Bankruptcy FAQ
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Q: When should I consider bankruptcy?
A: If any of the following is true, bankruptcy might be your best option:

  • Your debts are high enough, compared to your income, that repaying them in the foreseeable future is unlikely or impossible.
  • Frequent calls from creditors or their debt collectors are causing you stress or aggravation.
  • Your credit score has been badly damaged by missed payments, collection accounts, or lawsuits and realistically cannot be repaired without starting over.
  • A creditor is threatening foreclosure or repossession.
  • A creditor has threatened or started a lawsuit against you.
  • A creditor is garnishing your wages, or is threatening to.
  • A creditor has frozen your bank account, or is threatening to.
You should speak with a lawyer to see if bankruptcy makes sense in your case and what your other realistic options may be.

 

Q: Is it true that you have to have a certain minimum amount of debt to file bankruptcy?
A: No. As long as you’re in a position where you lack the realistic ability to pay off your debts, the actual dollar amounts do not matter.

 

Q: Is it true that I cannot file bankruptcy if I own a house?
A: No, you can still file bankruptcy if you own a house. In the vast majority of cases a person’s house is 100% exempt and is at no risk in a Chapter 7 bankruptcy. In the few cases when a person’s house would not be exempt, they can usually still do a Chapter 13 bankruptcy.

 

Q: Does bankruptcy eliminate all my debts?
A: For most people, yes. However, there are a few kinds of debts that cannot be eliminated in bankruptcy. These include debts for domestic support obligations (child support and alimony); some taxes; student loans in most cases; criminal restitution or punitive fines owed to the government; debts incurred by fraud; debts arising from embezzlement; debts arising from drunk driving; debts arising from willful and malicious injury or destruction of property; in some cases, debts omitted from your bankruptcy paperwork; debts that survived a previous bankruptcy; and a few other rare types of debt. We do our best to make sure that you understand which, if any, of your debts cannot be eliminated before we file your case.

 

Q: What Chapter of bankruptcy should I file?
A: Most people file Chapter 7, but there is no way to be sure which Chapter is best for you until after we have learned all the facts in your case.

 

Q: I want to file bankruptcy, but my spouse doesn’t; what can I do?
A: Married people have the option of filing a joint bankruptcy with their spouse OR filing a single bankruptcy without their spouse. If a married person files a single bankruptcy, that bankruptcy has no legal impact at all on his or her spouse. Note that the spouse’s financial information is still required for a single filing.

 

Q: Is it true that bankruptcy ruins your credit forever?
A: No. First of all, if you’re in a position where you lack the realistic ability to pay off your debts, then bankruptcy may well be the best thing you can do for your credit over the long term. The effect over the short term depends on how bad your credit is to begin with, and can range from really negative to a mildly positive. Second, a bankruptcy can only remain in your credit report for 10 years (that’s 3 years longer than a charged-off account, and 10 years shorter than a New York court judgment). For more information, see our page on how bankruptcy effects your credit.

 

Q: Is it true that I will not be able to get credit for 10 years after bankruptcy?
A: No. While the bankruptcy entry can stay on your credit report for 10 years, with responsible credit use post-bankruptcy, you should be able to rebuild your credit to a respectable score within about two years.

 

Q: Is it true that I will never be able to buy a house if I file for bankruptcy?
A: No. With responsible credit use post-bankruptcy, you should be able to rebuild your credit far enough to qualify for a home loan in about two or three years. In any event, the bankruptcy will be removed from your credit report after 10 years.

 

Q: Will my friends/neighbors/boss find out?
A: Probably not. Court notices only go to you, your attorney, and your creditors; no one else receives an affirmative notice of your bankruptcy filing. Although court records are open to the public, almost nobody ever reads them. For instance, when was the last time you checked if the guy who lives down the street had ever filed bankruptcy? Probably never. Unless your friends/neighbors/boss are very odd people indeed, they probably don’t spend their time reading random court filings either.

 

Q: Can I be fired because I filed bankruptcy?
A: No. 11 USC § 525 prohibits employment discrimination against people who have filed bankruptcy.

