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Frequently Asked Questions

Find answers to common questions about personal bankruptcy, Chapter 7, Chapter 13, debt collection, foreclosure, wage garnishment, and other financial concerns.

Bankruptcy Basics

Personal bankruptcy is a legal process designed to help individuals address debts they can no longer reasonably manage. Filing a bankruptcy case generally triggers an automatic stay, which can stop most collection calls, lawsuits, wage garnishments, foreclosures, and repossession efforts while the stay remains in effect.

Depending on the type of bankruptcy and your circumstances, bankruptcy may eliminate certain unsecured debts or provide a structured way to repay them. It may also provide options for addressing overdue mortgage or vehicle payments and creating a more manageable financial path forward.

Bankruptcy does not eliminate every type of debt. Common debts that may survive bankruptcy include domestic support obligations such as child support and alimony, certain taxes, certain student loans, criminal restitution, and some debts involving fraud or other circumstances specified by the Bankruptcy Code.

Student loans may be discharged in some bankruptcy cases when the required legal standard is met. The rules also differ depending on whether a case is filed under Chapter 7 or Chapter 13, so the dischargeability of a particular debt should be evaluated individually.

Personal bankruptcy is not a one-size-fits-all solution. Whether Chapter 7 or Chapter 13 is more appropriate depends on factors such as household income, the type and amount of debt you owe, the equity you have in your property, and your ability to make ongoing mortgage, vehicle, or other secured debt payments.

Chapter 7 may allow qualifying individuals to eliminate many unsecured debts without a long-term repayment plan. Chapter 13 instead uses a court-approved repayment plan, generally lasting three to five years, and may be useful for individuals who need time to catch up on secured debts or protect valuable assets.

The appropriate chapter depends on your specific financial circumstances and goals.

Chapter 7 Bankruptcy

For qualifying individuals, Chapter 7 can provide relief from many unsecured debts such as credit card balances, medical bills, and personal loans. Filing generally stops most collection activity while the automatic stay is in effect, and a successful discharge prevents creditors from continuing to collect debts that have been discharged. Chapter 7 also allows debtors to protect certain exempt property, although nonexempt property may be subject to liquidation. Whether you can keep a particular home, vehicle, or other asset depends on the circumstances of the case and the exemptions available to you.
Eligibility for Chapter 7 depends on several factors, including your income, household size, expenses, debts, and financial circumstances. For many individuals with primarily consumer debts, qualification involves a means test that considers income and certain allowable expenses. Passing the means test does not automatically determine that Chapter 7 is the best option, and additional eligibility requirements may apply. Dennery Law can review your financial situation and help determine whether Chapter 7 or another bankruptcy option may be appropriate.
Possibly. Chapter 7 allows debtors to protect certain property through applicable bankruptcy exemptions. Whether you can keep a particular home, vehicle, bank account, or other asset depends on the value of the property, any liens against it, and the exemptions available in your case. Property that is not protected by an applicable exemption may be subject to liquidation by the Chapter 7 trustee, so your assets should be reviewed carefully before filing.
Filing a Chapter 7 bankruptcy generally triggers the automatic stay, which stops most collection activity while it remains in effect. This can include most collection calls, lawsuits, wage garnishments, and other attempts to collect debts that arose before the bankruptcy filing. Exceptions and limitations can apply, and a creditor may sometimes ask the bankruptcy court for permission to continue certain actions.

Chapter 13 Bankruptcy

Chapter 13 allows individuals with regular income to reorganize debts through a court-approved repayment plan, generally lasting three to five years. Depending on the circumstances, Chapter 13 may allow you to stop most collection activity, address overdue mortgage or vehicle payments over time, and retain property while making payments under the plan. After successful completion of the plan and satisfaction of the applicable requirements, qualifying remaining debts may be discharged.
Chapter 13 allows an individual with regular income to propose a plan for repaying creditors over time, generally over a period of three to five years. The amount paid through the plan depends on factors such as income, expenses, assets, debts, and the types of claims involved. Payments are generally made to a Chapter 13 trustee, who distributes funds to creditors according to the approved plan.

Chapter 13 may provide a way to address past-due mortgage or vehicle payments while protecting property from certain collection actions.

For example, a homeowner may be able to use a Chapter 13 plan to catch up on qualifying mortgage arrears over time while continuing required ongoing payments. The options available for a vehicle depend on the loan, the vehicle, and the circumstances of the case.

Chapter 13 may be appropriate when an individual does not qualify for Chapter 7, needs time to catch up on secured debts, has property that could be at risk in Chapter 7, or has sufficient income to fund a repayment plan. The advantages and obligations of each chapter are different, so the decision should be based on the individual’s income, property, debts, and financial goals.

