Friday, August 3, 2012

Bankruptcy Basics

The New Hampshire Bar Association has recently published on their web site a pamphlet that summarizes answers to basic questions on bankruptcy.

I am providing the link here.

Here's the full print out* below if you don't wish to access the link:

A decision to file for bankruptcy should be made only after determining that bankruptcy
is the best way to deal with your financial problems.
This booklet cannot explain every aspect of the bankruptcy process.  If you still have
questions after reading it, you should speak with an attorney familiar with bankruptcy.

What is Bankruptcy? 
Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills petitions the
court to get legal protection from creditors and to obtain a fresh financial start. Although a
bankruptcy filing is a court proceeding and all documents are signed under oath.  However, in
most bankruptcy cases you do not need to go before a judge.

At the moment your bankruptcy is filed, the automatic stay goes into effect.  The automatic stay
immediately stops your creditors from attempting to collect debts from you in any way, including
phone calls, letters and pending court proceedings.  There are some exceptions to the
automatic stay including criminal or government proceedings or those related to most domestic
relations matters.

Part of the bankruptcy petition is the completion of a Means Test.  The Means Test averages
then annualizes your gross monthly income for the six months prior to filing to determine your
Means Test Income.  If your gross income varies from month to month, your Means Test
Income may not necessary be your actual annual income.  If your Means Test Income is over
the N.H. state median income for a comparable household, you may only be able to file a
chapter 13 reorganization and not a chapter 7.  Median income information can be found at .  If your Means Test Income is over the
state median, you must complete second part of the Means Test which deals with your
expenses.  Based on the results, you may still be able to file a chapter 7.  Most consumers are
able to file a chapter 7 petition.

What Can Bankruptcy Do for Me? 
Bankruptcy may make it possible you to:
ƒEliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of
debts. It is designed to give you a fresh financial start.
ƒ Stop or substantially delay foreclosure on your house or mobile home and allow you an
opportunity to catch up on missed payments.
ƒ In some cases, “strip off” a second mortgage if the value of your home exceeds the balance
on the first mortgage.  
ƒ Prevent repossession of a car or other property, or force the creditor to return property even
after it has been repossessed.
ƒ Stop debt collection calls, harassment, lawsuits, and similar creditor actions.
ƒ Restore or prevent termination of utility service.
ƒ Challenge the claims of creditors who have committed fraud or who are otherwise trying to
collect more than you really owe.
ƒ Actually improve your credit score, as your old debts, defaulted debts, and bad debts are
discharged. What Bankruptcy Cannot Do
ƒ Eliminate child support, alimony, other debts related to divorce, most student loans, court
restitution orders, criminal fines, and some taxes.
ƒ Protect cosigners on your debts. When a relative or friend has co-signed a loan, even though
the debt is discharges as to the debtor in bankruptcy, the cosigner may still have to repay all
or part of the loan.
ƒ Discharge debts that arise after bankruptcy has been filed.
Bankruptcy cannot solve all money problems. If your income is insufficient to pay your mortgage
and other regular bills you may need to consider making significant and painful choices, which
may well include a bankruptcy filing. In addition, there are restrictions upon filing another
bankruptcy proceeding after receiving a discharge.

What Different Types of Bankruptcy Cases Should I Consider? 
There are four types of bankruptcy cases provided under the law:

ƒ Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires a debtor to give up
property, which exceeds certain limits called “exemptions,” so the property can be sold to pay
creditors.  Under the current law, not everyone is automatically eligible to file for chapter 7.

One has to conduct an income-based test called a “Means Test” to determine eligibility for a
chapter 7 proceeding.  If you are not eligible to file chapter 7, you may file chapter 13.

ƒ Chapter 11, known as “reorganization,” is used by businesses and a few individual debtors
whose debts are very large.

ƒ Chapter 12 is reserved for family farmers and fisherman.

ƒ Chapter 13 is called “debt adjustment” or “personal reorganization”.  It requires a debtor to file
a plan to pay debts (or parts of debts) from current income.  Chapter 13 relief is available only
to individuals and married couples who have debts within the debt limits.

A Walk Through of a Typical Bankruptcy Case.
Most people filing bankruptcy will want to file under either chapter 7 or chapter 13.  If you are
married, you may but do not have to, file a joint petition.  If your income is above the median
income for a family the size of your household in your state, you may have to file a chapter 13
case (the 2011 median family income census data for a family of 4 in NH is approximately
$93,186.00; for a 2-person household is $65,751.00 and $55,766.00 for a single person).

All debtors must fill out a “means test” form requiring detailed information about income and
allowable expenses. If the Means Test determines you have income left over at the end of the
month to pay creditors, you may not file a chapter 7 case, and must proceed under chapter 13.

