Because of the impact on homeowner associations and condominium association’s collection efforts, and the unpleasant nature of bankruptcy, there are many questions surrounding the topic. Below are some of the questions we consistently receive from boards of directors on the topic of bankruptcy.

 

What is bankruptcy?

 

Bankruptcy is a federal system of statutes and courts, which permits persons and businesses that are insolvent (debtors) or (in some cases) face potential insolvency, to place his/her/its financial affairs under the control of the bankruptcy court.

 

How does someone qualify to file for bankruptcy?

 

The procedure is that when the debtor’s debts exceed his/her/its assets or ability to pay, the debtor can file a petition with the bankruptcy court for voluntary bankruptcy.

 

What is Chapter 7 bankruptcy?

 

Chapter 7 bankruptcy is when the court appoints a trustee and the current assets are counted up by this trustee (with many of them exempt from bankruptcy). The trustee pays debts to the extent possible with priority for taxes, then secured debts (mortgages or some judgments), and finally unsecured debts. The court then adjudicates (officially declares) the debtor as bankrupt and discharges the unpayable debts to the loss of the creditors. Exempt from sale to pay debts are a portion of the value of a home (equal to a homestead), secured notes that can be kept current, an automobile, tools of the trade, furniture, and some other items.

 

Will a person filing for bankruptcy stop all pending legal actions such as a foreclosure?

 

Filing a bankruptcy petition automatically suspends all existing legal actions even on the eve of trial or judgment or on the day of foreclosure on real property, and it is often used to forestall foreclosure or imposition of judgment. A creditor with a debt secured by real or personal property can petition the court to have the “automatic stay” of legal rights removed and a foreclosure to proceed.

 

How often can a person file for bankruptcy?

 

Upon receiving a discharge in a Chapter 7 or Chapter 11 case, a party cannot be granted a discharge again for eight years. Upon receiving a discharge in most Chapter 13 cases, a party cannot be granted a discharge again for six years.

 

What is Chapter 13? Chapter 11?

 

Chapter 13 is for individuals to work out payment schedules, which is generally more likely to be worthwhile to creditors. Chapter 11 is similar to Chapter 13, but is for businesses. Chapter 11 allows a business to reorganize and refinance to be able to prevent final insolvency.

 

What is a “Stay?”

 

Filing bankruptcy automatically stays (stops) most actions against the debtor or the debtor’s property such as foreclosures, lawsuits, or garnishments. 11 U.S. C. 362. The stay is designed to preserve the debtor’s property and to give the debtor a break from litigation. The stay is neither absolute nor permanent.

 

What is a “Relief from Stay?”

 

One seeking relief from the stay to go forward against a debtor’s property must show the bankruptcy judge, during a hearing, that there is “cause” for the granting of relief because of the debtor failing to keep current post bankruptcy.

 

When relief from stay is granted, it does not remove the property from the estate or grant the creditor ownership of the property. It simply removes the stay and restores the parties to their state law rights and permits the creditor to enforce those rights to the extent that the relief from stay order permits. Thus, if a mortgage holder gets relief from stay, it doesn’t grant the creditor ownership of the collateral, it just frees the creditor to exercise whatever remedies the creditor had outside of bankruptcy.

 

Will a party who files bankruptcy lose everything?

 

No, they will not lose everything they own. However, if a person has a mortgage or a car loan, they must keep making payments to avoid foreclosure or repossession.

 

What debts are NOT wiped out by Chapter 7 bankruptcy?

 

Child support, alimony, government-issued or government-guaranteed student loans, some taxes, and debts incurred as the result of fraud are not subject to discharge.

 

When will people who have filed for bankruptcy be able to reestablish credit?

 

Upon adjudication of the bankruptcy, credit card applications will arrive in short order. The cards will be from subprime lenders that will charge very high interest rates.

 

If married, do both spouses have to file for bankruptcy?

 

Not necessarily. It’s not uncommon for one spouse to have a significant amount of debt in his/her name only.

 

Why do most people file for bankruptcy?

 

Most people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job or a serious illness.

 

Are back taxes through bankruptcy erased?

 

Generally speaking no, however, there is such a thing as tax bankruptcy.                  WDPM

 

 

 

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