 

Q: Will I lose my retirement savings if I file bankruptcy?
A: Generally, no. Most forms of retirement savings are exempt. You should make sure to inform your attorney of your retirement accounts so that the exemption can be properly claimed. Also, the fact that you can eliminate your debts through bankruptcy and keep your retirement savings is a very strong reason why you should never, ever loot your retirement savings to pay off debts.

 

Q: How long does bankruptcy take?
A: A Chapter 7 case is usually finished for all practical purposes when the trustee closes the 341 hearing, usually within 2 to 4 months after filing. Because the bankruptcy judges are very busy, getting the actual discharge order may be delayed several more months. (Don’t worry though, your creditors are forbidden from attempting to collect during this time.) A Chapter 13 case takes 3 to 5 years to complete the payment plan. In both kinds of cases your attorney may recommend that you delay filing your case until a certain deadline passes or your financial situation changes.

 

Q: OK, I’ve decided to file bankruptcy, what should I do now?
A: You should do the following:

  1. Hire an attorney.
  2. Immediately stop using credit cards or otherwise incurring additional debt.
  3. If you have a bank account at a bank that you owe money to, get your money out. (Banks have been known to try to “pull a fast one” in this situation.)
  4. Once your lawyer has explained to you which, if any, of your debts might survive bankruptcy...
    • ...continue paying debts that might survive bankruptcy.
    • ...stop paying debts that won’t survive bankruptcy.
    • ...stop paying debts that you owe to your family and friends, even if you intend to pay them back after bankruptcy.
  5. Make sure to start saving all of your paystubs (and records of income from other sources).
  6. If you are late filing your taxes, file all the tax returns that are past due.

 

Q: I filed for bankruptcy; why are these debt collectors still bothering me?
A: They should not be. When your case is filed, a court order goes into effect that prohibits them from taking any steps to collect from you while the case is going on. Later, when the judge issues a discharge in your case, a permanent court order goes into effect that prohibits them from ever taking any steps to collect. So, the first time it happens, politely notify the collector that you filed for bankruptcy and give them your lawyer’s contact information. If the same collector contacts you again, notify your attorney.

 

Q: What’s the deal with the “educational classes” as part of bankruptcy?
A: These were added when the bankruptcy laws were changed in 2005. You are required to take one class within 180 days before filing, and another no later than 60 days after your 341 hearing. Providers of these courses try to make them as convenient as possible by allowing you to do them over the telephone, internet, etc. Some people find these courses to be very informative and helpful. Others feel that they are a big waste of time. Regardless, you absolutely must do them before the deadlines or your case will be dismissed. If you do your bankruptcy with Muennich & Bussard, LLP, we will put you in contact with the course provider, remind you before the deadlines, and take care of paying for the courses (because the price is already included in our fee).

 

Q: I did bankruptcy before; can I do it again?
A: You must wait 8 years between Chapter 7 bankruptcies. In some cases we may be able to file a Chapter 13 case to provide some limited help to a person who filed Chapter 7 within the last 8 years.

 

Q: Can bankruptcy save my house?
A: Maybe, maybe not. A Chapter 7 can temporarily delay a foreclosure and possibly free up more money to pay the mortgage by eliminating your other debts. A Chapter 13 can do the same, and, in some cases, can also eliminate second mortgages and home equity loans, and, in very rare cases, can even modify the terms of the mortgage itself. Also, in all personal bankruptcy cases before the Southern District of New York (Manhattan and Bronx) and for cases assigned to Judges Craig, Eisenberg, Stong, or Rosenthal in the Eastern District of New York (Queens, Brooklyn, and Staten Island) a Loss Mitigation Program is available that is somewhat similar to mortgage modification. Note that the lender is compelled to attend the Loss Mitigation Program, but not compelled to agree to a modification.

 

Q: I want to do a mortgage modification; will bankruptcy jeopardize my application?
A: Assuming you are talking about the Home Affordable Mortgage Program (HAMP), then the answer is no. Lenders are forbidden by law from denying you a mortgage modification on that ground. However, being in the middle of a modification can make your bankruptcy filing more complicated. Sometimes it is necessary to wait until your modification is approved or denied before a bankruptcy can be filed.

