FAQs About Bankruptcy
The information on this page will provide you with basic information and answers to some frequently asked questions. However, this information is not legal advice and is not meant to be a replacement for competent legal counsel. There are no two cases alike, and as such, you need legal advice that fits your needs. Van Winkle Legal is here to provide you with the advice you need to face your situation.
Do I really need a bankruptcy lawyer?
Many people have made the mistake of thinking that filing bankruptcy is an easy process and something they can handle on their own. As an Indiana bankruptcy firm, we often receive calls from people who have filed their own bankruptcy proceeding only to realize they are in over their heads. It is important that you have competent counsel to assist you through this difficult and complex process.
Will I qualify for a Chapter 7 bankruptcy?
We will discuss about your income, assets and debts. During our consultation, we will work with you to determine if filing bankruptcy can help you. In order to file a Chapter 7 bankruptcy, you must pass a means test. This test is designed to determine whether you have sufficient funds left over after your necessary living expenses to pay toward your debt. There are time limitations for filing a new bankruptcy case if you have filed a previous bankruptcy.
Our recommendations will be based on the particulars of your situation. It is important to understand that while no two situations are the same, we can normally find a solution to resolve most everyone’s financial problems – even solutions that do not include bankruptcy.
If you do not qualify for a Chapter 7, we will show you the potential benefits of filing Chapter 13. We can also help you to understand your debt settlement options aside from bankruptcy.
Can I discharge my tax debts?
You can discharge federal income tax debt in a Chapter 7 bankruptcy only if all of the following conditions are met:
- The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
- You did not commit fraud or willful tax evasion. If you filed a fraudulent return or willfully attempted to evade paying taxes, such as by not filing your returns or lying about your exemptions, then the taxes will not be discharged.
- The debt is at least three years old. The tax return must have been originally due at least three years before you filed for bankruptcy. For instance, in order to discharge a 2010 tax debt, you must wait to file until after April 15, 2013.
- You filed a tax return. You must have filed a return for the debt you wish to discharge at least two years before filing for bankruptcy.
- You pass the “240-day rule.” The tax debt must have been assessed by the IRS at least 240 days before you file for bankruptcy protection (or must not have been assessed yet). (This time limit may be extended if the IRS terminated collection efforts because of an offer in compromise or a prior bankruptcy filing.)
If you end up filing a Chapter 13 bankruptcy proceeding and meet the above-referenced criteria, your personal tax debts will be treated as a regular unsecured creditor. They will not be entitled to special treatment and will share in any unsecured creditor dividend (usually less than 20 percent of the debt owed). Priority taxes (those that do not meet the above criteria) can be paid over the life of the Chapter 13 plan. However, these priority taxes will need to be paid in full.
Are there certain things I should or should not do if I decide to file?
There are definitely certain things you should or should not do if you are going to file bankruptcy. For instance, if you owe money to a relative, you must not repay that relative before filing. In the eyes of the court, the relative deserves no better treatment than a credit card company. If you pay the relative, you can expect the trustee assigned to your case to pursue that relative to recover the money.
You should notify your counsel before changing jobs, selling property or buying property. You should not dispose of your property by means of gift or concealment. You should not run up debt or incur new debt with the plan to file bankruptcy. The reality is that the do’s and don’ts are too numerous to list here. You should not make any major changes regarding your financial life without first consulting with your bankruptcy attorney.
Will I lose my retirement account if I file bankruptcy?
The vast majority of retirement accounts are protected by the bankruptcy code. You will be able to keep your various retirement accounts assuming they are ERISA-qualified plans. Most plans offered by employers are ERISA-qualified and will, therefore, be an exempt asset. If you have inherited or received a retirement account as part of a divorce proceeding, the answer to the question may require more investigation.
Will I lose all of my property and my house if I file bankruptcy?
The quick answer is no! You will not lose all of your property if you file bankruptcy. Individuals and couples are entitled to exempt a certain amount of property during the bankruptcy proceeding. Those exemptions for individuals are currently: $350 in cash or cash equivalent (also called intangible) assets, such as bank accounts; $9,350 in personal property (home furnishings, jewelry, cars, motorcycles, etc.); and $17,600 in equity in his or her home. The exemptions are doubled when a husband and wife file a joint bankruptcy.
The reality is that most people are able to keep all (or almost all) of their property through the bankruptcy process. It is important to understand that it is possible for someone filing bankruptcy to lose some property. The most common property that can be taken by the court is a portion or all of one’s state and federal income tax refunds for the tax year in which the bankruptcy was filed. It is also important to remember the court will value your property after deducting the amount of any security interest against the property.
Does my spouse have to file with me?
Your spouse is not required to file bankruptcy with you. While your spouse does not have to file with you, his or her income must be taken into consideration by the court if the two of you live together. For that matter, the income of anyone living in your household must also be considered assuming you are functioning as a family unit.
How long will it take me to rebuild my credit?
The answer to this question depends on how you handle your credit after the bankruptcy filing. If you timely pay your debts and keep your use of credit to a reasonable level, you will be able to rebuild your credit in approximately two to three years. It can also be beneficial to your credit score to reaffirm certain secured debts, such as a house or car loan. This will ensure positive reporting to the credit bureaus immediately after your bankruptcy filing.
Does bankruptcy stay on my credit report forever?
No. A bankruptcy filed under Chapter 7 or a dismissed Chapter 13 will remain on your credit for a period of 10 years from the date of filing. A discharged (completed) Chapter 13 bankruptcy generally remains on your credit profile for seven years from the date the case is filed.