- What is bankruptcy?
Bankruptcy is a formal legal process that allows individuals or businesses to either work out a plan to repay the money over time or to completely eliminate most of their debts. Bankruptcy is a time-honored practice that stems from Article I, Section 8 of the U.S. Constitution. The fundamental goal of the bankruptcy system is to provide relief from burdensome debts and a financial fresh start.
- What is the bankruptcy estate?
When you file a bankruptcy with the Court, a bankruptcy “estate” is created. The estate becomes the technical legal owner of all of your assets, such as your real estate, vehicles, personal property, and financial accounts, including property owned jointly with someone else. You generally retain possession of your assets while the case is proceeding. However, because the estate owns your assets, you are not allowed to sell or transfer any of your assets during the bankruptcy case without first obtaining permission from the bankruptcy trustee and/or judge. For more information, please refer to our article about the bankruptcy estate.
- What is a bankruptcy trustee?
When you file your case, the bankruptcy court usually appoints a “trustee” for your case. The trustee is in charge of administering your assets for the bankruptcy estate. In a Chapter 7 proceeding, the trustee’s main duty is to review all of your assets to determine whether any of your assets could be sold to generate funds to pay your debts. In a Chapter 11, Chapter 12 or Chapter 13 proceeding, the trustee’s main duty is to administer your court-approved payment plan. For more information, please refer to the page about the bankruptcy trustee.
- What’s the difference between secured and unsecured debt?
A debt is “secured: when it is attached to some of your property. A debt can be secured voluntarily with your agreement (such as a mortgage or automobile lien) or involuntarily (such as a court judgment or taxes). Creditors whose debts are secured can generally claim the property (and take it to pay off the debt) in the event of bankruptcy. Unsecured debt is not tied to any type of property.
- Who can file bankruptcy?
With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition. There is no minimum amount of debt required. For individuals, U.S. Citizenship is not required, but the person must have a valid Social Security Number or Tax ID number, which can be obtained from the IRS.
- I have filed bankruptcy before. Can I file bankruptcy again?
The answer depends on when you last filed bankruptcy and what type of bankruptcy you filed. For more information, please see our article about repeat bankruptcy filings.
- Where do I file for bankruptcy?
Bankruptcy is a matter of federal law, so your bankruptcy proceeding is filed in a federal bankruptcy court. The particular court where your bankruptcy case is filed will generally be determined either by your place of residence at the time your case is filed, or the place where your assets are located.
PREPARING FOR BANKRUPTCY
- Which type of bankruptcy should I file?
The type of bankruptcy you file will depend on your particular circumstances, including your employment and financial situation, the types of debts you have, and the nature and extent of your assets. Bankruptcy laws can be complicated, so determining which type of bankruptcy you need should be made with careful thought or the input of a bankruptcy lawyer.
- What is the Credit Counseling class?
With limited exceptions, you are required to complete a bankruptcy Credit Counseling class within 180 days before you can file your bankruptcy case with the court. The classes can be taken in person, by phone or online. There is usually a fee for the class, although the fee may be waived if your income is low enough. The class typically takes 1 to 2 hours to complete. After finishing the class, you receive a “Certificate of Completion”, which must be provided to your attorney for filing with the Court.
For more information, see the page about bankruptcy classes.
- What documents will I need?
The documents required for your case will depend on the circumstances of your case. However, the documents usually include copies of tax returns, bank records, income records, and listings of your assets and creditors.
- I want to avoid including some of my assets in the bankruptcy. Can I sell or give away my assets before I file bankruptcy?
You may transfer assets prior to bankruptcy, but it should be done carefully. You must disclose in your bankruptcy paperwork any assets that you have sold, given away, or otherwise transferred within the two-year period prior to the filing of your bankruptcy case. The bankruptcy trustee will review all those transactions. If the trustee determines that any asset was transferred for less than its fair market value, then the trustee can reverse the transfer. Generally, selling or transferring an asset is not a problem, so long as you receive fair value in exchange, such as selling an asset at its fair market value. Transactions with friends and family will be heavily scrutinized.
- What assets can I keep?
The assets that you can keep in bankruptcy will depend on several factors, including the individual circumstances of your case, your debts, and what exemptions apply to you. “Exemptions” are legal protections that shield certain assets in bankruptcy. The amount of assets you can protect is limited by those exemptions. However, you can usually use exemptions to shield a certain amount of clothing and jewelry, household goods, tools and equipment necessary for your business, and equity in your home and vehicles. Retirement accounts, Social Security payments and unemployment payments are usually entirely protected. For more information, please read our article about bankruptcy exemptions in Oregon.
- Do I have to file bankruptcy on all the accounts I owe, or can I keep some?
You must list all of your debts in your bankruptcy paperwork. However, you may opt to “reaffirm” certain secured debts that are attached to your assets. Even if you do not reaffirm a debt, you should be aware the bankruptcy discharge only eliminates your legal obligation to repay your debts, so the creditor can no longer take any legal action to force you to repay the debt. However, you still have the right to repay your debts, if you choose.
