Frequently ASked Questions

What is a Chapter 7 discharge?

It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not released by a Chapter 7 discharge, and some persons are not eligible for a Chapter 7 discharge.

How does filing under Chapter 7 affect lawsuits and attachments that have already been filed against the debtor?

The filing of a Chapter 7 case automatically stays or stops most lawsuits and attachments that have been filed against the debtor. A few days after the Chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the debtor. If the debtor cannot wait this long, it is permissible for him or his attorney to notify one or more of the creditors of the filing of the case. Any creditor who intentionally violates this court order may be liable to the debtor in damages.

May employers or government agencies discriminate against persons who file under Chapter 7?

It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under Chapter 7. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses (including a driver's license), permits, and similar grants because that person has filed under Chapter 7.

Under what conditions should a husband and wife both file under Chapter 7?

Both husband and wife should file if some of the debts to be discharged are owed by both spouses. If both spouses are liable for some of the debts and if only one spouse files under Chapter 7, the creditors often try to coerce the nonfiling spouse into paying the debts, even if he or she has no income or assets.

How does Chapter 13 compare with a private debt consolidation service?

Under Chapter 13, the court possesses powers to aid the debtor that private debt consolidation services do not have. For example, the court has the power to prohibit creditors from attaching or foreclosing on the debtor's property, the power to force unsecured creditors to accept a Chapter 13 plan that does not pay their claims in full, and the power to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.

How may secured creditors be dealt with under Chapter 13?

There are four methods of dealing with a secured creditor under Chapter 13:

(1) they may accept the proposed plan;

(2) they may be allowed to retain their lein and be paid the full amount of their secured claim under the plan;

(3) their collateral may be surrendered to them; or

(4) they may be dealt with outside the plan.

It is important to realize that a secured creditor is considered to have a secured claim only to the extent of the value of their secured interest, which cannot exceed the value of the property securing the claim. For example, if a secured creditor has a mortgage on an automobile, and if the automobile is worth $500, then that creditor has a secured claim for only $500, regardless of how much is owed to them. If the debtor is in default to a secured creditor, the default must be cured (made current) within a reasonable time. Also, interest must be paid on secured debts.

May a self-employed person file under Chapter 13?

A person meeting the eligibility requirements may file under Chapter 13 if their business is not incorporated. A debtor who owns their own business is normally permitted to continue to operate the business during the Chapter 13 case.

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