 

Q: Can Muennich & Bussard, LLP help me get a mortgage modification?
A: Probably not. We are deeply disillusioned with the HAMP program; the nationwide success rate is lower than 20%, and it has been our experience that the banks frequently act in bad faith, intentionally “lose” paperwork you submit, and deny applications for ridiculous reasons. Because HAMP does not include a right to sue the banks for this kind of misbehavior, there is not a lot we can do about this. Depending upon your situation, we may have much better luck using second-mortgage stripping in a Chapter 13 bankruptcy and/or the bankruptcy courts’ mandatory Loss Mitigation Program (which is similar to mortgage modification).

 

Q: Do I need a lawyer to file bankruptcy?
A: Corporations and other entities that are not real live people need a lawyer to file bankruptcy. Real live people may file their own bankruptcy if they wish. However, filing your own case without a lawyer’s help may be a very bad idea. You might be able to file a simple case that has no complications without a lawyer’s knowledge and experience, but you generally do need that knowledge and experience to figure out whether you really have a simple case in the first place. If you are even thinking about filing bankruptcy without a lawyer, you should strongly consider purchasing the excellent layman’s how-to book published by Nolo. The books does an excellent job of explaining the simple matters and pointing out when things are looking complicated enough that you will definitely need a lawyer. Note that New York’s exemption laws have changed dramatically since the last edition was published.

 

Q: I went to another lawyer and their prices were much cheaper than yours; why is that?
A: Probably because they did not include the filing fee, debtor education fee, and financial management fee. Muennich & Bussard, LLP’s fee already includes these fees. When comparison shopping, make sure to ask if these fees are included in the price. If not, add about $400 to the price they give you.

 

Q: I’ve heard about these bankruptcy “petition preparers” who are a lot cheaper than lawyers; is it safe to use them?
A: No, it is not safe to use them. Under the law, petition preparers’ services are supposed to be strictly limited to entering the information you provide into the official bankruptcy forms. In other words, they are supposed to be nothing more than a typing service – and an overpriced one at that. What happens in the real world though is that petition preparers routinely engage in the unauthorized practice of law. In addition to being illegal, this can be very dangerous for their customers because petition preparers don’t actually know what the law says, and lack the training and experience to do real legal research or analysis. The consequences of a petition preparer making a mistake are made worse in Chapter 7 cases by the fact that you cannot dismiss your own case unless you can convince the judge that there is a good reason it should be dismissed. (And most judges don’t think “I went to a petition preparer and they screwed it up” is a good enough reason.)

 

Q: Another lawyer told me that he could make the creditors leave me alone starting on the day I paid the first deposit; why can’t you do that too?
A: We can’t compel them to leave you alone until the case is filed, and neither can he. All a bankruptcy lawyer can do pre-filing is send your creditors a notice that you intend to file bankruptcy. These notices often result in creditors giving up and leaving you alone, but that is because most creditors have some common sense, not because the notices have any legal power behind them. We send the exact same notices as the other lawyer, we’re just honest about the limits of what they can accomplish.

 

Q: Why do I have to pay for my bankruptcy in advance?
A: In Chapter 7 cases, your attorney is prohibited from collecting the fee after filing the case, so they must collect it before. Chapter 13 cases are paid part beforehand and part through the payment plan.

 

Q: Do I have to include my favorite credit card in my bankruptcy? Can I keep it and just get rid of the others?
A: No. Bankruptcy is all-or-none.

 

Q: What if I pay off my favorite credit card; can I keep it then?
A: Probably not. Almost all credit card companies will close your account anyway.

 

Q: Can I keep using my credit cards until I’ve finished paying the lawyer and my case is ready to file?
A: ABSOLUTELY NOT! Borrowing money after you’ve decided to file bankruptcy is fraud. Not only can this cause your bankruptcy case to be denied, but it can result in criminal prosecution. Once you’ve made up your mind to file, you must stop using your credit cards immediately.

