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Bankruptcy Chapter 7 FAQ

What Is A Discharge?

A bankruptcy discharge releases a debtor from personal liability for certain debts. A debtor is not legally required to pay back any debts that are discharged. A discharge means that creditors are prohibited from taking any collection action against the debtor. However, liens may remain enforceable even though an individual’s debts may be discharged.

Can a bankruptcy court cancel a promissory note?

Yes, a bankruptcy court can cancel a promissory note through a chapter 7 discharge. A holder of a promissory note is regarded as another creditor. Thus, the holder can file a proof of claim against the debtor filing bankruptcy and will be paid out like all the other unsecured creditors. If the debtor receives a discharge of his/her debts, the promissory note can be cancelled. However, any lien that the creditor has against the promissory note (i.e. house, vehicle, etc.) is still valid even after a successful discharge.

Can you declare bankruptcy on a Small Business Administration (SBA) loan?

Yes, a SBA loan is dischargeable in bankruptcy. However, the SBA often requires a personal guarantee on any loan it issues, referred to as a “blanket lien”. A blanket lien is a lien on all real and personal property of the debtor. In this sense, a SBA loan holds the business owner personally liable for the debts of the business. You should speak with an attorney to have them review the SBA paperwork to determine whether your SBA loan is dischargeable in a chapter 7 proceeding.

What debts may not be discharged?

Some debts in a chapter 7 proceeding are not dischargeable. The following is a list of debts that may remain after bankruptcy:

-          Alimony and/or child support
-          Student loans, unless you can show undue hardship
-          Marital debts
-          Debts resulting from intentional torts
-          Debts for injury or death caused by driving while intoxicated
-          Fines and citations
-          Debts incurred through fraudulent action, under false pretense or false representations
-          Debts you don’t list in your bankruptcy filings
-          Most federal, state, and local taxes and money borrowed on a credit card to pay those taxes
-          Court fees

Will filing for bankruptcy stop collection efforts?

One of the primary benefits of filing for chapter 7 bankruptcy is that it stops many collection efforts by creditors. This process begins with the debtor filing for bankruptcy. The court subsequently mails a notice out to the creditors that the debtor lists. This process generally takes a couple of weeks.

An automatic stay goes into effect whereby the creditor(s) cannot harass the debtor for collection of debts. An automatic stay prohibits all kinds of collection efforts, including but not limited to collection calls, letters, garnishments, repossessions, etc. If creditors continue their collection efforts, the debtor may seek “actual damages” in the form of court sanctions and/or attorney fees. In order to prove actual damages, the debtor must show that the creditor’s actions resulted in injury or loss to the debtor in violation of the automatic stay. For example, a creditor may win on actual damages where the creditor locked the debtor out of his/her property, or repossessed the debtor’s vehicle after implementation of the automatic stay.

Can My Car Be Repossessed?

People need their car to perform everyday activities whether this consists of going to work, to school, or picking their children up from school. As such, the bankruptcy process is designed to protect certain property such as a debtor’s primary vehicle.

An automatic stay protects repossession of your car during the bankruptcy process. Also, the Bankruptcy Code exemptions protect your car from repossession in most instances. As long as your car is not an antique car, your car should be exempt under chapter 7.

Another important aspect regarding repossession of your car involves whether you have full title to your car. If you do, you should be able to claim an exemption. However, if you pledged the car as security for a debt, or you financed or leased the car, you will have three options under chapter 7.

I Am A Co-Signer On A Loan That Was Discharged – Can The Creditor Come After Me Now?

Yes. The creditor can come after you, the co-signer. The co-signer may be liable for the discharged debt. This is because bankruptcy eliminates the obligation of the debtor to repay the debt, but it does not eliminate the debt itself. This means that the creditor can come after the co-signer if the primary debtor defaults.

Is child support dischargeable in bankruptcy?

Child support obligations are given high priority over many other debts. As such, child support is not dischargeable in bankruptcy. Debtors are responsible for all current and back payments for child support.

If your ex-spouse owes you money for child support, you may consider speaking with an attorney regarding the payments.

How long does the bankruptcy process take before debts are discharged?

In a chapter 7 case, debts are discharged relatively quickly compared to other forms of bankruptcy. Debts are typically discharged within sixty days of the 341 Meeting of the Creditors. The entire process from the date a debtor files to receiving a discharge is typically around four months, or 120 days.

In a chapter 13 case, discharge rates vary depending on how much of the debt has been repaid under the repayment plan. A three to five year repayment plan is typical. The court may hold a discharge until the debtor has paid a sufficient portion of his/her debt.

When does the discharge occur?

A bankruptcy court typically issues a discharge in a chapter 7 case within sixty to ninety days of the date set for the meeting of creditors.

How does the debtor get a discharge?

The debtor automatically receives a discharge absent litigation objecting to the discharge. A bankruptcy court clerk will mail a copy of order of discharge to the creditors, the U.S. trustee, the bankruptcy trustee, the debtor, and the debtor’s attorney. The copy informs creditors that the debts owed to the creditors has been discharged and that creditors should thus cease attempting to collect debts from the debtor. Creditors who continue to harrass the debtor following the notice may be subject to punishment by the bankruptcy court.

Does the debtor have a right to a discharge? Can creditors object to the discharge?

Yes, an individual debtor has a right to a discharge. Creditors can object to a discharge and courts may deny a discharge under certain circumstances, including where the debtor: fraudulently transferred, removed, destroyed, mutilated, or concealed property of the estate; concealed, destroyed, mutilated, falsified, or failed to keep financial records or books; knowingly made a false oath or claim; fails to explain satisfactorily a loss of assets or deficiency of assets to meet the debtor’s liabilities; has received a discharge within eight years of the filing of this petition; or failed to complete an instructional course concerning personal financial management.

Can you keep any of your current or old credit cards once you have filed?

Full disclosure of all assets of all assets and debts is vital to the bankruptcy process. If you have a balance on any current or old credit cards, you must list the credit cards as debt in the bankruptcy petition. You are not required to list credit cards for which you do not have any debt.

Ultimately, the credit card company decides whether to allow you to keep your credit cards. Most credit card companies will allow you to keep your current or old credit cards for which you have a balance if you agree to reaffirm the balance on the card(s). This means that you will agree to pay the balance on the card under a new agreement with the credit card company. Other factors include the total remaining balance, your ability to pay present and future debts, and the credit card company’s willingness to work out a solution.

Even if you are unable to keep any of your credit cards, many credit card companies solicit individuals who have recently undergone a successful bankruptcy petition. This is due to the fact that individuals may not discharge debt for several years following a successful petition. The new offers often come with higher interest rates, but it also offers you a chance to rebuild your credit and trust with creditors.

How does a spouse’s income affect the means test?

A non-filing spouse’s income is included for the means test if it contributed on a regular basis for the household expenses of the debtor or the debtor’s dependents. This means that income that solely benefits the non-filing spouse or another family member is excluded from the means test. 

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