Bankruptcy Law

Frequently Asked Bankruptcy Law Questions

What is a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is the most common bankruptcy filed by individuals.  The vast majority of people who file a Chapter 7 bankruptcy discharge (eliminate) their debts while they continue to keep all their property.

What are exemptions?
Exemptions are the laws that protect a Debtor’s assets, including your house and vehicle.

If I file for a Chapter 7 bankruptcy will I be able to keep all of my property?
It depends.  A Chapter 7 bankruptcy is called a “liquidation” bankruptcy because if you have any assets that are not “exempt”, a bankruptcy trustee liquidates or sells your property and distributes the proceeds to your creditors.  In Massachusetts, there is an exemption of up to $500,000 of equity in your house and $7,500 of equity in an automobile necessary for the debtor’s transportation or $15,000 of equity if you are 60 years old or older.  However, if you have a mortgage or a car loan, you are required to continue to pay those secured debts in order to keep your house or car.

What is a creditor/debtor?
A creditor is the individual, bank, taxing authority, or other company that is owed money.  A debtor is the person who owes money.

What is secured/unsecured debt?
A secured debt is a loan secured by collateral, like a mortgage or car loan.  The agreement between the bank and the debtor is that if the debtor does not pay the loan the bank will foreclose or repossess the collateral that you agreed would be collateral.  An unsecured debt has no collateral, credit cards, medical expenses and personal loans are all examples of unsecured debts.

What is a Chapter 13 bankruptcy?
A Chapter 13 bankruptcy is a repayment plan.  It lasts from 3-5 years and it is often filed to prevent a foreclosure.  In a Chapter 13 bankruptcy the debtor is able to pay the mortgage arrears over the course of the bankruptcy while at the same time making regular monthly mortgage payments.

What is the means test?
The means test is a mathematical formula used to determine whether a debtor qualifies for Chapter 7.  The test starts by comparing the debtor’s and their spouse’s previous six months of income to the median income for their household size in their state.  If the debtor is above the median income, then there is a more complicated analysis of expenses to determine whether they can pass the means test and file Chapter 7.  If a debtor fails the means test, they will still qualify for bankruptcy, however, they would usually file a Chapter 13 bankruptcy.

What is the automatic stay?
When someone files a bankruptcy case, the automatic stay goes into effect.  It is a law that requires all creditors to stop all collection efforts.  It is the automatic stay that can prevent a foreclosure and can prevent or stop wage garnishments.

What is a reaffirmation agreement?
A reaffirmation agreement is a contract that places the Debtor (person who filed bankruptcy) and creditor (usually a bank) in the same position they were in before the Debtor filed bankruptcy.

Should I sign the reaffirmation agreement? 
That is a complex question that depends on your particular situation.  You should hire an experienced bankruptcy attorney to help you with that decision.