Homes, Vehicles & Secured Debt

Mortgages and vehicle loans are generally secured debts, meaning the lender has rights in the property securing the loan. Falling behind can therefore create consequences beyond damage to your credit, including foreclosure of a home or repossession of a vehicle.

In some situations, a loan modification, forbearance agreement, refinancing, or another arrangement with the lender may provide a way to catch up. When those options are unavailable or no longer workable, bankruptcy may provide additional tools for addressing secured debt and collection activity.

The earlier you evaluate your options, the more possibilities may remain available.

Potentially. The available options depend heavily on how far the foreclosure process has progressed and your financial circumstances. Possible approaches may include bringing the loan current, modifying the loan, selling the property, or filing bankruptcy. Chapter 13 can be particularly useful in some situations because it allows a debtor to propose a repayment plan that may include catching up on past-due mortgage payments over time. Timing matters. Filing bankruptcy generally creates an automatic stay that stops most foreclosure activity while the stay remains in effect, but exceptions and limitations can apply.
There may be options for addressing a vehicle loan before repossession occurs, including refinancing, negotiating with the lender, or filing bankruptcy. Chapter 13 may allow a debtor to retain a vehicle while addressing amounts owed through a repayment plan. Filing bankruptcy also generally triggers an automatic stay that temporarily prevents most creditors from continuing repossession activity. Because timing and the status of the vehicle matter, anyone facing an imminent repossession should evaluate their options as early as possible.

Lawsuits, Debt Collection & Debt Settlement

Yes. A creditor may file a lawsuit to collect a personal debt. If the creditor obtains a judgment, additional collection remedies may become available, including wage garnishment or liens against certain property. If you receive court papers, it is important not to ignore them. Deadlines apply to responding to lawsuits, and failing to respond may result in a judgment being entered without your defenses being heard. Filing bankruptcy generally stops most pending debt-collection lawsuits through the automatic stay and may ultimately discharge the underlying debt if it qualifies for discharge.
Debt settlement generally involves negotiating with a creditor to accept less than the full balance owed. It can work in some circumstances, but there is no guarantee that every creditor will participate or accept a proposed settlement. If a settlement plan fails, creditors may resume collection activity, including lawsuits and other enforcement efforts. Bankruptcy may then be worth evaluating because filing generally triggers an automatic stay against most collection activity and provides a formal legal process for addressing qualifying debts. Debt forgiveness outside bankruptcy can also have tax consequences in some situations, so the overall financial impact should be considered before choosing a strategy.

In most cases, filing bankruptcy triggers the automatic stay. While the stay remains in effect, most creditors are prohibited from continuing collection calls, lawsuits, wage garnishments, and many other attempts to collect debts that arose before the bankruptcy filing.

There are exceptions, and creditors may sometimes ask the bankruptcy court for permission to continue certain actions. The protection available therefore depends on the type of debt and the circumstances of the case.

Wage Garnishment

There may be several ways to address a wage garnishment depending on the circumstances. A debtor may have grounds to challenge or claim an exemption from a garnishment, and filing bankruptcy generally stops most ordinary creditor garnishments through the automatic stay.

Federal law also limits the amount of ordinary consumer-debt garnishment in many cases. Generally, the maximum is the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed the applicable federal threshold. Different rules apply to certain obligations such as child support, alimony, taxes, and some federal debts.

If you have received a garnishment notice or your wages are already being withheld, acting quickly is important because procedural deadlines may apply.

In some bankruptcy cases, money garnished shortly before the bankruptcy filing may potentially be recovered. Whether previously garnished wages can be recovered depends on several legal requirements, including when the garnishment occurred, the amount involved, and whether the funds can be protected through an applicable exemption. Because recovery is highly dependent on the facts of the case, previously garnished wages should be reviewed with a bankruptcy attorney rather than assuming they will automatically be returned.

Bankruptcy & Divorce

Yes. Bankruptcy can be filed before, during, or after a divorce, but the timing can significantly affect both proceedings.

A bankruptcy filing does not automatically stop the divorce itself, and obligations such as child support and alimony generally remain enforceable. Bankruptcy can, however, affect property and debt issues because property belonging to the bankruptcy estate may need to be addressed before certain assets can be divided in the divorce proceeding.

The best timing depends on the debts, assets, type of bankruptcy, whether one or both spouses intend to file, and the status of the divorce. Because bankruptcy and divorce can directly affect one another, careful coordination may be important.

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Financial challenges can be difficult to navigate alone. Whether you are considering personal bankruptcy or exploring options for your business, Dennery Law can help you understand the path forward and make informed decisions with confidence.

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