23 Questions to Ask Before Filing Chapter 7

questions to ask before filing chapter 7

Bankruptcy is a daunting decision for many individuals, and you might struggle to decide whether or not it’s the right choice for you. For some people, filing for bankruptcy Chapter 7 allows them to handle their debts better. For others, it won’t really help their situation. That’s why it’s important to consult with bankruptcy lawyers in Tuscaloosa, Alabama before making a decision.

At Eric Wilson Law, we understand that deciding to file Chapter 7 bankruptcy in Alabama can be stressful. That’s why we’re here to answer all the bankruptcy questions you have. Before submitting your bankruptcy petition, it’s a good idea to eliminate any doubts you have about the process. We can help with that. Please call 205-349-1280 or fill out our online intake form today to schedule your free consultation with us.

Does Everyone Qualify for Chapter 7 Bankruptcy?

Unfortunately, no. Not everyone qualifies for Chapter 7, which is also called liquidation bankruptcy. While it does allow qualifying filers to wipe out many different types of debt, not just anyone can qualify.

Here, we list some of the essential requirements for Chapter 7 bankruptcy:

  • Your average monthly income for the past six months must be below the median income for similarly-sized households in your state. Otherwise, you must pass a Chapter 7 means test. The means test calculates whether you have enough disposable income to partially pay off your unsecured creditors. If you fail the means test, don’t fret. You might still qualify for a Chapter 13 bankruptcy.
  • You must not have filed for Chapter 7 in the past 8 years.
  • You must not have filed Chapter 13 in the past 6 years.
  • If you tried to file for either bankruptcy, but a judge threw out your case, you must wait at least 181 days before filing again.
  • You must complete an approved credit counseling course offered by a qualified credit counseling agency within 180 days before filing.
  • If you’re eligible for personal bankruptcy, a judge could still throw out the case. This usually happens if they find that you’re trying to defraud your creditors.

How Much Does It Cost to File Bankruptcy?

This mostly depends on the type of bankruptcy you decide to file. In Alabama, the court filing fee for Chapter 7 is $338. You must pay this fee in full at the time of your filing unless you qualify for a fee waiver.

The filing fee for Chapter 13 bankruptcy is similar. You must pay $310 at the time of filing. Additionally, the court often takes an extra percentage to cover the cost of handling your repayment plan. This percentage ranges from 4% to 10% usually.

Does Filing Bankruptcy Eliminate All Debts?

Unfortunately, bankruptcy is not the end-all-be-all for every type of debt you might have. While you can discharge (get rid of) many types of debt, some are nondischargeable.

Below, we list some common forms of debt that can be discharged through Chapter 7:

  • Medical bills and medical debt
  • Collection agency accounts
  • Charges on credit cards, including late fees
  • Past due amounts on utility bills
  • Attorney fees, aside from alimony and child support
  • Personal loans
  • Student loans (only in circumstances where you can prove undue hardship)
  • Dishonored checks
  • Auto accident claims, except ones involving drunk driving
  • Repossession deficiency balances
  • Unpaid taxes and tax penalties
  • Lease agreement money owed, including past due rent
  • Business debts
  • Social security overpayment
  • Civil court judgments

Will I Lose My Property if I File Bankruptcy?

Fortunately, bankruptcy exemption laws currently in place allow filers to keep the property they need, such as a car for work, furniture, and clothes.

The best way to figure out what you can keep is to speak with your attorney about your state’s exemption laws. There are also federal exemptions to keep in mind. However, Alabama requires that they abide by their state exemptions rather than choose between state and federal exemptions.

Alabama State Bankruptcy Exemptions

Spouses who file jointly can double the exemptions listed below:

  • Homestead Exemption: $16,450 real property or mobile home, not exceeding 160 acres.
  • Motor Vehicle Exemption: None.
  • Tools of the Trade Exemption: Business vehicles, business tools, uniforms, and equipment.
  • Wildcard Exemption: $8,225 of personal property, except salary and wages.
  • Personal Property Exemption: A place of burial, clothing, books, pictures, family portraits, church pews, chairs, table, bedding, bed, stove, cooking utensils, and spendthrift trusts.
  • Retirement Accounts: For teachers, judges, state employees, and law enforcement officers.

There are other more specific exemptions. We recommend speaking with your attorney to see if you qualify for additional exemptions.

What If My Car Has Equity in It? Will I Lose My Car?

This depends on what type of bankruptcy you file. If you have a Chapter 7 case, you will most likely be able to keep your car and protect its full equity. However, neither Chapter 7 nor Chapter 13 will consider any vehicle loans you might have.

Do I Have to Go to Court and See a Judge When I File for Bankruptcy?

In most cases, filers only need to show up to court twice.

The first time involves giving their forms to the bankruptcy court.

The second time involves going to the courthouse for your 341 meeting of creditors. This meeting is very short but very important. It involves your bankruptcy trustee asking you a few questions to ensure that you were truthful on all your forms.

