Bankruptcy Questions Answered in the States of Maine, New Hampshire, and Massachusetts


"What are exempt assets?"

State and Federal law permit individuals (debtors) to retain certain types and amounts of property when they file bankruptcy. The property debtors can retain is called "exempt property". Exempt property or "exemptions" enable debtors to start over financially with some property after bankruptcy and, hopefully, reduce the likelihood that debtors will be forced into financial trouble in the future.

"Will creditors and bill collectors stop calling me after I file bankruptcy?"

Yes. One of the most important provisions of the Bankruptcy Code is called the "automatic stay". This part of the Code prohibits creditors from calling, writing, suing, or taking any other action against a debtor in an effort to collect a debt. If creditors persist in contacting a debtor after filing bankruptcy, the Court may sanction the creditors by ordering the creditors to pay compensatory and/or punitive damages, plus attorneys fees incurred by the debtor in bringing the matter before the Court.

"Who notifies the creditors that I filed bankruptcy?"

The Bankruptcy Court sends a notice to all creditors listed on your bankruptcy petition, schedules, statements and mailing matrix. You are required to provide the Court with an accurate list of your creditors for the Court to perform this function. The notice alerts the creditors of the bankruptcy filing, invites them to the meeting you have with the Trustee, and instructs them to take no further steps to try to collect their claims against you.

"Must I list all my creditors when I file bankruptcy?"

Yes. It is critical that you list every creditor to whom you owe money when you file. Even if you do not believe you owe the creditor money, but the creditor believes you owe money, you should list the creditor. In listing creditors, it is particularly important to list friends and relatives from whom you borrowed money.

"Can I negotiate a settlement of my debts with creditors without filing bankruptcy?"

Yes, it is possible to negotiate a settlement of debts with creditors, provided that the creditors are willing to work with you. Frequently, however, creditors will not agree to settle your debts because the debt was recently incurred (within the past year), or the creditors will insist upon payment settlement terms which you cannot meet. For example, creditors may require that a settlement be paid in cash immediately upon reaching an agreement with you.

If you do not have access to enough cash to pay the settlement, you may lose the opportunity to settle. Creditors also move accounts from one collection agency to another while they try to collect from you. Simply because you can reach an agreement with one collection agency for settlement doesn't mean you can reach that same agreement with the subsequent collection agency if you are unable to come up with the cash to complete the deal initially.

Finally, creditors who settle with you frequently send you a 1099 form at the end of the year which will label the money you did not pay them in the settlement as income to you. Example: If you owe a credit card company $10,000, and the company agrees to settle with you for $7,000, the company may send you a 1099 form at the end of the year showing that you had income of $3,000. You may have to pay both federal and state income taxes on that income.

"Will my bankruptcy filing be in the newspaper?"

Bankruptcy filings are public records and can appear in the newspaper. However, in the southern part of the State of Maine, the newspapers have not listed bankruptcy filings for the past few years. It is unlikely that your bankruptcy will show up in print.

"What is the effect of bankruptcy on my credit report?"

A bankruptcy filing will appear on your credit reports and remain there for 7 years if you file a Chapter 13 and 10 years if you file a Chapter 7. Notwithstanding the fact that the bankruptcy will be listed, many people find that it is easier for them to obtain credit after they file bankruptcy than it was immediately prior to filing bankruptcy. The reason bankruptcy makes future credit easier to obtain is that bankruptcy stops the continued negative notations on your credit report and permits your positive future credit to stand out more clearly on your reports. This is particularly true if you take the steps to repair your credit reports after your bankruptcy filing, and if you continue to pay for a car loan or mortgage that you had before you filing bankruptcy. Many mortgage companies, when trying to assist someone in getting a home mortgage, will encourage a borrower with less than stellar credit to consider filing bankruptcy to discharge unsecured debt and thereby make it easier to pay for a mortgage.

"How long will it take for me to re-establish my credit after bankruptcy?"

In the past, it took years before a person filing bankruptcy could get credit again for cars or home loans. Today, the credit markets are much more willing to allow a person who just filed bankruptcy to obtain a car loan or mortgage immediately after receiving their bankruptcy discharge. We have had clients who bought new vehicles days after receiving their discharge, and buying houses months after their discharge. Of course, each person's situation is different and future lenders place considerable importance upon the stability of that person's employment and the amount of their income. Another reason why creditors are willing to provide new credit so quickly after an individual files bankruptcy is that you can only file a Chapter 7 once every 8 years. You can file Chapter 13 much more frequently, which is why Chapter 13 can be a safety valve for individuals who experience repeated financial problems.

"What happens if I fail to list a creditor on my bankruptcy schedules?"

You will not be able to discharge that debt if you don't list the debt. This rule applies in both a Chapter 7 and Chapter 13. The Bankruptcy Code requires you to list all of your debts, assets and sources of income.

"Can I add a creditor onto the list if I have missed or forgotten one?"

If you inadvertently leave a creditor off your petition, it can be added by amending the petition to include the debt, provided your case hasn't been closed by court and the trustee hasn't made any distributions to creditors. Amendments are ideally done before the close of your bankruptcy case. Because an amendment is an extra action that our office will have to take, there is a charge for this. If the fee to amend your petition is less than the debt, it probably makes sense to amend your petition to include it. If you don't amend, you will be liable on the debt and your bankruptcy discharge will not protect you from the future collection actions by the creditor. If you realize you left a creditor off your petition after your case is closed, your case can be reopened to add the creditor unless your case was an asset case – meaning the Trustee liquidated assets and paid creditors some amount toward your debts. In these situations, you will be liable for the old debt. There is also a fee to reopen a bankruptcy case once it has been closed.

"What is a discharge?"

The purpose in filing bankruptcy is to eliminate debt. At the end of every bankruptcy that is successfully completed, a debtor receives an order from the Bankruptcy Court known as a “discharge”. The one page discharge order is the paper every debtor seeks through the bankruptcy process. If a debtor files bankruptcy and does not receive a discharge, the experience will probably have been an expensive waste of time since creditors will be able to pursue and collect the bills after the bankruptcy is completed.

"Must I list all my assets when I file bankruptcy?"

Yes. It is very important to list all of your property when you file bankruptcy, no matter what Chapter you file, and no matter where the property is located or the nature of your interest in the property. Your failure to accurately list your property could cause you to lose your right to a discharge, and also cause you to be criminally prosecuted by the U.S. Attorneys Office in Federal Court.

"If I do not want to discharge a debt, may I continue to pay it?"

At the end of a bankruptcy, even if a debt is discharged, you may continue to pay it, if you wish. The discharge simply legally prohibits the creditor from forcing you to continue the payments.

If you have secured debts (such as a house mortgage or car loans), and you wish to retain the house or vehicles, and you file a Chapter 7 bankruptcy, you can enter into a written “reaffirmation agreement” with the creditors that must also be signed by your counsel and approved by the Court. If you reaffirm such debts, they will survive the bankruptcy and you will legally owe the debts, just as if you had never filed bankruptcy with respect to the debts. Bankruptcy Courts are careful about debtors seeking to reaffirm debts because the Court does not want a debtor to stay in debt over his or her head by reaffirming too many secured obligations.

Reaffirmation agreements only apply in Chapter 7. In Chapter 13, retained cars are paid for through the Chapter 13 plan, and house mortgage payments are paid outside the plan (except for past due mortgage area rages, which are also paid through the plan).