Frequently asked questions

• What is Chapter 7 Bankruptcy?
  Chapter 7 bankruptcy is a process that allows debtors to eliminate certain debts. Upon filing, a trustee is appointed who will examine the debtor's assets and debts and determine if any assets can be sold to satisfy creditors. To discharge these debts, the debtor must file a case with the court, turn over all of his nonexempt property to the trustee, and follow the rules and orders of the court.
• What debts are eliminated Chapter 7 discharge?
  Any debts that aren't specifically excluded by law are eliminated. Debts that are excluded by law include recent Federal taxes, most student loans, child and spousal support payments, and most government fines and penalties. There are many other restrictions as well, but these do not come up very often. Debts are also not dischargeable if the court rules that they were obtained fraudulently. If you are concerned that your debt may not be dischargeable, it is imperative to talk to a qualified bankruptcy attorney. The law regarding dischargeability can be complicated and there are a number of exceptions, so it is worth getting confirmation from a professional before you decide that your case is hopeless. It's also worth noting that for secured debts, such as mortgages and car loans, that while these debts are dischargeable the creditor still has a right to the property. An attorney will help you work with secured creditors.
• What are secured debts?
  These are any debts where the creditor has collateral securing the debt. For instance, in a home mortgage the property itself is used to secure the loan. If the loan is not paid the creditor has the right to foreclose on the property and use the proceeds of the sale to satisfy the debt. Vehicle loans are also usually secured debts, since the creditor can repossess the vehicle. Less common secured debts include retail financing arrangements where the store claims a security interest in the goods sold. This is what you see in ads for furniture stores that offer "No money down! 0% interest! No payments until 2024!" in their TV ads.
• What are unsecured debts?
  This is any debt where the creditor does not have a right to any collateral. These include credit card debts, medical bills, most personal loans, payday loans, and other loans where the debtor has not pledged any specific property as collateral.
• What happens to my property in Chapter 7?
  First, much of your property will be covered by exemptions. The purpose of the bankruptcy code is to give you a fresh start, not to leave you with nothing. Accordingly, the law allows you to exempt certain property from your bankruptcy estate. For example, the Federal exemptions (which are allowed in Pennsylvania) allow you to exempt up to $4,000 for your motor vehicle. Even if you can't cover all of your property with exemptions, it is still unlikely that the trustee will be interested in selling most of your property. Trustees are generally only interested in high-value items that are easy to sell, like cars and real estate, not personal items with little to no value.  
• What happens to my home in Chapter 7? 
  It depends on a number of factors. First, if you're renting, then your lease agreement probably won't be affected by the bankruptcy. If you own your home, then it depends on how much equity you have. Equity is the value of your home in excess of the mortgage debt. In Pennsylvania you can exempt up to $25,150 of equity in your home, double that for a married couple filing jointly. If your equity is less than than amount then, assuming your mortgage payments are up to date, you would simply continue paying as before and your home wouldn't be effected. If the amount of equity is greater than what can be covered by the exemption, you could either pay the trustee the difference between the amount of equity and the exemption amount, or you could allow the trustee to sell the home. If the home is sold you would get a check for the amount of the exemption. It's worth noting that this is a description of what happens in a Chapter 7 only. If you cannot exempt the full value of your equity but you still wish to keep the home, then your attorney will discuss options available under Chapter 13.
• What happens to my car in Chapter 7?
  The bankruptcy rules work pretty much the same way for cars as they do for homes. In Pennsylvania you can exempt up to $4,000 for a motor vehicle (doubled for married couples filing jointly), so if you own your car outright and it is worth less than that you have nothing to worry about. If you are currently making car payments, it depends on how much equity you have in the vehicle. With cars, though, it is much less likely than houses that you have significant equity because cars tend to lose value faster than the payments can make up for. In this case, there are several options. First, you may be able to reaffirm the debt. This means you sign an agreement with the creditor that the loan will survive the bankruptcy. See, the below question on reaffirmations, however, as this is not usually recommended. Second, you may be able to redeem the car for its market value. For instance, if the car is worth $5,000 but you owe $8,000 you would be able to buy it for $5,000 cash. Third, you may surrender the car to the creditor and allow them to exercise their right to sell it. Finally, you may do nothing, and keep making payments to the creditor as though there were no bankruptcy. The creditor may still exercise its right to repossess, but most creditors are reluctant to do so when the debtor is still making timely payments. Motor vehicles are often a sticky subject in bankruptcies so it is imperative to discuss the matter with a qualified bankruptcy attorney.    
• What does the trustee do?
  The trustee's job is to determine if you own any property that is worth selling to satisfy creditors. If that is the case, the trustee will sell the property and distribute the proceeds. Additionally, the trustee has administrative duties, most notably ensuring that dishonest debtors aren't abusing the bankruptcy process. 
• How will bankruptcy affect my credit score?
  In isolation, bankruptcy will have a negative effect on your credit score. Bankruptcies are not, however, filed in isolation by people with perfect credit. Late payments, judgments, accounts in collections, and other consequences of financial problems will have a similarly bad effect on your credit score. Like all negative marks on your credit report, though, its impact diminishes over time. One of the advantages of Chapter 7 is that it allows you to take this hit all at once and begin rebuilding immediately rather than continually suffer the consequences of negative reporting and a high debt-to-income ratio.
• How do I qualify for Chapter 7 Bankruptcy?
  If your income is below the state median income for your family size, you qualify. If your income is above this, however, you still may qualify, but you have to take the means test. This test looks at your income and expenses and tries to determine whether you can afford to make payments under a Chapter 13 payment plan. Some people are concerned that they make too much money to qualify for Chapter 7, but these fears are often unfounded; the test does not require you to be destitute, and people with substantial incomes often qualify.
• What happens after I file?
  After you file, a trustee will be assigned to the case and a 341 meeting will be scheduled. At this meeting, you and your lawyer will meet with the trustee, who will ask you a few simple questions about your bankruptcy. Following this meeting, creditors will have 60 days to file objections. Assuming there are no objections, your discharge will be granted and your case will be closed. 
• What happens at the 341 meeting?
  This meeting is technically called the "meeting of the creditors", but that is a bit misleading as creditors rarely attend; usually the meeting is between you and the trustee, with your lawyer present to handle any complications. The trustee will ask you a few basic questions about your petition. The purpose of these questions is not to grill you about your debts or smoke out a reason to deny the bankruptcy, but to simply make sure that all the information provided in the petition is truthful and that you understand what's going on, as well as to double-check a few things that tend to cause problems. The 341 meeting is often a cause for anxiety among debtors, but this is largely unwarranted. Most meeting last less than 10 minutes and the questions are easy to answer.