If something goes wrong with your case, you have to go to court again.

Will My Creditors Stop Calling Me if I File Bankruptcy?

Yes. The court issues an automatic stay when filing for bankruptcy, protecting you from creditor calls and harassment. After you file your bankruptcy petition, your creditors will receive a notice about the automatic stay. If they continue to harass you after receiving this notice, they violate the automatic stay. In this case, you may be entitled to compensation for that prohibited behavior.

Does My Spouse Have to File Bankruptcy With Me?

Not necessarily. You can file bankruptcy without your spouse, and many factors can help you decide whether this is the best course of action for you.

Filing without your spouse makes sense in the following situations:

  • The debts are only in your name and not your spouse’s.
  • You and your spouse signed a prenup agreement to keep separate finances.
  • Your spouse is due to receive an inheritance soon.
  • Your spouse also filed for bankruptcy in the past, but they are not yet eligible for another discharge.
  • They might need to file bankruptcy in the future, and you want to preserve their ability to file.

However, some circumstances exist in which you do want to file with your spouse:

  • You have joint debts with your spouse, and they cannot pay off that debt independently.
  • You live in a community state, so you can’t file without including at least part of your spouse’s property.

Should I Withdraw Money From My Bank Account Before Filing for Bankruptcy?

At first, this probably seems like a smart idea. However, taking your money out of your bank accounts in an attempt to hide it from your creditors is a crime known as bankruptcy fraud.

There are a few situations where pulling your money out can be a good move:

  • If you intend to apply for exemptions
  • If you know that the bank intends to freeze your account

No matter your reason for pulling this money out, you should never try to hide it in your bankruptcy case. If you fail to declare it during filing, you could face the grave consequences of bankruptcy fraud.

What Kind of Personal Bankruptcy Should I File?

Once you decide that bankruptcy is the right move for you, you will choose between Chapter 7 or Chapter 13. Below, we include some answers to common questions about bankruptcy for each type.

Chapter 7 Bankruptcy

  • This discharges most types of unsecured debt. Your trustee will sell your significant nonexempt property to repay your creditors.
  • These cases usually take anywhere from three to four months to resolve.
  • Many filers keep a significant portion of their property, except for that used to satisfy their debts.
  • Some higher-income earners may not qualify for Chapter 7.
  • It can temporarily stop foreclosures, but it will continue unless you can get up to date on your mortgage monthly payments.
  • You must pass the means test to qualify for a Chapter 7 bankruptcy petition.
  • Many of these cases are highly complicated, so we recommend speaking with a bankruptcy attorney to help out. However, many people get by without the help of an attorney.

Chapter 13 Bankruptcy

  • In this type of bankruptcy case, you will pay back your creditors either fully or partially through a structured repayment plan.
  • It usually takes anywhere from 3 to 5 years to complete. In the end, you will have most of your remaining unsecured debts discharged.
  • Property is not liquidated when you file for Chapter 13.
  • To file for Chapter 13, you must have a regular income to make monthly payments and pay your creditors.
  • It has no specific income requirement, but your unsecured debts must total below $419,275, and your secured debts must total under $1,257,850.
  • Be sure to hire an attorney for a Chapter 13 repayment plan. These cases tend to be more complicated than Chapter 7, so a bankruptcy attorney can help you greatly.

Can I Keep My Retirement Account?

Yes. Your 401(k) and IRA retirement accounts receive protections from bankruptcy. Unless you have very strange or extraordinary circumstances, your bankruptcy estate generally does not include your retirement accounts. Your trustee will not ask that you take from your retirement accounts to achieve debt relief.

Can I File Bankruptcy If I’m Unemployed?

Yes. You can file a Chapter 13 or a Chapter 7 case while unemployed. Many people find that they only need to file for bankruptcy after they have lost their job. Choosing the right type for your situation is important. It depends on a few key factors, including the amount of your debt, the options available to pay back your debt, and how likely you are to find a new job.

How Long Does a Bankruptcy Case Take?

While it usually depends on the overall complexity of your case, there is a general range of time you can expect from either case type. We list these ranges below:

  • Chapter 7 Bankruptcy: Four to six months.
  • Chapter 13 Bankruptcy: Three to five years. This chapter usually takes much longer than Chapter 7 because of the nature of the case. It is a repayment plan rather than a liquidation, which means you will adhere to a repayment plan to achieve debt relief.

What Assets Can I Keep in Bankruptcy?

This is one of many common bankruptcy questions that we see, and understandably so. When you file, you probably want to be assured that you’ll keep certain valuable or personal assets.

Up to a specific value, you can usually keep the following assets:

  • Motor vehicles, especially those necessary for your job
  • Clothing considered reasonably necessary
  • Household items considered reasonably necessary
  • Appliances in the home
  • Jewelry up to a certain amount, especially if it has significant personal value
  • Pensions or retirement accounts
  • A portion of the equity in your home
  • Tools of your trade or profession, up to a certain amount
  • Public benefits, such as welfare, social security, and unemployment benefits
  • Damages awarded to you in a personal injury verdict or settlement

Will My Credit Be Bad for 8 Years After Bankruptcy?

