BANKRUPTCY LAW IS A FEDERAL
LAW. THIS SHEET GIVES YOU SOME GENERAL INFORMATION ABOUT WHAT
HAPPENS IN A BANKRUPTCY CASE. THE INFORMATION HERE IS NOT COMPLETE.
YOU MAY NEED LEGAL ADVICE.
English Version [PDF
-119 KB] or, see the text below.
A translated copy of the Bankruptcy
Information Sheet is available in Adobe PDF format
in the several languages.
Please review links in the box to the right:
You File Bankruptcy
You can choose the kind
of bankruptcy that best meets your needs (provided you meet
Chapter 7 – A trustee is appointed to take over
your property. Any property of value will be sold or turned
into money to pay your creditors. You may be able to keep
some personal items and possibly real estate depending on
the law of the State where you live and applicable federal
Chapter 13 – You can usually keep your property,
but you must earn wages or have some other source of regular
income and you must agree to pay part of your income to
your creditors. The court must approve your repayment plan
and your budget. A trustee is appointed and will collect
the payments from you, pay your creditors, and make sure
you live up to the terms of your repayment plan.
Chapter 12 – Like chapter 13, but it is only for
family farmers and family fishermen.
Chapter 11 – This is used mostly by businesses.
In chapter 11, you may continue to operate your business,
but your creditors and the court must approve a plan to
repay your debts. There is no trustee unless the judge decides
that one is necessary; if a trustee is appointed, the trustee
takes control of your business and property.
If you have already filed bankruptcy under chapter 7, you
may be able to change your case to another chapter.
Your bankruptcy may be reported on your credit record for
as long as ten years. It can affect your ability to receive
credit in the future.
What Is a Bankruptcy Discharge
and How Does It Operate?
One of the reasons people
file bankruptcy is to get a “discharge.” A discharge
is a court order which states that you do not have to pay
most of your debts. Some debts cannot be discharged. For example,
you cannot discharge debts for–
- most taxes;
- child support;
- most student loans;
- court fines and criminal restitution; and
- personal injury caused by driving drunk or under the
influence of drugs.
The discharge only applies to debts that arose before the
date you filed. Also, if the judge finds that you received
money or property by fraud, that debt may not be discharged.
It is important to list all your property and debts in your
bankruptcy schedules. If you do not list a debt, for example,
it is possible the debt will not be discharged. The judge
can also deny your discharge if you do something dishonest
in connection with your bankruptcy case, such as destroy or
hide property, falsify records, or lie, or if you disobey
a court order.
You can only receive a chapter 7 discharge once every eight
years. Other rules may apply if you previously received a
discharge in a chapter 13 case. No one can make you pay a
debt that has been discharged, but you can voluntarily pay
any debt you wish to pay. You do not have to sign a reaffirmation
agreement (see below) or any other kind of document to do
Some creditors hold a secured claim (for example, the bank
that holds the mortgage on your house or the loan company
that has a lien on your car). You do not have to pay a secured
claim if the debt is discharged, but the creditor can still
take the property.
What Is a Reaffirmation Agreement?
Even if a debt can be discharged,
you may have special reasons why you want to promise to pay
it. For example, you may want to work out a plan with the
bank to keep your car. To promise to pay that debt, you must
sign and file a reaffirmation agreement with the court. Reaffirmation
agreements are under special rules and are voluntary. They
are not required by bankruptcy law or by any other law. Reaffirmation
- must be voluntary;
- must not place too heavy a burden on you or your family;
- must be in your best interest; and
- can be canceled anytime before the court issues your
discharge or within 60 days after the agreement is filed
with the court, whichever gives you the most time.
If you are an individual and you are not represented by an
attorney, the court must hold a hearing to decide whether
to approve the reaffirmation agreement. The agreement will
not be legally binding until the court approves it.
If you reaffirm a debt and then fail to pay it, you owe the
debt the same as though there was no bankruptcy. The debt
will not be discharged and the creditor can take action to
recover any property on which it has a lien or mortgage. The
creditor can also take legal action to recover a judgment
IF YOU WANT MORE INFORMATION
OR HAVE ANY QUESTIONS ABOUT HOW THE BANKRUPTCY LAWS AFFECT
YOU, YOU MAY NEED LEGAL ADVICE. THE TRUSTEE IN YOUR CASE IS
NOT RESPONSIBLE FOR GIVING YOU LEGAL ADVICE.