The bankruptcy process is designed to help consumers eliminate their debts or repay some or all of them under the protection of the bankruptcy court. Individual consumers most often seek protection under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Both types of bankruptcy have numerous rules about what kinds of debts are able to be discharged, who can file, and what property you can keep. Generally, the type of bankruptcy you file depends on your ability to repay your debts and the assets you are trying to protect.
Chapter 7 is a form of bankruptcy which allows a person to eliminate most debt and get a fresh start on life. Chapter 7 allows you to keep certain of your assets and eliminate most of your debts. The assets you get to keep are called exempt assets. Exempt assets are those items the Federal Government has decided you may keep after the Bankruptcy is over. These items include certain amounts of equity in your home and car as well as most household goods.
A consultation with an experienced bankruptcy attorney is the first step necessary to determine whether a Chapter 7 or Chapter 13 might be the best solution to your financial problems.
Chapter 7 may be recommended if the attorney determines that your net income is less than your allowable living expenses. The key word is “allowable”. If your expenses are excessive based upon certain guidelines, you may not qualify. Chapter 7 is also a good option for people who rent or do not have much equity in their home. Debtors with large amounts of credit card debt, personal loans or medical bills are also good candidates for Chapter 7.
In most consumer cases, all the assets are exempt, and therefore you can keep most assets you own and get rid of what you owe. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to both individuals and married couples. A married couple may file together or only one spouse may file an individual case.
Chapter 13 allows you to stop the foreclosure of your home, stop the repossession of your vehicle, and stop the garnishment of your wages.
You are allowed to keep what you own and eliminate what you owe in a reasonable and stress-free manner. If you are facing foreclosure of your home or repossession of your vehicle(s), Chapter 13 affords the opportunity to establish a repayment plan which allows you between three and five years to cure the problem.
Chapter 13 is essentially a repayment plan for individuals that enables them to make regular payments to the bankruptcy Trustee under a Plan of Reorganization, which allows you to force your creditors to accept a repayment plan you can afford. Any source of income is allowed, including, wages, alimony, child support, social security, disability, or pension income. This income is used in a Chapter 13 to repay anywhere from 10% to 100% of your debt, depending on your income, household expenses, and the type of debt you have.
Chapter 13 can deal with all kinds of debt, secured and unsecured. Secured debt can be included in a Chapter 13 case. What type of debt is secured debt? Most secured debts are familiar: home mortgages, home equity lines of credit, and car loans. These are all liens created by agreement between you and the lender. We can help you set up repayment to those creditors often lowering your monthly payments or reducing interest rates on those debts.
Debts that are not secured, and known as “unsecured debt.” The Chapter 13 plan does not force you to pay unsecured debt in full; it can provide for only fractional payment to unsecured creditors. You pay only the amount of unsecured debt you can reasonably afford to pay. Chapter 13 also permits you time to pay debts that can't be discharged in either type of bankruptcy, such as recent income taxes, property taxes, or student loans.
We suggest that you undertake our Free Bankruptcy Evaluation to explore your options. You do not need to make your decision to file a bankruptcy case at that time, but you do need to know what options you have. We are happy to answer your questions about the bankruptcy process, providing accurate information for your careful consideration.
Please arrive at our office ready with everything you will be asked to bring. You may rest assured that we are ready and qualified to save your home if your act now.
Congress passed The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) on April 20, 2005. The new law became effective on October 17, 2005. These sweeping changes to the Bankruptcy Code were designed to restrict the availability of a discharge in Chapter 7, and to substantially reduce the relief available in Chapter 13. While this was the intention of the law, nothing could be further from the truth.
The bankruptcy laws have changed, but regardless of what you may have heard, bankruptcy is alive and well and is often your best protection against your creditors.
Under the new law, there are far more “hoops” for you to jump through to get a fresh start. The process now requires more accurate budgets to be prepared, more pay stubs provided or proof of income, and copies of recent tax returns. The process also requires attorneys with a higher level of experience and expertise. Your choice of legal representation is more critical than ever. Thav, Gross, Steinway & Bennett, P.C. is the law firm to help you navigate the Bankruptcy quagmire created by Congress.
