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Bankruptcy – Frequently Asked Questions

Can I be relieved of all my debts if I file bankruptcy?

No. Some debts are not dischargeable in a bankruptcy case. Common examples include:

  • Debts secured by a lien. For example, if you granted your lender a lien to secure repayment of the lender’s loan you used to buy your car, you are probably going to have to repay your lender if you want to keep your car. If you’re willing to give your car back to the lender, the debt could be discharged. But, some liens can be avoided in bankruptcy, so consult an experienced bankruptcy attorney for information on what relief is available to you.
  • Debts for child support and, in most cases (but not all), property settlements in divorces.
  • Debts for some tax liabilities (with some exceptions).
  • Debts incurred by fraud or other intentional wrongful acts.
  • Debts incurred by drunk driving.
  • Governmental fines.

How long will my bankruptcy take?

It depends on which chapter you file.

If you file a Chapter 7 case, after the bankruptcy is filed (that is, not including the time necessary to get the case ready to file), most people will have their discharge and their bankruptcy will be concluded (from their perspective, not necessarily the bankruptcy trustee’s) within 120 to 180 days. But debtors will see relief from lawsuits, debt collectors’ calls and letters and other collection tactics immediately after the case is filed.

Chapter 13 cases usually take between three and five years to complete.

Chapter 12 cases usually take at least three years.

Chapter 11 cases can be resolved in as short as 180 days (in a liquidating case) or, in our experience, as long as five years.

Can I save my house in a bankruptcy case?

Sometimes. If you are delinquent on your house payments and have the cash flow to make your normal monthly payments, plus repay a portion of the delinquent amount, a Chapter 13 bankruptcy might help you save your house. If your house is being foreclosed, however, it is crucial that you have your bankruptcy on file BEFORE YOUR HOUSE IS SOLD AT A SHERIFF’S SALE. If you wait until after your house is sold at the sheriff’s sale, it is very unlikely a Chapter 13 bankruptcy can help you save your house.

Will a bankruptcy stop wage and bank garnishments?

Yes. Whenever any bankruptcy is filed, the moment the case is filed a “stay” (like an injunction) is automatically issued. The stay prohibits creditors from taking action to collect a debt. After the bankruptcy is on file, creditors with pending wage or bank garnishments will have to quickly release them or risk the wrath of the bankruptcy judge assigned to your case.

If my car has been repossessed, can I get it back if I file bankruptcy?

If you act quickly enough (i.e. before your lender has sold the car) and you have sufficient cash flow to make the payments required under the Bankruptcy Code (and those payments are typically lower than the normal monthly payments with your lender), you may be able to retain your car.

What is a “medical bankruptcy?”

There is no such thing. There is no special proceeding under the Bankruptcy Code that allows a debtor with medical debt, as well as other types of debt, to file bankruptcy and only address the medical debt. When a person or entity files bankruptcy, all debt must be included, even debt that is disputed or owed to friends or family members. Typically, however, when a bankruptcy is filed by a person with medical debt, that debt will be discharged.

Can I exclude debt I owe to my friends or family members from my bankruptcy?

No. When a person or entity files bankruptcy, all debt is included and dealt with in the bankruptcy proceeding. You will be signing documents under penalties of perjury stating that you have listed all debt you owe, whether the debt is admitted, disputed or contingent. After the bankruptcy is completed, there is nothing that would prohibit you from repaying friends or family members if you want to.

Can I discharge my student loan debt?

The short answer is it is very difficult to discharge student loan debt in bankruptcy cases filed in Kansas. Most people cannot meet the standard.

The longer explanation is that both federally guaranteed/funded student loans and private student loans are only dischargeable, under current law, if the debtor (borrower) can prove that if the student loan is not discharged, the debtor and the debtor’s dependents will suffer an “undue hardship.” See, 11 U.S.C. §523(a)(8). The phrase “undue hardship” was not defined in the Bankruptcy Code, so the courts were left to determine what it meant. In most jurisdictions, including Kansas, the factors courts developed to determine what constitutes an “undue hardship” are harsh. The Tenth Circuit, where Kansas’s federal courts lie, uses the “Brunner Test,” as do most other jurisdictions across the country, based on a decision made in Brunner v. New York State of Higher Education Services, 831 F.2d 395 (2d Cir. 1987).

Those factors are:
That the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

The debtor must file a lawsuit against the student loan lender in the bankruptcy case and prove these elements by a preponderance of the evidence. Most debtors are unable to do so. Other jurisdictions, including the Eighth Circuit which includes Missouri, have adopted what many consider to be a less strenuous test for determining what constitutes “undue hardship,” known as the “totality of the circumstances test.” So far, while the Tenth Circuit has hinted that the Brunner Test need not be so rigidly applied (see, Educ. Credit Mgmt. Corp, v. Polleys (In re Polleys), 356 F.3d 1302 (10th Cir. 2004)), it is still used in the Tenth Circuit (and therefore, Kansas), making student loans difficult to discharge.

However, with the rising level of student loan debt across the country, several government programs have been implemented and may be useful in dealing with student loan debt. The programs, administered by the United States Department of Education, are income based and allow borrowers of federally guaranteed or funded loans (i.e. they do not apply to private loans) to adjust their monthly payment to fit their income, and in some cases, after a shorter period of repayment, allow the balance of the unpaid debt to be forgiven. So, while student loan debt may not be discharged in bankruptcy, a borrower may get some relief from one of these programs. In fact, some court decisions have questioned how a debtor can meet the requirements to obtain a bankruptcy discharge of student loan debt if the debtors have not first tried to accommodate that debt under one of these programs.

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