Of course there are always exceptions to this general rule.    
Chapter 7 (Liquidation)
Chapter 7 is what most people are thinking of when the term “bankruptcy” is used. In a
bankruptcy case under chapter 7, you file a petition listing all of your assets and all of your

Even though you are filing bankruptcy, the law allows you to protect certain types of
property through “exemptions.”  If you have property that is not exempt, it may be sold and the
proceeds will be distributed to creditors.  Although every case is different, most cases are “no
asset” cases meaning that all of your property is exempt or protected from the claims of creditors.   If you have a “secured loan”, such as an automobile loan, you may “reaffirm” the

When you reaffirm a debt, it passes through the bankruptcy unaffected.  If however, you
are behind on your mortgage or the value of your automobile is significantly lower than the
outstanding principal on your car loan, a chapter 7 may not be the best option for you and you
should consider a chapter 13.

Chapter 13 (Reorganization)
In a chapter 13 case you file a petition and a “plan” showing how you will pay off some of your
past-due and current debts over three to five years. Importantly, the bankruptcy plan is based
on your available income not the amount of the outstanding debt.  The most important thing
about a chapter 13 case is that it will allow you to keep valuable property—especially your home
and car, as long as you are able to make the payments which the bankruptcy law requires to be
made to your creditors. In most cases, you will be required to make your regular monthly
payments on your mortgage or car loan, plus an extra payment to get caught up on the amount
you have fallen behind. These extra payments are made monthly to a Bankruptcy Trustee as
part of a “plan".

You should consider filing a chapter13 if you:
ƒ Own your home and are in danger of losing it because you are behind on your mortgage;
ƒ Are behind on debt payments, but can catch up if given some time;
ƒ Have valuable property that is not exempt, but you can afford to pay creditors from your
income over time.
ƒ Have income which is above median as determined by the “means test”.
You will need to have enough income in chapter 13 to pay for your necessities and to keep up
with the required payments as they come due, as well as to make payments under the plan.

What Does it Cost to File for Bankruptcy?
The court filing fee for a chapter 7 is $306.  The court filing fee for a chapter 13 is $281.  The
cost is the same for an individual or a married couple.  The court will allow you to pay the
chapter 7 filing fee in up to four installments. If you are unable to pay the filing fee in
installments, and you meet certain financial requirements, you may request that the court waive
the filing fee. If you hire an attorney, you will have to pay the attorney’s legal fees in addition to
the court’s filing fees.

What Must I Do Before Filing Bankruptcy? 
Every debtor petitioning for bankruptcy must receive two budget and credit counseling sessions
from an approved credit-counseling agency.  You must take one of these within the 180 day period before your bankruptcy case is filed. The credit counselor will review possible options
available to you and assist in reviewing your budget. Different agencies provide the counseling
in-person, by telephone, or over the Internet.  To file bankruptcy, you will need to file a
certificate with the court from the agency stating that you received the counseling.  A list of
approved agencies can be found at Using any service other than an
approved agency will not be allowed in the bankruptcy process.

It is usually a good idea for you to meet with an attorney before you receive the required credit
counseling. Unlike a credit counselor, who cannot give legal advice, an attorney can provide
counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for
you, a good attorney will offer a range of other suggestions.

What Property Can I Keep? 
In a bankruptcy case, you can keep all property which the law says is “exempt” from the claims
of creditors. You can choose between state law exemptions or federal law exemptions.
Federal exemptions include:
•  $15,000 equity in your home;
•  $2,400 in equity in your car;
•  $400 per item in any household goods up to a total of $8000;
•  $1,000.00 in jewelry;
•  $1,500 in things you need for your job (tools, books, etc,);
•  $800 in any property, plus part of the unused exemption in your home, up to $7,500;
•  Your right to receive certain benefits such as social security, unemployment compensation,
veteran’s benefits, public assistance, and pensions—regardless of the amount.
You must have lived in New Hampshire for the last two years to use the New Hampshire
exemption laws. New Hampshire exemptions include:
•  $100,000 in equity in your home
•  $4,000 equity in you car
•  Up to $3,500 in household furnishings
•  $5,000 in things you need for your job (i.e. tools, books, etc.)
•  $1,000 in any property plus up to $7,000 of unused other exemptions
•  $500 in jewelry
•  Most retirement plans, social security, unemployment and other public assistance benefits
•  New Hampshire law also protects up to 6 sheep, one hog, one pig, and either a horse a cow
or a yoke of oxen.

The exemption amounts are doubled when a married couple files together.
In determining whether property is exempt, you must keep a few things in mind.   First, property
value is not the amount you paid for it, but what it is worth today. Especially for furniture and
cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

Further, you only need to look at the equity in your property. This means that you count your
exemptions against the full value minus any money that you owe on mortgages or liens. For
example, if you own a $50,000 house with a $40,000 mortgage, you have $10,000 of equity in
your property.  Under New Hampshire exemptions, if the equity is under $100,000, the property
is fully protected.  In this case, the property is fully protected.

