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General Bankruptcy Questions and Answers

As bankruptcy attorneys, we get a lot of questions about the bankruptcy process, the different types of bankruptcy, and how bankruptcy offers debt relief and protection from creditors. Here are answers to some of the most common bankruptcy questions we hear:

What Is The Automatic Stay?

The automatic stay is an order issued upon the filing of your petition that orders creditors to cease all collection activities against you. From the second this stay is issued, you are protected by federal law from creditors trying to collect from you. If you have previously filed a bankruptcy case, some restrictions may apply.

What Is The Difference Between Chapter 7 And Chapter 13?

If you want to stop creditor action right away by discharging or wiping out your legal liability for your debts, Chapter 7 may be a solution. Under a Chapter 7 filing, you get to keep your assets – your furniture, clothing, car, and home – within the framework of your allowed exemptions.

If you have a steady income and want to pay off all or part of your debts, you may choose Chapter 13, especially if you have many “secured” possessions or have a lot of equity in your property. Through Chapter 13, you can spread your payments over a period of time up to five years. When you call for your free consultation, we will discuss these things with you and help you decide what is best for you.

When Does Protection Start?

Once you retain us and your case is filed, the law requires creditors to deal with us and leave you alone.

Can Student Loans Be Discharged?

Under a Chapter 13 plan, you can repay your student loans along with the rest of your debts. In Chapter 7, student loans may not be discharged except in “extreme hardship” cases.

What Happens To Guarantors Or Cosigners?

Under Chapter 13, all consumer debt cosigners are protected by the courts.
Under Chapter 7, they are not, and creditors may try to collect the debt from the cosigner. You may, however, sometimes keep the cosigned debts and make the contract payments so that the creditor will not try to collect from the cosigner.

How Does Bankruptcy Affect My Credit Rating?

Chapter 13 and Chapter 7 bankruptcies can stay on your credit report for 10 years. If you do not file, credit bureaus may show negative reports for seven years. If you do file, negative reporting stops immediately. This allows you to begin re-establishing credit faster by keeping auto and other payments current. You may also obtain a “secured” credit card to help re-establish your credit once your case is over.

How Does Bankruptcy Affect Pending Lawsuits?

Pending lawsuits, garnishments, or judgment collections stop immediately when you file your case.

How Are Taxes Treated In Bankruptcy?

Under Chapter 13, you pay most back taxes, without interest, under your plan. Under Chapter 7, secured taxes, such as property taxes, cannot be discharged. Some unsecured taxes, such as income taxes, may be discharged if the taxes are more than three years old, you filed timely, there was no fraud, and the taxes were assessed more than 240 days from the filing of the case.

Can I Prevent Repossession?

Repossession action stops immediately when you file your case.

What About Garnishment Of My Wages Or Bank Accounts?

As soon as you file a bankruptcy petition with the court, it becomes illegal under the automatic stay for creditors to even attempt or continue to garnish your wages or bank accounts.

When Will My Case Be Over?

In Chapter 13, your case will end after you make your last plan payment (usually after 36 to 60 months):

  • You will receive a bankruptcy discharge notice from the court.
  • The trustee’s office will send you a letter.
  • We will also send you a copy of your discharge with a closing letter.

In Chapter 7, your case will end about four to six months after the date of filing:

  • You will receive a bankruptcy discharge notice from the court.
  • We will also send you a copy of your discharge with a closing letter.

More On Chapter 7 And Chapter 13 Bankruptcy

If you have specific questions about either Chapter 7 or Chapter 13 bankruptcy, please see our Chapter 7 FAQ or our Chapter 13 FAQ. To set up a free consultation with an experienced and caring bankruptcy attorney, please call us in Livonia at 734-779-9999 or complete our contact form. We are here to help you. Phoenix Law represents clients throughout southeastern Michigan.