The most significant change in the new code revolves around something called the “means test.” The means test determines whether a debtor is eligible file Chapter 7, or the length of time a Chapter 13 Plan must run. When applying the means test, the average income over the past 6 months is used, regardless of your present actual income.
Anyone with an income below the median income, adjusted for family size, would be exempt from the means test. For those debtors above the median income, a second complicated calculation is required to determine if the filing of a Chapter 7 case would be considered “substantial abuse” and not allowed.
The new code also contains a provision that requires debtors to obtain what is called a briefing form from an approved credit counseling agency who will then provide a credit counseling certificate before you can file bankruptcy. This is a simple process done over the telephone or Internet from an approved nonprofit budget and credit counseling agency. We will help you do this in our office.
Not necessarily.
Bankruptcy is all about protecting you from your creditors and preserving your assets.
Under Chapter 7, If there is little or no equity in the house (today's fair market value less costs of sale, less payoff balances on all mortgages and other liens), after applying the exemptions you are allowed, you will be able to keep the home as long as you pay the mortgage. Remember, the bankruptcy code provides generous exemptions to protect the equity you do have in your primary residence.
If there is equity we must determine whether the exemptions available
to you equal or exceed the equity in the property. If the equity
is all exempt, you can keep the house, so long as you pay the mortgages.
If the exemption is not sufficient to protect the equity, we must consider
Chapter 13.
A bankruptcy does not relieve the property of the liability for voluntary mortgages or other liens. So, the lender retains the right to foreclose if you don't continue to make your mortgage payments on time.
No. The Bankruptcy Code provides that a debtor filing for bankruptcy can keep certain assets for a "fresh start" by exempting certain property from the bankruptcy estate.
The vast majority of Chapter 7 bankruptcy cases are "no asset" cases, in which the debtors have claimed an exemption in everything they own. In such cases the all assets are kept by the filer and there are then no assets from which to pay creditors.
Yes, you must list all of your debts on your bankruptcy schedules; even debts that are non-dischargeable or secured. This means all your debts, credit cards, students loans, taxes, everything.
Omitting a credit card company from your schedules, because you want to retain the use of the card, does not assure continued access to the card. Most major credit card issuers use a national data base to determine who has filed bankruptcy, independent of the court's notice to them of bankruptcy filings. They routinely cancel cards of everyone who has filed bankruptcy, whether or not a balance is owed.
Yes. While the scope of the discharge varies in each chapter, generally, debts incurred by fraud, intentionally harmful actions, dishonesty, as well as priority taxes, unfiled taxes, domestic support obligations, student loans, criminal fines and restitution cannot be discharged.
Yes. What you must do to keep the car varies depending on whether there is non-exempt equity in the car. If there is no equity in the car, after subtracting any car loan and exemption from the car's present sale value, the bankruptcy trustee will not take the car. As long as you are current on you payments and have full coverage insurance, you may continue making your payments directly to the lender. The lender in a Chapter 7 will then offer you the opportunity to reaffirm/reobligate yourself on the car loan.
If you choose, you can surrender the car and be free of any obligation to pay for it.
If there is equity in the car over and above the value of the exemptions available, we can usually make an offer to allow you buy any unprotected equity from the Chapter 7 trustee.
In a Chapter 13 case you may be able to make up past due payments for your car in your Chapter 13 Plan of Reorganization. If you have been making payments to the same lender for more than 910 days, we may even be able to pay less than you owe for the car and let you keep it.
If you are leasing a car, you will be entitled to assume the lease and keep paying your payment, regardless of the bankruptcy Chapter, as long as you are current with payments.
You can only get a Chapter 7 discharge if a previous Chapter 7 case was filed more than 8 years ago.
You must wait 6 years after the filing of a Chapter 13 to receive a discharge in a Chapter 7 unless the previous Chapter 13 plan has met certain repayment requirements to permit a Chapter 7 case earlier than 6 years from the filing of the prior case.
You can only get a discharge in that Chapter 13 case if the previous Chapter 7 case was discharged more than 4 years ago. If the previous case was also a Chapter 13, two years must elapse between discharge and filing.
It is important to note that the language of new code is not clear with respect to when these time periods start. Some case law suggests that the 2 and 4 year periods start at the time of filing of the previous case.
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