What Will Happen to My Home and Car if I File Bankruptcy? 
Although bankruptcy protects the equity in property, you must stay current or propose a plan to
get current on any secured loan such as a mortgage or an automobile loan.  If you file chapter 13, you can take up to five years to catch up on your mortgage or car loan.  In a chapter 7 case,
if you want to keep your secured property, you can reaffirm the loan.  If you reaffirm the loan,
you make an affirmative statement that you will continue to make the monthly payment until the
debt is paid in full.  In both a chapter 13 and a chapter 7, if you do not want to keep your
secured property, you may return it to the lender as full satisfaction of the debt.

Can I Own Anything After Bankruptcy? 
Yes!  Many people believe they cannot own anything for a period of time after filing for
bankruptcy. This is not true. You can keep your exempt property and anything you obtain after
the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life
insurance benefits within 180 days after filing for bankruptcy, that money or property may have
to be paid to your creditors if the property or money is not exempt.

Will Bankruptcy Wipe Out all My Debts? 
Yes, with some exceptions. Bankruptcy will not normally wipe out:
ƒ Money owed for child support or alimony, fines and some taxes;
ƒ Loans obtained by knowingly giving false information to a creditor, who reasonably relied on it
in making you the loan;
ƒ Debts resulting from “willful and malicious” conduct;
ƒ Most student loans, except if the court decides that payment would be an undue hardship;
ƒ If you incur debt shortly before the filing of a bankruptcy, it may be non-dischargeable.
   (Examples of such debts would include a large cash advance or a luxury purchase made with
a credit card, or many large charges to a credit card account);
ƒ Any debt you “reaffirm” will not be dischargeable.

Will I Have to Go to Court? 
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors.”
Although the meeting is at the courthouse and you are under oath, the meeting is not in a
courtroom and not before a judge.  The meeting is conducted by a bankruptcy trustee.  All
creditors are invited to the meeting although creditors rarely attend.  These meetings typically
last under five minutes.  During the meeting, you will be asked about your assets and your
current financial situation.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear
before a judge at a hearing. If you need to go to court, you will receive notice of the court date
and time from the court and/or from your attorney.

What Else Must I Do to Complete My Case? 
After your case is filed, you must complete an approved course in personal finance.  This
course will take approximately two hours to complete. Your attorney can give you a list of
organizations that provide approved courses, or you can check the website for the United States
Trustee program office at In a chapter 7 case, you should sign up for the
course soon after your case is filed. If you file a chapter 13 case, you should ask your attorney
when you should take the course.

Will Bankruptcy Affect My Credit?
Yes, but not for as long as you may think.  Unfortunately, if you are already behind on your bills,
your credit may already be bad. Bankruptcy will probably not make things any worse.
A credit reporting agency (Experian, TransUnion and Equifax) can report a bankruptcy filing on
your credit report for 7-10 years and it is ultimately up to each creditor whether or not to extend
credit to you.  It is important to take the step of updating your debts with all three credit reporting
agencies once you have received your bankruptcy discharge as that will make it easier to begin
rebuilding your credit. And since bankruptcy wipes out your old debts, you are likely to be in a
better position to pay your current bills, and you may be able to get new credit.

What Else Should I know? 
Utility services—Public utilities, such as the electric company, cannot refuse or cut off service
because you have filed for bankruptcy. However, the utility can require a deposit for future
service and you do have to pay bills that arise after the bankruptcy is filed. The deposit can be
up to two months of normal billing; it may be cheaper to pay the utility bill.

Discrimination—An employer or government agency cannot discriminate against you because
you have filed for bankruptcy.

Driver’s license—If you lost your license solely because you couldn’t pay court-ordered
damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers—If someone has co-signed a loan with you and you file for bankruptcy, the cosigner may have to pay your debt. If you file a chapter 13, you may be able to protect cosigners, depending upon the terms of your chapter 13 plan.

Can I File Bankruptcy Without an Attorney? 
Although it is possible to file a bankruptcy case without an attorney, it is not a step to be taken
lightly.   If you do not understand the law or if you fill out the forms incorrectly, you may
unnecessarily lose property or jeopardize your discharge.  If you start a bankruptcy case and
fail to complete it or if you make material mistakes in completing your petition, it may
result in denial of your discharge.

Can I Update my Credit Report without an Attorney after Bankruptcy? 
Yes, all you need to do is send letters to all three major credit reporting bureaus (Experian,
TransUnion and Equifax) alerting them of your bankruptcy and discharge. This step is frequently
overlooked as it is not typically completed by the bankruptcy attorney.  There may be a credit
report updating service in your area that will handle this part of the process for you for a fee.

The law often changes. Each case is different. This pamphlet is
meant to give you general information and not to give you specific legal advice.
Portions of this booklet were adapted from the National Consumer Law Center’s
website at
Revised 6/2012

*It was authored by two colleagues, Mary Stewart and Raef Granger, kudos for their good work!

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