Chapter 7 and Chapter 13
Dealing with mountains of debt, phone calls from collection agencies, and wondering how the situation will ever change is not something any of us want to go through.
Sometimes we need a fresh start.
Whether it be due to a job loss, medical bills, behind on your mortgage or car payment, or simply high credit card debt, it's important that you speak with an attorney about what your options are.
We will go over your financial situation, examine the biggest concerns, and develop solutions tailored to your individual situation.
The important thing is choosing the kind of Bankruptcy that best meets your needs.
The two most common types are Chapter 7 and Chapter 13.
Each have advantages, and both can offer powerful tools depending on our particular financial situation (as well as if we qualify).
A brief overview:
Chapter 7 Bankruptcy:
A Trustee is appointed by the Court to take over your property. Any non-exempt property of value will be sold and turned into money to pay your creditors (known as “liquidation” of your property).
You may be able to “exempt” most or all of your property and remove it from the Bankruptcy estate, depending on the available exemptions in your case.
Any property of the estate that cannot be exempted will be subject to liquidation by the Chapter 7 Trustee (including extra vehicles, boats, trailers, money in a bank account, etc…).
Chapter 13 Bankruptcy:
You can usually keep your property, but you must earn wages or have some other source of regular income (e.g. family contribution), and you must agree to pay part of this income to your creditors.
If you are a W-2 employee, your payment will be deducted from your checks — pursuant to a Court Order — and your employer will be required to submit the payment to the Trustee on your behalf.
The Court must approve your Repayment Plan as well as your budget.
A Trustee will be appointed and will collect he payment from you, then pay your creditors, and ensure that you comply with the terms of your Repayment Plan.
A Chapter 13 Bankruptcy is a powerful option if you don't qualify financially for a Chapter 7, or if you have multiple pieces of property that you wish to keep, while, at the same time, possibly being able to avoid paying a large percentage of any unsecured debt (i.e. credit cards, etc.) at the same time.
FREQUENTLY ASKED QUESTIONS:
What assets can I keep in a Chapter 7 bankruptcy?
Many times a person is able to keep most, if not all, of the property that they’d like to keep.
This usually includes your house and your vehicle.
It also includes most of your personal property, since you’re able to protect it using the exemptions available under the bankruptcy laws.
If, in a rare case, you happen to have more assets that can be protected under the exemptions (and would inevitably be taken by the trustee and sold in order to pay pack some of your creditors) your attorney will probably advise you not to file Chapter 7 bankruptcy at that time.
In other words, you’re going to know exactly where you stand in terms of keeping your property way before you actually file the bankruptcy petition.
Do my debts have to be in collections in order to qualify for a Chapter 7 bankruptcy?
Not necessarily. For example, let’s say you are making the minimum payments on all of your unsecured debt (credit card bills, medical bills, personal loans, etc…) but if you’re doing it at the expense of short-changing your “reasonable and necessary” living expenses, you may still qualify.
Don’t assume you won’t qualify for a Chapter 7 bankruptcy simply because you’ve been able to barely make it — but make it nonetheless — up to this point.
If I’m on Social Security do I need to worry about having too much “disposable income” to qualify for Chapter 7 bankruptcy?
You needn’t worry at all.
As a matter of fact, Social Security recipients have a legal exemption to the “no disposable income” requirement (as long as you also don’t have other sources of non-exempt income like, theoretically, another job where you earn significant additional income).
If you fit into the category of only having Social Security income then you can simply save all of that income instead of using it to pay off old debt — like credit cards or personal loans (while you’re simultaneously still paying your necessary living expenses).
What's the Process of Going Through a Bankruptcy?
Let’s dispel a couple of myths right off the bat:
(1) Rarely does anybody ever actually have to go to Bankruptcy Court,
(2) There are no “bankruptcy trials” in front of juries that you’ll need to worry about,
(3) Once the bankruptcy is filed by your attorney there’s typically only one meeting that you and your attorney will need to attend — and that meeting is with the trustee assigned to your case and lasts approximately 10 minutes.
Let’s now talk about gathering up all of the necessary documents and filling out the paperwork before you file the bankruptcy petition — this is where the real work is done.
You and your attorney will spend time determining your financial situation by going over your budget, your expenses, your income, and determine what assets you have (and want to keep).
In order to do this you’ll need to do some “homework” on the front-end of this process so your attorney will be able to make it easier on the back-end.
Here’s how it will typically work:
(1) You’ll fill out paperwork (it’ll seem like a lot — because it is — but there’s a method to the madness) so your attorney has the correct information to draft the petition and get your case on file,
(2) You’ll pay your legal fees and filing fees,
(3) You’ll complete a “credit counseling” requirement (this was part of the 2005 Bankruptcy Reform laws) that must be completed before the court will allow the case to be filed (this can be completed either online or on the phone),
(4) You and your attorney will review the bankruptcy paperwork that’s been prepared, check it for any errors or omissions, then you’ll sign it,
(5) Your attorney will then file your case electronically with the court and you’ll get a case number immediately — upon which all of the collection attempts by creditors, pending lawsuits, and foreclosure proceedings should stop as soon as the creditors receive notice from the bankruptcy clerk’s office.
Again, the time-consuming work will typically be gathering the information that your attorney needs.
You may initially wonder why the “questionnaire packet” you receive from your attorney asks so many questions that seemingly don’t have anything to do with your particular case.
One of the primary reasons is that once you officially file the bankruptcy petition the courts won’t simply allow you to keep repeating the process over and over until you get it right (you run the risk of having the entire case dismissed and having to wait months, if not years, to re-file), so it’s vital that your attorney have “too much” information (rather than too little) — in case there are some exemptions that will be to your benefit.
Remember, a good bankruptcy lawyer will look at this as a journey that both of you are taking together.
Call the Lindamood Law Firm and schedule your free consultation to develop options tailored to your particular financial situation.