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Frequently Asked Questions
Chapter 7 Bankruptcy
WHAT IS A CHAPTER 7 BANKRUPTCY CASE AND HOW DOES IT WORK?
The bankruptcy code is a federal law that deals with bankruptcy. A person who files a Chapter 7 case is called a debtor. A Chapter 7 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under Chapter 7 of the bankruptcy code. Chapter 7 is that part of the bankruptcy code that deals with liquidation. In a Chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee. The trustee then converts the property to cash and pays the debtor’s creditors. In return, the debtor receives a Chapter 7 discharge, if he or she pays the filing fee, is eligible for the discharge, and obeys the orders and rules the bankruptcy court.
WHAT IS A CHAPTER 7 DISCHARGE?
It is a court order releasing a debtor from all of his or her dischargeable debts, and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is a debt that the debtor is released from and does not have to pay.
HOW DOES A PERSON OBTAIN A CHAPTER 7 DISCHARGE?
A Chapter 7 discharge is obtained by filing and successfully completing a Chapter 7 bankruptcy case and being eligible for a Chapter 7 discharge. However, not all debts are discharged by a Chapter 7 discharge. Certain types of debts are, by law, not dischargeable under a Chapter 7. Debts of this type will not be discharged even if the debtor receives a Chapter 7 discharge.
WHO IS PERMITTED TO FILE A CHAPTER 7 CASE?
Any person who resides in does business in or has property in the United States is permitted to file a Chapter 7 bankruptcy case, EXCEPT a person who is intentionally dismissed a prior bankruptcy case within the last 180 days. To be permitted to obtain a Chapter 7 bankruptcy case a person must qualify for Chapter 7 relief under a process called means testing.
WHAT IS MEANS TESTING?
Means testing is a method of determining a person’s eligibility to obtain a Chapter 7 case. Under means testing, if a person’s average monthly income over the previous 6 months, from all sources, multiplied by 12, exceeds the median annual income, as reported by the US Census Bureau, for the person’s state and family size, then a rebuttal presumption of abuse arises. We recommend filing a Chapter 13 at that point.
WHAT TYPES OF DEBTS ARE NOT DISCHARGEABLE UNDER BANKRUPTCY LAW?
All debts are dischargeable EXCEPT specific debts protected by law. The most common protected debts are:
Most Tax Debts
Debts incurred via fraud
Debts not listed on the Chapter 7 list of creditors
Debts for Fraud embezzlement or larceny
Debts for Domestic Support
Debts for intentional injury to a person or property
Student loan debt
Debts for injury due to DUI
Debts that were or could have been listed in a previous bankruptcy and discharged, but weren’t
MAY A HUSBAND AND WIFE FILE JOINTLY UNDER CHAPTER 7?
Yes. Only one petition and filing fee is needed, however BOTH husband and wife must complete the required credit counseling and financial management courses.
HOW DOES THE FILING OF A CHAPTER 7 CASE BY A PERSON AFFECT COLLECTION AND OTHER LEGAL PROCEEDINGS THAT HAVE BEEN FILED AGAINST THAT PERSON IN OTHER COURTS?
The filing of a Chapter 7 case by a person automatically suspends virtually all collection and other legal proceedings pending against that person, this is known as an automatic stay. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable in damage to the debtor. Criminal proceedings and actions to collect domestic support from exempt property or property acquired after the Chapter 7 case was filed are NOT affected by the automatic stay.
HOW DOES FILING A CHAPTER 7 AFFECT A PERSON’S CREDIT RATING?
It depends. Sometimes, it will improve a person’s credit score as the income to debt ratio usually improves after filing a Chapter 7 bankruptcy. In addition some financial institutions openly solicit business from person who have recently filed under Chapter 7, due to them not being able to file again for at least 8 years.
ARE THE NAMES OF PEOPLE WHO FILE CHAPTER 7 CASES PUBLISHED?
They may be published by credit reporting agencies.
WILL A PERSON LOSE ALL OF HIS OR HER PROPERTY IF HE OR SHE FILES A CHAPTER 7 BANKRUPTCY?
Usually not. Certain property is exempt and may not be taken by creditors unless it is encumbered by a valid mortgage or lien. A person is usually allowed to keep all unencumbered exempt property and some encumbered exempt property.
WHAT IS EXEMPT PROPERTY?
Exempt property is property protected from creditors by law. However if exempt property has been pledged to secure a debt, the lien or mortgage holder may claim the property by foreclosing or otherwise enforcing the lien/mortgage if the debtor has fallen behind in their payments. In that case the debtor may wish to file a Chapter 13 Bankruptcy. Your attorney can inform you as to the property that is exempt in your case.
Chapter 13 Bankruptcy
WHAT IS A CHAPTER 13 BANKRUPTCY CASE AND HOW DOES IT WORK?
A Chapter 13 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under Chapter 13 of the bankruptcy code. Chapter 13 is the chapter of the bankruptcy code which allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The bankruptcy code is the federal law that deals with bankruptcy. A person who files a Chapter 13 bankruptcy case is called the debtor. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtors plan, most creditors will be prohibited from collecting their claims from the debtor. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to the creditors, in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
HOW DOES A CHAPTER 13 CASE DIFFER FROM A CHAPTER 7 CASE?
