Bankruptcy Frequently Asked Questions (FAQ)
Will I lose everything?
Generally, no. Both the Massachusetts and Federal bankruptcy laws provide exemptions that can protect some of your assets. For example, someone that has filed a Declaration of Homestead can exempt $500,000 of the home's value if the home has been owned for at least 1215 days and $136,875 if owned for less than that amount of time. (Other rules also come into play concerning the homestead exemption which can change these timeframes.) There are also exemptions for personal property. Bankruptcy is a method of giving you a second chance; not a punishment that takes away every penny you have.
What are the differences between a Chapter 7 and Chapter 13 bankruptcy?
The short answer is that a Chapter 7 bankruptcy is where all of your assets (except for the exclusion amounts that you are legally entitled to keep) are sold and the money is used to pay your creditors. Any remaining unpaid debt is eliminated. A Chapter 7 bankruptcy is comparatively fast, but gives you the least flexibility if there are certain assets (a home or a car, as examples) that you want to keep.
The short summary of a Chapter 13 bankruptcy is that it is, typically, a 3 to 5 year period where you agree to pay all of your disposable income (the amount above the level that the Court determines that you need to live on) towards a fund that is used to pay off your creditors. As long as you keep paying into this fund as promised, any debt that you didn't agree to continue post-bankruptcy is terminated. Now, why would you agree to continue some debt after the bankruptcy is done? This is where the flexibility of Chapter 13 comes from. In Chapter 13, you can continue to own certain assets if you agree to continue making the debt payments, such as a mortgage on a house or the car payment, after the rest of the bankruptcy is finished. Essentially, Chapter 13 gives you more freedom to pick and choose what you'll get to keep and what debts get eliminated.
Be aware that the bankruptcy laws tend to "favor" having people file Chapter 13 and, in some cases, eliminates the option of filing Chapter 7. Atty. Yankes can help analyze your situation, determine what options you have, and suggest which one makes the most sense for what you want to accomplish.
I recently gave some gifts away. Will I have to get them back?
Maybe, maybe not. It depends upon the situation and whether the Court thinks that the gift was given away in contemplation of bankruptcy and was an attempt to hide the money from your creditors. There are some hard rules, though. Any credit card purchase(s) that total at least $500 (singly or together, as long as it is against the same creditor) for non-essential or luxury goods made within 90 days of filing for bankruptcy will not be discharged. Transfers of properties for below-market value or large cash gifts will also be suspect. Essentially, the bankruptcy rules are designed to give a second chance to those who are honestly in financial trouble. Purposely rearranging your finances to hide money from creditors will likely not work.
Speaking of the Court, how often will I have to go there?
As is often the answer to a bankruptcy question, it depends. For a rather straightforward Chapter 7 filing without non-exempt property and where no single creditor is owed so much money that they want to contest the proceedings, you might only have a single meeting with the Trustee before the bankruptcy is approved. People with very complicated financial situations or large amounts of debt might be in court many times while the creditors argue of the assets and the creditors' relative priorities.
Do we go to the local district court?
No. Bankruptcy cases are done in Federal Court and there are only a few of these in Massachusetts; Boston, Worcester, and Springfield. Serving the greater Boston metro northwest areas, few, if any, of my clients will have to go to Springfield. Whether you'll have to go to Boston or Worcester depends upon where you live.
Who are these "Trustees" that were mentioned earlier?
The Trustees are very important in the bankruptcy process. These are people who scrutinize the bankruptcy filing, confirm the information (which, for a simple Chapter 7 filing, is perhaps the only meeting you'll have to attend), determine if it is fair to all the parties involved and, ultimately, makes an approval / non-approval recommendation to the Judge.