Bankruptcy FAQs
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, sometimes referred to as a straight bankruptcy, is essentially a liquidation proceeding. Under Chapter 7 of the bankruptcy code, your non-exempt property is liquidated and the proceeds are distributed to your creditors. In a Chapter 7 Bankruptcy, you receive a discharge on all dischargeable debts typically within four months.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy assists people with regular income who have fallen behind on their bills due to job loss, illness, or large, unexpected expenses. Under Chapter 13 bankruptcy, debtors propose a three-to-five year installment repayment plan to creditors.
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy does not liquidate assets and give debtors a “clean slate.” Rather, Chapter 13 bankruptcy is intended to help people retain their property while gradually catching up on past due balances.
Which Is Better, Chapter 7 or Chapter 13 Bankruptcy?
It depends. Generally speaking, Chapter 7 bankruptcy is better for people who have substantial unsecured debts, such as credit card debt and medical bills. If your income is low, you don't own much property and most of your debts are unsecured, you might want to consider Chapter 7 bankruptcy.
Chapter 13 bankruptcy may be the better option for those who have regular income and non-exempt property they would like to keep.
What Are The Requirements Under The New Bankruptcy Laws?
The new bankruptcy laws favor creditors over debtors and provides additional requirements that must be satisfied in order to file a bankruptcy petition. All bankruptcy applicants must now complete two credit counseling courses (lasting approximately 30 minutes, which can be done over the phone or Internet), and complete a means test that examines your income and debts in detail. It is also necessary to provide a complete picture of your financial status, including permitting us to review your tax returns and banks statements. This level of inquiry is crucial for determining which bankruptcy chapter is best for you.
Do The New Bankruptcy Laws Make It More Difficult To File Bankruptcy And Obtain A Discharge?
Prior to the latest reform of the bankruptcy laws, bankruptcy attorneys conducted their own means test to determine whether someone qualified for either a Chapter 7 or 13. The means test that is now mandated by the bankruptcy code simply standardizes a minimum standard that, if not met, raises a presumption of misconduct. If you do not pass the means test, a presumption arises that you have the ability to repay a portion of your debt.
Moreover, the new bankruptcy law makes it more cumbersome to file bankruptcy. We will request evidence of income, bank accounts and tax returns before filing on your behalf. However, with the advice of your attorney, it is certainly possible to enter into the right bankruptcy chapter that suits your individual needs.
What Is The Means Test?
This means test will help us determine whether you qualify for Chapter 7 or 13. Current monthly income is compared against expenses, and a presumption of abuse arises if, after deduction of such expenses from income, the remaining amount over 60 months is at least the lesser of $10,000 or 25% of general unsecured claims. This presumption may be rebutted if the debtor shows that income and expenses should be adjusted to account for special circumstances and that the adjustments will bring the means test result below the minimum payment thresholds.
We can make this calculation and advise you on allowable expenses that can be used in the calculation.
Is A Debt Counseling Course Required?
To qualify for bankruptcy relief, you must receive a briefing on credit counseling and budget analysis from an approved nonprofit budget and credit counseling agency. To receive a discharge in chapter 7 or chapter 13, you must also attend an approved personal financial management instructional course.
We can set these courses up for you. In some cases, the course can be taken via the Internet.
Can I Keep My Car If I File Bankruptcy?
Under Chapter 13, debtors must repay the entire car loan if they bought a car within 910 days (two and half years) of the bankruptcy filing. For example, assuming you want to keep the car, if you had an outstanding balance of $5000 on a car loan whose blue book value was only $3000, you would be required to pay the entire $5000 balance if the car was purchased within 30 months of filing bankruptcy. To keep your car, you must pay the full loan amount, rather than "strip down" the debt to just the value of the car.
We can make this calculation and advise you on this matter.
Cars are also harder to redeem in Chapter 7 cases, since the law now requires paying the lender the retail replacement value of the car. That value is generally higher than the private sale value that was commonly used under prior law.
We can make this calculation and advise you on this matter.
Will I Ever Be Able To Get Credit Again?
Yes. Chapter 7 or 13 bankruptcy may stay on your credit report for up to 10 years, but it becomes less significant with each year that passes. Your bankruptcy attorney will suggest some proven methods of increasing your credit scores after your bankruptcy is discharged.
Can I Discharge My Student Loans and Alimony Through Bankruptcy?
No, except in very rare situations, certain debts such as support payments, government funded student loans, and taxes are not dischargeable in bankruptcy.
What Documents Do I Need For My Initial Consultation?
- Driver’s License
- Social security card or other proof of social security number
- Pay stubs for the previous eight (8) weeks
- Tax returns for the last two years
- Most recent bank account statement(s)
- Most recent retirement account statement(s)
- List of monthly expenses
- Life Insurance policy(ies)
- Copy of Homeowner’s insurance policy (Chapter 13 only)
- HUD Settlement Statement (if any real estate sold within the past four (4) years)
- Any credit card statements in your possession
- Any medical bills or other bills in your possession