- Will I lose my home if I file for bankruptcy?
It depends. Several factors affect your ability to keep your home, including the value of your home, the type of bankruptcy you file, the payment status of your loan, and your ability to make loan payments. Since your home is a critical asset for you, you should discuss your home with your attorney.
- What is the filing fee?
The filing fee for a Chapter 7 bankruptcy is currently $306.00. The filing fee for a Chapter 13 bankruptcy is currently $281.00. Generally, the fee must be paid at the time your case is filed with the court, although sometimes the fee can be waived or paid in installments.
- How does the bankruptcy proceeding start?
Your bankruptcy case formally begins with filing your bankruptcy paperwork with the Bankruptcy Court. Most filing is done electronically over the Internet. The bankruptcy paperwork is called your “Petition”. The Petition is a few pages long, but it is accompanied by Schedules of your assets, debts, income and expenses, and a statement of your financial affairs. The bankruptcy paperwork typically totals around 50 to 70 pages.
- What is a “joint” bankruptcy petition?
A joint petition is when a married couple files a joint bankruptcy. Unmarried partners are not eligible for a joint filing and must each file separate cases.
- What is the automatic stay?
When your Petition is filed with the court, the “automatic stay” immediately goes into effect. The automatic stay is a sort of bankruptcy restraining order that prohibits your creditors from taking most actions to collect on your debts, such as calls, letters, lawsuits, garnishments, foreclosures, repossessions, and so on. The stay is effective immediately and automatically, even if your creditors are not aware of it. Creditors can be punished for violating the stay. However, creditors can also seek relief from the stay by filing paperwork with the bankruptcy court that seeks permission from the bankruptcy judge to continue collecting a debt.
- Who notifies my creditors that I filed for bankruptcy?
The bankruptcy court notifies all creditors listed in your bankruptcy paperwork by mail or email.
- What is the Debtor Education Class?
After you file your bankruptcy case, you are required to take a second bankruptcy class, called the Debtor Education class. The class generally lasts a couple of hours and can be taken over the phone or on the Internet. Upon completion of the Debtor Education Class, you will receive a Certificate of Completion. Your debts cannot be discharged by the Court until you complete this requirement.
For more information, see the page about bankruptcy classes.
- What is the “Meeting of Creditors”?
There is a hearing called the “Meeting of Creditors” hearing or the “341 Hearing”. It is usually held about 30 to 45 days after your case is filed. Your attendance at this hearing is mandatory. The hearing is basically an interview conducted by the bankruptcy trustee. The trustee questions you about your assets and your bankruptcy paperwork. Your creditors also may ask you questions. The hearing usually lasts five to ten minutes. For more information about the Meeting of Creditors, please read the page about the Bankruptcy Hearing.
- What if I forgot to list a creditor in my bankruptcy paperwork?
Please see our articles about what happens if you accidentally omit a creditor or debt from your bankruptcy paperwork and what happens if you intentionally omit a creditor or debt from your bankruptcy paperwork.
- I am behind on my utility bills. How are those bills treated in bankruptcy?
Please see our article on how delinquent utility bills are treated in bankruptcy.
- Can I change from one chapter of bankruptcy to another?
Once you have filed one type of bankruptcy, you generally have one opportunity to convert your case to any other type of bankruptcy that you are eligible for. However, there are pitfalls, so the decision to covert should be made after careful consideration and consultation with your attorney.
- Does my divorce judgment protect me from creditors if my ex files for bankruptcy?
No. If you co-signed a debt with your ex-spouse, a creditor can collect entire debt from you, even if the divorce decree assigns that debt to your ex-spouse. However, your ex-spouse may be liable to you in the divorce court for any amounts a creditor collects from you.
- I co-signed a loan for a person who has filed bankruptcy. Can creditors collect the debt from me?
Yes. The lender can generally collect on a debt from a co-signor if the other person has declared bankruptcy. However, there is a limited exception called the Co-Debtor Stay that applies when the person has filed Chapter Chapter 13 bankruptcy.
- What is a “discharge”?
The goal of most bankruptcy cases is to obtain a “discharge” of debts. The Bankruptcy Court issues a formal “Order of Discharge” that indicates you have successfully completed the bankruptcy process and that your debts have been eliminated. Only people are entitled to a discharge. Corporations, LLCs and other business entities are not entitled to a discharge.
- Can anyone object to my discharge?
Creditor or the trustee may object to your discharge. Reason for objections include your failure to obey the court’s orders, your fraudulent transfer or destruction of assets, your untruthfulness in your bankruptcy paperwork or your testimony at the Meeting of Creditors hearing, and failure to produce records required by the court. Objections are rare.
- Can all types of debts be discharged?
No, not all debts are discharged. Generally, the following types of debts are not eliminated by bankruptcy: most student loans, debts incurred through fraud, recent taxes, child support and spousal support, debts owed to a former spouse as part of a divorce or legal separation, and debts owed for injuries to another person or property. These debts survive the bankruptcy and must be paid afterwards. If you have any questions about whether a particular debt will be discharged by your bankruptcy, you should consult with your attorney