People who encounter financial difficulties and are unable to pay existing debts often file for bankruptcy. This helps them financially restart. Federal law protects your right to declare bankruptcy. But bankruptcy can be a complicated procedure, and has power to provide both significant help and significant effects on your credit.
To help demystify the bankruptcy process, we’ve put together a list of questions often asked by our clients who are considering filing for bankruptcy. Here are short answers and explanations to several FAQS about bankruptcy in Ohio.
WHAT IS BANKRUPTCY?
Bankruptcy is a legal process a person who cannot pay their bills can use to eliminate their obligation to pay back some or all of their debts. Bankruptcy can immediately stop creditors from seeking to collect debts from a person.
However, there are some limitations to what declaring bankruptcy can do. Bankruptcy will not eliminate debts to “secured” creditors, like those who issue car loans or home mortgages. It cannot discharge other obligations to pay child support, spousal support, criminal fines, and some student loans. It also cannot protect cosigners on loans.
ARE THERE DIFFERENT KINDS OF BANKRUPTCY?
In Ohio, there are four different kinds of bankruptcy an individual can file: Chapter 7, Chapter 11, Chapter 12, or Chapter 13. A person’s ability to file for each can depend on their income, debts, assets, family size, and more. Here are brief explanations of each.
- Chapter 7 Bankruptcy: Also known as liquidation, this is what most people refer to as a financial “fresh start.” A trustee will sell (liquidate) your assets to pay creditors and erase your debts. However, most Chapter 7 bankruptcy cases result in finding the claimants assets are exempt from liquidation.
- Chapter 13 Bankruptcy: This type of bankruptcy is called individual reorganization. It is an alternative to Chapter 7 bankruptcy because it allows claimants to keep their property. However, claimants must also pay back a portion of all of their debt in accordance with a special payback plan.
- Chapter 11 Bankruptcy: This is another kind of reorganization used by individuals and businesses whose debts exceed the limits on Chapter 13 bankruptcy. This can be a very expensive process and is not often used by individuals.
- Chapter 12 Bankruptcy: This is a special kind of bankruptcy available for family farmers. To qualify for Chapter 12 bankruptcy, a person must earn most of their income through family farming operations.
WHAT HAPPENS TO MY CREDIT SCORE WHEN I FILE FOR BANKRUPTCY?
Filing for bankruptcy can seriously and negatively affect a person’s credit score. That’s why it’s important to think carefully about a decision to declare bankruptcy. Credit reports will note bankruptcy filings for up to 10 years.
This does not mean a person who has filed for bankruptcy cannot receive new credit. Lenders will still provide loans to those with bankruptcy on their credit reports. However, many people find that they struggle to secure new loans, have to pay higher interest rates on loans received, or are limited in the amount of loan money they can secure after filing bankruptcy.
CAN I FILE FOR BANKRUPTCY MORE THAN ONCE?
Yes, a person can file for bankruptcy more than once. However, there are limitations on the kinds of bankruptcy and time limitations on filings.
A person cannot receive a Chapter 7 “fresh start” if they have received a Chapter 7 discharge in the previous eight years, or a Chapter 13 discharge in the last six years. Likewise, a person cannot receive a Chapter 13 discharge if they received a Chapter 7 discharge in the last four years or a Chapter 13 discharge in the last two years.
If a person filed for bankruptcy but their petition was denied, they may be able to file again and receive a discharge without any time restrictions, depending on the circumstances.
HOW MUCH DOES IT COST TO FILE FOR BANKRUPTCY?
Unfortunately, this question has no simple answer. The cost of filing for bankruptcy can depend on the type of bankruptcy a person is filing for, their attorney’s fees, how extensive and complex their debts are, and more. Court filing fees start at around $300.
HOW DO I FILE FOR BANKRUPTCY?
The first step in filing for bankruptcy is to file a petition with the bankruptcy court. The federal court system hears all bankruptcy cases. The petition must include a list of the claimant’s assets, their outstanding amount of debts owed to creditors, and other personal information about employment and finances.
The court will appoint a trustee and schedule a hearing upon receiving a petition. The hearing is open to the public and to creditors. Here, the trustee will check all documents for accuracy and ask questions to determine if granting the petition is appropriate.
CAN MY BANKRUPTCY PETITION BE DENIED?
Yes, a petition for bankruptcy can be denied. Filing for bankruptcy does not guarantee a person’s debts will be discharged.
A petition for bankruptcy can be denied for misconduct before or after filing the petition, like destroying or concealing financial records or assets. Lying under oath can also cause a court to deny bankruptcy. Certain debts cannot be discharged, even through Chapter 7 bankruptcy filings.
If you are considering filing for bankruptcy and have questions or concerns, contact the McCleery Law Firm. Our experienced team is ready to offer helpful advice throughout the process.
Nicole Welsh
As an attorney, Nicole believes her primary responsibility is to offer clients advice on a wide range of issues. Some situations present more complex and convoluted fact patterns than others, but she ensures that the advice given is something she would follow herself. Nicole has been practicing law since 2007, and assists clients primarily in the areas of bankruptcy, estate planning, and probate administration. A mother of two and married for 18 years, Nicole’s spare time is filled with playing, officiating, and coaching volleyball for Ignite Volleyball Club in Reminderville, Ohio. She also volunteers with both Girl Scouts and Boy Scouts of America, emphasizing the principles of being prepared and leaving people and places better than found.