Some Recent Bankruptcy Questions I've Been Asked
"After you file chapter 13, can you start to get some credit like cell phones?"
Yes, if you put the new expense in the plan. Any major new expenses, however, will require permission from the court. Some creditors may not want to extend credit to someone in bankruptcy, but many will. I have seen some cell phone companies just open up a new account for the debtor without even asking the debtor first. This technically violates the automatic stay, but some debtors want to have the new account and keep the cell phone so they don't complain.
"Is there a maximum amount you can earn if you want to file bankruptcy?"
Some types of bankruptcy have debt limits and income ceilings. Others do not. For example, in Chapter 13, under the restrictions found in 11 USC 109(e), the current debt limit is $336,900 in unsecured debt and $1,010,650 in secured debt (usually mortgage and car loan debt). This is tricky because if your house value dropped significantly, the unsecured portion of the mortgage (or a second mortgage) gets counted with the credit card unsecured debt and the combined debt may be higher than the debt limit for a chapter 13 bankruptcy. There is a mathematical calculation called the means test which helps figure out the answer to that question. Even if you make more than the means test "median income" amount for your state, there are often ways to fit someone into some type of bankruptcy.
"Is it fraud if you go into bankruptcy on purpose?"
Almost everyone goes into bankruptcy on purpose. Unless someone files a bankruptcy against you - an involuntary bankruptcy (which is rare) - it's a deliberate choice and a deliberate filing. What I think you are asking is "can you run up your bills on purpose and then file bankruptcy to get rid of them?" The answer to that situation is 'no,' because there is a "good faith" requirement to file bankruptcy. Generally, you can't discharge debts on expensive luxury items you bought just before you filed bankruptcy. Use common sense - do you think someone can take an expensive Hawaiian cruise on their credit card, then go home and file a bankruptcy on that debt? Section 523 of the Bankruptcy Code lists the types of debts that can't be discharged. However, sometimes I can cure that problem in special circumstances; for example, if you got back from vacation and your employer suddenly fired you, it's not bad faith. In many cases you can plan a bankruptcy in advance and do some pre-bankruptcy planning with a lawyer to maximize what you keep, so long as you are not greedy or trying to cheat people. I believe this type of exemption planning and timing a bankruptcy requires a good lawyer to work properly - it's more art than science.
"How do you protect your cash during Chapter 7?"
Put it in your pocket. All states have an "exemption" schedule allowing you to keep things, including money. Generally, the money you make after filing chapter 7 is yours, provided there isn't a sudden increase in income. You can file bankruptcy and keep some things. You can file bankruptcy and make and keep some money after filing.
"What happens if you forget to list taxable income?"
That's really a tax question - but generally, accidentally leaving out income is different from deliberately leaving out income. Do it on purpose and you can go to jail. Do it accidentally, and you owe penalties and interest, and you can still go to jail if the IRS doesn't believe you did it by accident. Not listing income on a bankruptcy can be a real problem. One, it may be used to deny you a discharge. Two, the extra omitted income may screw up your means test. Your schedules are signed under oath. If there is a tax problem, I usually deal with it before the actual bankruptcy filing so I can put accurate numbers on the schedules.
"What about an inheritance in bankruptcy? Is the original total debt due when an inheritance is received during a Chapter 13 plan?"
Inheritance and bankruptcy create a special situation. If you get an inheritance during the plan, the money is considered to be part of your disposable income and will go towards paying your creditors. So make sure your rich relatives stay healthy, or that they give you the money before they die, and you won't have to file in the first place. Bankruptcy is not about cheating your creditors if you can suddenly pay your bills; it's about an honest person who legitimately fell behind in their bill payments and needs court help to reorganize the payment of their debts.
"Can I keep my car in bankruptcy?"
Usually, yes, you can keep your car in bankruptcy, with some exceptions. If you still owe money on the car, you might even be able to reduce the amount you pay back on the car if you bought it more than 2 1/2 years ago. But the court knows you need the car to drive to work, etc., so you can "exempt" (keep) some or all of the value of your car. The monetary value of the car that you can keep varies from state to state and whether they allow federal exemptions or "opt out." This is somethng to discuss with your lawyer in your state.
Some of the answers above may vary from state to state and the law can change based on a single court case, so don't rely on this. This is basic legal information, not formal legal advice. Only a lawyer admitted in your state can give you proper legal advice for your particular situation. See my disclaimer/legal notice link below. Congress says I have to say I'm a debt relief agent - I say I'm a bankruptcy lawyer - I have a higher standard.