The basic difference between a Chapter 7 case and a Chapter 13 case is that in a Chapter 7 case the debtor’s nonexempt property (if any exists) is liquidated to pay as much of the debtor’s debts as possible, while in a Chapter 13 case a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible, under the debtor’s circumstances. As a practical matter, any Chapter 7 case the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. In a Chapter 13 case, the debtor usually retains his or her nonexempt property, but must pay off as much of his or her debts as the court deems feasible, and receives a Chapter 13 discharge, which is slightly broader than a Chapter 7 discharge and releases the debtor from liability for a few types of debts that are not dischargeable under Chapter 7. However a Chapter 13 case normally lasts much longer than a Chapter 7 case and is usually more expensive for the debtor.
WHEN IS A CHAPTER 13 CASE PREFERABLE TO A CHAPTER 7 CASE?
Chapter 13 is usually preferable for a person who:
Wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,
Has valuable nonexempt property which would be lost in a chapter 7 case,
Is not eligible, under means testing, to obtain a Chapter 7 case,
Is not eligible for a Chapter 7 discharge, because he or she received a Chapter 7 discharge in the previous 8 years,
Has one or more substantial debts that are dischargeable under Chapter 13 but not under Chapter 7
Has sufficient assets with which to repay most of his or her debts, but needs temporary relief from creditors in order to do so.
HOW DOES THE CHAPTER 13 CASE DIFFER FROM A PRIVATE DEBT CONSOLIDATION SERVICE?
In a Chapter 13 case, the bankruptcy court can provide relief to the debtor that a private debt consolidation service cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor’s property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and to discharge of debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
WHAT IS A CHAPTER 13 DISCHARGE?
It is a court order releasing a debtor from all of his or her dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay.
WHAT TYPES OF DEBTS ARE NOT DISCHARGEABLE IN CHAPTER 13 CASES?
A full chapter 13 discharge granted upon the completion of all payments required in the plan discharge is a debtor from all debts except:
Debts that were paid outside of the plan and not covered in the plan
Debts for domestic support obligations, which includes debts for child support and alimony
Debts for death or personal injury caused by the debtors operation of a motor vehicle, vessel, or aircraft while intoxicated
Most tax debts
Debts for restitution or criminal fines included in a sentence imposed on the debtor for conviction of a crime,
Debts for fraud, embezzlement or larceny,
Debts for student loans or educational obligations unless a court rules that not discharging that would impose an undue hardship on the debtor and his or her dependents,
Debts for damages caused by willful or malicious conduct by the debtor,
Debts incurred while the plan was in the fact that were not paid under the plan,
Debts owed to creditors who did not receive notice of the chapter 13 case, and
Long-term debts upon which payments were made under the plan.
WHAT IS A CHAPTER 13 PLAN?
It is a written plan presented to the bankruptcy court by a debtor that states how much money or property the debtor will pay to the Chapter 13 trustee, how long the debtor’s payments to the Chapter 13 trustee will continue, how much will be paid to each of the debtors and creditors, and certain other matters.
WHAT IS A CHAPTER 13 TRUSTEE?
The Chapter 13 trustee is a person, appointed by the United States trustee, who collects payments from the debtor, makes payments to creditors in the manner set forth in the debtor’s plan, and administers the debtor’s Chapter 13 case until it is closed. In some cases the Chapter 13 trustee is required to perform certain other duties. The debtor is required to cooperate with the Chapter 13 trustee.
WHAT DEBTS MAY BE PAID UNDER A CHAPTER 13 PLAN?
Any debts whatsoever, whether they are secured or unsecured. Even debts that are non-dischargeable such as debts for student loans or child support may be paid under a Chapter 13 plan.
MUST ALL DEBTS BE PAID IN FULL UNDER A CHAPTER 13 PLAN?
No. While priority debts, such as debts for domestic support obligations and taxes, and fully secured debts on assets the debtor wishes to keep must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon the completion or termination of the plan.
MAY A HUSBAND AND WIFE FILE A JOINT CHAPTER 13 CASE?
A husband and wife may file a joint Chapter 13 case if EACH of them meets requirements for qualifying for a Chapter 13 case, EXCEPT THAT only one of them needs to have regular income and their combined debts must meet the debt limitations currently listed in the bankruptcy code.
WHEN SHOULD A HUSBAND AND WIFE FILE A JOINT CHAPTER 13 CASE?
If both spouses are liable for any significant debts, they should file a joint Chapter 13 case, even if only one of them has income. Also if both of them have regular income they should file a joint case.
The Taylor Law Firm, PC, is committed to providing top quality legal representation in the field of Chapter 7 and Chapter 13 Bankruptcy, and provides prompt and courteous service to all of our clients.
Call our firm at 636-947-7100 for an office consultation. Our attorneys are ready to answer your questions and service your needs.
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