CHAPTER 7 – LIQUIDATION

Q. Who can file for Chapter 7?
Whether you will be able to obtain a discharge of your debts will depend upon many factors and is subject to federal and state law. Most individuals or businesses who cannot meet their debt obligations may file for Chapter 7 bankruptcy but you should speak to attorney to determine whether your particular situation will be improved by filing for bankruptcy.

Chapter 7 will discharge most unsecured debts such as credit cards or signature loans. Loans secured by collateral such as cars etc. may be able to be retained and payments continue to be made. The collateral may be able to be retained so long as the payments are current.

Other chapters available to you under the bankruptcy code may be preferable or necessary such as Chapters 11, 12 or 13 if you wish to continue in business or are in arrears on real estate payments and wish to bring the loan current over a period of time.

Chapter 13 will require the repayment of some or all of your debt over a 3 to 5 year period depending upon your financial situation.

Q. Can I file for bankruptcy under the new law?
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA) created a means test that requires debtors in bankruptcy to meet maximum income requirements subject to statutory expenses. Individuals whose incomes are above the state median income as determined by the IRS will need to qualify based upon allowable expenses.

Q. Will filing for bankruptcy affect my credit rating?
Filing for bankruptcy will have a severe long term adverse affect on your credit rating.

Q. How do I know whether filing for bankruptcy will improve my situation?
Filing for bankruptcy has numerous advantages and disadvantages and filing will necessarily require some trade offs. An analysis of your situation with the assistance of an attorney should be made to assist you in determining whether to file.

Q. How much does it cost to file Chapter 7 bankruptcy?
Costs and filing fees vary under the different chapters of the bankruptcy code. There is a filing fee of $299.00 imposed by the court for a Chapter 7 bankruptcy and legal fees will vary depending upon the complexity of the case. Most attorneys fees will be in the range of $1000 to $2000 for chapter 7. Very simple cases or more complex cases may fall outside the range. Business bankruptcies will cost more.

Q. Do I need to list all my income, assets and debts?
Yes.

Q. What ifIveve filed for bankruptcy before?
Time frames between filings vary under Chapters of the Bankruptcy Code but you may file a Chapter 7 bankruptcy 8 years after obtaining a discharge in a prior bankruptcy.

CHAPTER 13 – INDIVIDUAL DEBT ADJUSTMENT

How does Chapter 13 work?
Debtors in Chapter 13 keep all of their property, whether or not it is exempt, but they make regular payments on their debts out of the money that they earn after filing the bankruptcy case. These payments must be at least as much as would have been paid to creditors in a Chapter 7 case. The payments are made to a trustee, who distributes the payments to the creditors. The payments are made in regular installments, according to a plan that the debtor draws up (usually with the help of an attorney). The plans last either until the debts are paid in full or until the end of a three- to five-year period. The debtor receives a discharge at the end of the plan. Some kinds of debts that are not discharged in Chapter 7 cases for example, debts arising from fraudulent use of a credit card may be discharged in Chapter 13.

Who can file a Chapter 13 case?
A Chapter 13 case can be filed by most consumer debtors. There are two principal requirements: First, the debtor must have regular income, although this need not be from a job. You only need regular benefit payments or rental income to qualify. Second, the debtor must not have more debt than allowed by the Bankruptcy Laws. Chapter 13 is available only to debtors who do not owe more than $750,000 in secured debt (like home mortgages and auto loans), and more than $250,000 in unsecured debt (like most credit card debt).

Can Chapter 13 stop a foreclosure or repossession from taking place if the debtor is behind in house or car payments?
Yes. Unlike Chapter 7, where the debtor can usually stop a foreclosure or repossession only if the Creditor agrees to a reaffirmation, a debtor in Chapter 13 can provide for car and mortgage payments in the Chapter 13 plan, and the creditor can be required to accept these payments instead of proceeding with foreclosure or repossession.

What can be done if a debtor falls behind in payments after filing a Chapter 13 case?
Debtors who have unexpected financial problems in a Chapter 13 case should immediately consult with their attorneys. It is often possible to deal with changed circumstances by amending the Chapter 13 plan. Also, it is sometimes possible to add to the plan debts that were incurred after the Chapter 13 case is filed, so that they will be discharged with other debts at the completion of the plan. Finally, even after the plan is completed and the debtor receives a discharge in Chapter 13, if unexpected circumstances arise that again make it impossible for the debtor to deal with new bills, the debtor may be able to file another bankruptcy case.

If you get a Chapter 13 discharge, you cannot get a discharge under Chapter 7 for six years. You also cannot get a discharge under Chapter 13 for a period of four years after you obtained a discharge under Chapter 7 or two years after you obtained a discharge under Chapter 13.

Under BAPCPA, debtors must be current with all present Domestic Support Obligations. Otherwise, their Chapter 13 case will be dismissed, leaving the debtor stuck not only with Domestic Support Obligations but also with all other creditors’ claims. State courts will enforce wage deductions of 15% for creditors’ claims and also whatever support obligations have been ordered by the divorce court. A debtor then could easily find more than 50% of his or her disposable income forcibly deducted from each paycheck.

I am behind in my child support, is this a problem?
You must maintain all Domestic Support Obligations, whether to your children or your ex-spouse, current to be eligible for Chapter 13 relief. You cannot, in any event, modify, change, or otherwise affect your Domestic Support Obligations in bankruptcy court. Any relief which you may need because of your changed circumstances must be ordered by the divorce court. It is possible to pay “past” due domestic support obligations through a Chapter 13 plan of reorganization.

NOTICE: The above information was derived from a publication of the Administrative Office of the U.S. Courts on behalf of the Federal Judiciary, entitled “Bankruptcy Basics”. It is provided here for your general information only, and not as legal advice. While the information presented is accurate as of the date of publication (April 2006), it should not be cited or relied upon as legal authority. The above information should not be used as a substitute for reference to the United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy Procedure, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court. Finally, the above information should not substitute for the advice of competent legal counsel.