Q: How does Chapter 7 liquidation work?
A: In a Chapter 7 case, the debtor must relinquish his or her nonexempt property to a bankruptcy trustee, who then converts the property into cash by selling it and pays the debtor’s creditors from the sale proceeds. In return, the debtor receives a Chapter 7 discharge of certain debts if he or she is eligible for such a discharge, pays the filing fee, completes a personal financial management course and obeys the court’s directives.
Q: Are all debtors automatically eligible for a Chapter 7 discharge?
A: No. A debtor may not be eligible for a discharge under Chapter 7 if he or she has been granted a discharge in a Chapter 7 case within the last eight years. Debtors who engage in certain fraudulent conduct related to the bankruptcy or their financial situation also may not be eligible for discharge. In addition, if the debtor refuses to answer questions or obey orders of the bankruptcy court, the court may refuse to grant a discharge. There is also a “means test” that must be passed before a Chapter 7 can proceed.
Q: May a husband and wife file jointly under Chapter 7?
A: Yes. A husband and wife may file a joint petition under Chapter 7. If a joint petition is filed, only one set of bankruptcy forms is needed and only one filing fee is charged.
Q: Does my spouse have to file for bankruptcy if I do?
A: No. However, the spouse that does not file will not receive the benefits of bankruptcy. In other words, if the non-filing spouse is jointly liable on certain debts, he or she will remain liable for those debts even if the filing spouse benefits from the automatic stay in Chapter 7 bankruptcy. On the other hand, the non-filing spouse will not have bankruptcy noted on his or her credit report.
Q: Can my domestic partner and I file for bankruptcy together?
A: No. If you live with a significant other but are not legally married, you cannot file for bankruptcy together, even if all bills are in both of your names. In such cases, each one of you would have to file a separate bankruptcy petition.
Q: Can employers discriminate against me based on my bankruptcy filing?
A: No. It is illegal for both private and governmental employers to discriminate against a person as to employment because that person has filed for bankruptcy. Your employer also cannot fire you if you file for bankruptcy.
Q: Will bankruptcy stop a wage garnishment?
A: Yes. Some of the money garnished from your paycheck may even be returned to you, depending on how much was garnished and when it was garnished. If your wages are currently subject to garnishment, a Notification of Stay must be mailed to the creditor and your employer in order to stop the garnishment after your bankruptcy petition is filed.
Q: Will filing for bankruptcy help me get rid of debts owed for back taxes?
A: Income taxes may, under certain circumstances, be discharged or reduced if they are at least three years old and the tax returns have been on file for at least two years. You cannot discharge more recent tax debts.
Q: Will creditors stop harassing me if I file for bankruptcy?
A: Yes. When you file for bankruptcy, an “automatic stay,” which stops most collection actions against you, arises by operation of law. However, filing a petition does not stay certain types of actions, and the stay may only be for a limited period. As long as the automatic stay is in place, creditors may not initiate or continue lawsuits against you, garnish wages or contact you demanding payments.
Q: Do I need an attorney to file for bankruptcy?
A: Although you do not legally need an attorney to file for bankruptcy, the bankruptcy laws are complex, and professional help is strongly advised. Competent legal representation can prevent you from experiencing even further financial disasters, such as the loss of your home and other valuable property, as well as set your finances straight for the future.
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