 

Q: What happens if I forget to include a debt in my bankruptcy paperwork?
A: That depends. If the bankruptcy trustee declares that your case is a “no asset” case (meaning that you have no non-exempt assets which need to be seized and sold), then the debt will usually still be eliminated. However, if your case is an “asset case” (meaning the trustee does end up distributing some money to the creditors), any debts that are left off will survive your bankruptcy. This is why it’s important to notify your attorney if you have any debts that aren’t listed on your credit report. If you realize that you’ve forgotten to include a debt in your paperwork while your case is still going on, your attorney can amend your paperwork and there should be no problem (though you will have to pay an additional filing fee).

 

Q: What happens if I forget to include some property I own in my bankruptcy paperwork?
A: That depends. If you realize that you’ve forgotten to include some property in your paperwork while your case is still going on (or if the trustee discovers the property through an asset search), your attorney can amend your paperwork (though you will have to pay an additional filing fee). If the property can be exempted, everything will be fine. If the property cannot be exempted, and it has significant value, the trustee may seize it. While your attorney may have been able to do something to prevent this if he or she had known about the property before the case was filed, there is very little that can be done post-filing. This is why it is important to make sure that your attorney knows about all of your property before your case is filed. If you don’t realize that you’ve forgotten to include some property in your paperwork until after your case is already closed (and the trustee doesn’t find it with an asset search), it can be a bigger problem. You technically never regain title to property that is not listed in your paperwork (the trustee still owns it) so you can have trouble selling it or asserting your property rights in court. If you intentionally omitted property from your paperwork in order to hide it from the trustee, and that is later found out, your bankruptcy discharge can be revoked and you can be criminally prosecuted for bankruptcy fraud.

 

Q: I own a business; can I still file bankruptcy?
A: Yes. However, there are at least four threshold issues you will want to discuss with your lawyer: First, are these even your debts? Are the debts that are causing you trouble your own personal debts, or debts of an unincorporated business, or debts that you cosigned for an incorporated business? If not, the business may need a bankruptcy or dissolution, but you may be in the clear. Second, if the business is not incorporated and has significant assets, you probably cannot do a Chapter 7 without giving up the business’s assets; a Chapter 13 or 11 may be necessary if you wish to keep the business running. Third, if the business is incorporated, you probably cannot do a Chapter 7 without giving up your stock in the business; a Chapter 13 or 11 may be necessary if you wish to maintain ownership of the business. Fourth, your accounting and tax returns will be subject to significant scrutiny; if they are not on the up-and-up, that is going to come out in the wash.

 

Q: Can my bankruptcy case be denied?
A: While bankruptcy cases can be denied, Muennich & Bussard, LLP does not file bankruptcy cases unless we are certain of their merit. As long as you are honest with us, and honest with the court, you can rest assured that the odds of your case being denied are exceptionally low. Some reasons a case might be denied include:

  • If you lie to the judge, lie to the trustee, include false information on your paperwork, or intentionally omit true information from your paperwork.
  • If you try to hide assets from the trustee by transferring them to other people in anticipation of the bankruptcy.
  • If you can’t or won’t explain what happened to assets you recently owned that aren’t listed in your paperwork.
  • If you refuse to cooperate with the trustee.
  • If you go on a credit card spending spree in anticipation of the bankruptcy.
  • If you engage in lavish spending in anticipation of the bankruptcy that wastes money that could have paid off a significant portion of your debt. (Example: Buying a $10,000 fur coat right before filing while not paying anything towards your debts.)
  • In a Chapter 7 case, if you fail the Means Test.
  • If you fail to file certain paperwork or do the required educational courses by their deadlines.
  • If you miss your court date.
As you can see, most of the reasons a case can be denied boil down to dishonesty and bad behavior. People who approach the bankruptcy process straightforwardly and honestly rarely have to worry about their case being dismissed.

 

Q: Does bankruptcy have tax consequences?
A: Generally no. While forgiven debt is often treated as taxable income for the year during which it was forgiven, debt discharged in bankruptcy is not taxable.