Common Bankruptcy Questions and Answers
Q: HOW LONG WILL BANKRUPTCY AFFECT MY CREDIT SCORE?
A: Bankruptcy stays on your credit score for Ten Years. Most other information stays on your credit report for Seven Years. That does not mean you will have ten years of bad credit. After an initial drop in your credit score when you file bankruptcy, most people will see a quick rise in their credit score. Most people are eligible for a car loan within a few months of filing bankruptcy. Most people are able to buy or refinance a home within two or three years after they file bankruptcy.
Q: WHAT DEBTS ARE TYPICALLY DISCHARGED IN BANKRUPTCY?
-“Pay Day” Loans and other Predatory Loans
-Foreclosure/Short Sale Deficiencies
-Judgments (including Debt, Personal Injury and certain other lawsuits)
-Certain Unpaid Taxes and other Penalties
-Old utility Bills
Q: WHAT DEBTS ARE TYPICALLY NOT DISCHARGED IN BANKRUPTCY?
-Taxes that came due within the past 3 years
-Domestic Support Obligations such as Child Support or Alimony
-Court Fines and Criminal Restitution
Q: WILL FILING BANKRUPTCY STOP MY CREDITORS FROM CALLING ME?
A: Yes. When you file for bankruptcy, your creditors are notified that they may no longer attempt to collect from you on any debt. This is what’s known as the “Automatic Stay.” The Stay typically lasts until your debts have been discharged. Once your bankruptcy is completed and you receive your Discharge, your creditors are permanently barred from contacting you about these debts.
Q: WHAT IS THE DIFFERENCE BETWEEN CHAPTER 7 AND CHAPTER 13?
A: Chapter 7 bankruptcy, also known as “liquidation” or “no asset” bankruptcy, is available for debtors who earn less than the median income in Delaware, currently about $62,000 for a household of two. In Chapter 7 you do not make any payments to the Bankruptcy Court, and you can usually keep secured assets such as your car or your home as long as you stay current on those payments. In some cases, if you have too many assets, the trustee can sell some of those assets to pay your creditors. However in most Chapter 7 individual cases in Delaware the debtors are able to protect all of their real and personal property preventing any actual sale by the trustee.
Chapter 13 bankruptcy is usually filed by people who fall behind on their mortgage and are in imminent danger of losing their home due to a foreclosure. The Chapter 13 debtor enters into a payment plan with the Bankruptcy court to catch up on their payments, usually over the course of five years. At the end of the five years they receive a discharge from their unsecured debts and their mortgage and other secured debts are deemed current. Chapter 13 can also be used to address items such as unpaid taxes, car loans, and second mortgages.
Chapter 13 bankruptcy is also used by people who earn more than the median income and are therefore ineligible for Chapter 7. They must file a Chapter 13 plan whereby they pay back a portion of their unsecured debts such as credit cards and medical bills.
Q: IF I DECIDE TO FILE BANKRUPTCY, HOW LONG WILL IT TAKE UNTIL MY DEBTS ARE DISCHARGED?
A: A debtor usually receives a discharge within four months after filing their bankruptcy petition.
Once your bankruptcy petition is filed, the court schedules a “Creditor’s Meeting” which usually takes place about a month after you file your case. After this meeting, there is a 60-day waiting period allowing for creditor objections. If there are no objections, you will be granted a discharge at the conclusion of the 60-day waiting period.
Q: WILL I BE ABLE TO KEEP MY HOUSE AND/OR CAR?
A: You can usually keep your house and your car in a bankruptcy as long as you stay current on your monthly payments. However if you fall behind on your payments, the creditor can repossess the car or foreclose on the house.