course, a low score can make your life difficult in many ways.

In general, Chapter 7 and 11 bankruptcies remain on your credit report for ten years, and Chapter 13 stays on for seven.

After bankruptcy is all said and done, most debts are discharged, but not all of them. Student loans aren’t typically dischargeable in bankruptcy, for example. Here are a few other non-dischargeable debts, according to Sutton Law:

Tax debts
Alimony and child support
Divorce-related debts, including property settlement debts.

Debts for some fines or penalties.
Debts for personal injury or death caused by drunk driving
In some cases, student loans are dischargeable after a bankruptcy, but you have to pass a federal test for hardship, and the Department of Education says it’s rare.

Bankruptcy is usually a desperate remedy to a helpless situation. Knowing how it works and what to expect can help you navigate some of the misconceptions and figure out what the process actually entails.