Perhaps the most unfortunate side effect of filing for bankruptcy is its negative impact on your credit score. Bankruptcies are indeed a public record. However, they do not affect your credit for the rest of your life. The history associated with your Chapter 7 judgment could appear on your report for as long as 10 years.

After a Chapter 13 bankruptcy, you will see it on your credit report for only up to 7 years after your filing date. Therefore, within two to four years of finishing the bankruptcy process, it will fall off your credit report.

Can I Buy a House After Bankruptcy?

Yes, but you’ll need to accomplish a few things first. Before you can hope to get a home loan, you need to receive your discharge from the bankruptcy court. Then, you must wait for a certain period of time. How long you wait depends on the type of bankruptcy you file. We compare the two most common types below.

  • Chapter 7: Wait at least 4 years before you can qualify for a conventional loan. To be eligible for a USDA loan, you must wait 3 years. To qualify for an FHA or VA loan, you must wait 2 years.
  • Chapter 13: Your waiting period, in this case, will depend on how the bankruptcy court handles your case. If they dismiss it, you will wait 4 years from your dismissal date for a conventional loan. If they discharge it, you will wait 4 years from your filing date and 2 years from your discharge date.

Can I Keep My Wedding Ring?

Most bankruptcy cases in most states allow you to keep your wedding ring after you file. Other jewelry, however, is not as protected. To determine whether or not you can keep certain jewelry pieces, we recommend speaking with your bankruptcy attorney.

How Much Debt Do I Need to File Bankruptcy?

You may be wondering how much debt you need to file for bankruptcy. Technically, there is no minimum debt amount you must have before filing. It depends more on the specifics of your circumstances.

Some indicators of when filing for bankruptcy is a good idea include:

  • Whether or not you can pay back your creditors without bankruptcy
  • How willing your creditors are to work with you
  • Whether or not you can discharge the types of debts that you have
  • Other notable circumstances of your case

Is Bankruptcy a Way to Get Rid of Judgments?

Most types of judgments are dischargeable under the Bankruptcy Code. However, those based on fraud are nondischargeable. The automatic stay will halt these collection efforts for other judgments related to your creditors.

Does My Income Affect Whether I Can File for Bankruptcy?

When you start deciding between a Chapter 7 and Chapter 13 bankruptcy, your attorney will ensure that all of your bankruptcy questions are answered. This includes letting you know how your income affects filing. Before you initiate your bankruptcy filing, you will need to pass the means test. This test essentially determines whether you qualify for Chapter 7 or if you should instead file for Chapter 13.

Basically, it is possible to make too much money to qualify for Chapter 7. If you do, you may be able to qualify for Chapter 13.

Can a Judge Reject a Bankruptcy Petition?

Yes. Common bankruptcy mistakes which lead to a judge dismissing your case include the following.

  • You are engaging in bankruptcy fraud, which is illegal. The bankruptcy courts do not take kindly to a falsification of assets. Therefore, any attorney will offer you the legal advice that it is never a good idea to try hiding or concealing property from creditors.
  • You have not provided the court with the proper documentation. To complete your bankruptcy filing, you must provide the court with a series of important financial documents. These documents will demonstrate your financial situation to the court. If you fail to include everything, this could warrant the dismissal of your case.
  • You do not meet the eligibility requirements. Since its reform in 2005, the Bankruptcy Code has outlined strict requirements for eligibility. If you make too much money for your monthly income, you will not be able to file for Chapter 7.

Can My Employer Fire Me for Filing Bankruptcy?

No. This applies to both public and private employers. Federal law prohibits employers from firing employees strictly because they filed for bankruptcies. Additionally, they cannot change any terms of your employment because of your filing status.

Specifically, they cannot do the following:

  • Lower your pay
  • Demote you to a lower position
  • Take certain responsibilities from you

Can I Discharge IRS Debts?

It depends. Certain tax debts are eligible for a discharge, while others are not.

The tax debts that you can discharge include the following:

  • Income taxes
  • You have not committed evasion or fraud
  • The debt is no less than 3 years old
  • You filed a tax return
  • Federal tax liens

Contact Our Tuscaloosa Bankruptcy Attorneys Today

If you’re struggling with debts, student loans, credit cards, attorney fees, and failing to pay your creditors, you might benefit from bankruptcy. You need a fresh start with your finances, and our attorneys are here to answer the common questions you have regarding your case.

The Eric Wilson Law Firm has extensive experience helping clients in filing for bankruptcy and offering qualified legal advice. If you’re considering bankruptcy but have more than a few questions about the process, Eric Wilson Law is here for you.

To schedule a free consultation or for more information about how an attorney can help, please call 205-349-1280. You can also fill out our online intake form.