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Bankruptcy FAQs
Most people have heard about bankruptcy, but few truly understand it. If you're considering filing for bankruptcy, you probably have loads of questions. The skilled attorneys at Rapa Law Office, P.C. are here to answer them and help you understand this complex process. We will walk you through some of the most Frequently Asked Questions (FAQs) about bankruptcy.
What Is Bankruptcy?
Bankruptcy is a legal process for individuals or businesses that cannot meet their financial obligations to get a fresh financial start. When you file for bankruptcy, you allow the court to decide how to handle your debts.
Bankruptcy can be initiated voluntarily by the debtor or involuntarily by creditors. There are different types of bankruptcy, each tailored to various financial situations.
Filing for bankruptcy can significantly impact your credit score, but it can also be a vital step toward regaining financial stability.
What Types of Bankruptcy Can I File For?
Let's look at some of the most common types of bankruptcy and how they apply to different financial scenarios.
Chapter 7 Bankruptcy
Often called "liquidation bankruptcy," Chapter 7 involves selling off assets to pay creditors. This type of bankruptcy can clear many types of unsecured debt, like credit card debt and medical bills. It is a quick process and usually completed in a few months.
Chapter 13 Bankruptcy
Also known as "reorganization bankruptcy," Chapter 13 allows you to keep your property and repay your debts over a three to five-year period. This option is ideal if you have a regular income and can commit to a repayment plan. Chapter 13 can also help you avoid foreclosure on your home by catching up on missed mortgage payments.
Chapter 11 Bankruptcy
Chapter 11 is typically used by businesses rather than individuals. It allows a company to continue operations while restructuring its debts and assets. Chapter 11 allows debtors to create a plan to return to profitability while paying off their creditors. Creditors and shareholders can vote on the proposed reorganization plan, which must also be approved by the court.
Chapter 12 Bankruptcy
Chapter 12 is specifically designed for "family farmers" or "family fishermen." It enables these individuals to propose a repayment plan for all or part of their debts over a three to five-year period. It offers unique benefits tailored to the seasonal nature of farming and fishing businesses, making it easier for these debtors to propose workable repayment plans.
Unlike Chapter 11, Chapter 12 has lower costs and fewer hurdles, making it a more accessible option for those in the agricultural or fishing sectors.
What Debts Can Be Discharged?
Bankruptcy can discharge many types of debts, but not all. Here’s a general list to keep in mind:
Dischargeable Debts
Credit card debt
Medical bills
Personal loans
Utility bills
Business debts
Older tax debts
Non-Dischargeable Debts
Student loans
Child support
Recent taxes
Non-Dischargeable Debts
Student loans
Child support
Recent taxes
Alimony payments
Debts for personal injury caused by DUI/DWI
Criminal fines and restitution
Will I Lose My Home if I File for Bankruptcy?
The answer depends on the type of bankruptcy and your specific situation.
Chapter 7: You could lose your home if you have significant equity. However, Pennsylvania has exemption laws that might protect your home.
Chapter 13: You can keep your home if you continue to make mortgage payments under the repayment plan.
Chapter 11: Since Chapter 11 focuses on business reorganization, whether you lose your home will depend on the specific details of your reorganization plan and negotiations with creditors.
Chapter 12: Considering the unique financial structure of farming and fishing businesses, you can generally keep your home by proposing a feasible repayment plan that catches up on missed mortgage payments.
How Does Bankruptcy Affect My Credit Score?
Here are some ways in which filing for bankruptcy will impact your credit score:
Initial impact: Your score will drop, and the bankruptcy can stay on your report for up to ten years.
Rebuilding your credit: You can rebuild your credit over time. Start by paying bills on time and consider a secured credit card.
Loan eligibility: You may find it challenging to qualify for new loans. When you do qualify, you might face higher interest rates due to the increased perceived risk by lenders.
Credit limitations: When you file for bankruptcy, existing credit card accounts will likely be closed, and obtaining new credit will be difficult.
Financial scrutiny: Landlords, insurance companies, and potential employers may review your credit report, and a bankruptcy filing can impact their decisions, potentially affecting your ability to rent an apartment, get affordable insurance rates, or secure a job.
Can I File for Bankruptcy More Than Once?
The answer depends on what kind of bankruptcy you're filing for.
Chapter 7
You must wait eight years from the date of your previous Chapter 7 discharge before you can file again. If you previously received a discharge under Chapter 13, the waiting period is six years.
Chapter 11
There are no specific time limits for filing Chapter 11 bankruptcy again, but successive filings could be subject to increased scrutiny by the courts. Each case is evaluated based on its individual merits and circumstances.
Chapter 12
You need to wait two years after the previous Chapter 12 discharge to file again. This allows family farmers and fishermen to reorganize their debts again if necessary.
Chapter 13
You must wait two years from the date of your previous Chapter 13 discharge before filing again. If you received a prior discharge under Chapter 7, the waiting period is four years.
How Do I Prepare for Bankruptcy?
Preparation is key to a successful bankruptcy filing.
Gather financial documents: This includes income statements, tax returns, and a list of debts.
Financial counseling: You must complete credit counseling from an approved agency before filing.
Consult with an attorney: They can guide you through the process and help you make informed decisions.
Budget analysis: Conduct a thorough analysis of your monthly budget to understand your income and expenses. This will help you identify areas where you can cut back and manage your finances more effectively during the bankruptcy process.
Review asset exemptions: Learn about asset exemptions applicable in Pennsylvania or choose between federal or state exemptions that best protect your assets. Your attorney can help you strategically plan your bankruptcy filing with these exemptions.
What Are Some Need-to-Know Bankruptcy Laws in Pennsylvania?
Pennsylvania has its own laws when it comes to bankruptcy. Here are some key points:
Exemptions: In Pennsylvania, you can choose between federal and state exemptions to protect certain assets from being sold off.
Homestead exemption: Pennsylvania does not have a state homestead exemption, but you can use the federal one to protect your home.
Personal property exemptions: Pennsylvania exempts personal property, such as household goods and clothing, up to certain value limits.
Wage garnishment protections: Under Pennsylvania law, your wages are generally protected from garnishment by creditors. There are exceptions, such as for child support, taxes, or defaulted student loans, but wage garnishment for most unsecured debts is not permitted.
Wildcard exemption: This allows you to protect any asset of your choosing up to a specified dollar amount. This is useful if you have assets that don't fall into other protected categories.
Address Your Questions With a Bankruptcy Lawyer
At Rapa Law Office, P.C., we're proud of our hands-on approach. We know every case is unique, and that's why we create custom strategies for each client. We are here to answer your questions, address your concerns, and create an environment of open and supportive communication.
If you’re in Allentown, Pennsylvania, or the surrounding areas and considering bankruptcy, call Rapa Law Office, P.C. Schedule a consultation today and start your path to financial stability.