Bankruptcy

General Overview

Generally, normal individuals can file either Chapter 7 or Chapter 13 bankruptcy when they have financial troubles. There are other types of bankruptcy, such as Chapter 11, but the other types of bankruptcy generally are not the best avenues for relief for the average American.

Chapter 7 Bankruptcy and Keeping Your Property

Chapter 7 is generally what most people think of when they hear the word bankruptcy. In Chapter 7, the bankruptcy code sets certain exemption levels and if a debtor’s property is worth less than the set exemptions, the debtor would get to keep his/her property and discharge most of his/her unsecured debts. However, if your property is worth more than the exemption levels, the bankruptcy trustee could move to sell your unexempt property to pay your creditors.

It is important to have a bankruptcy attorney evaluate your specific situation to provide you with advice on whether your property will be exempt in a Chapter 7 bankruptcy. This may include getting an appraisal or comparative market analysis done to estimate your home’s value so that you can be confident you will not lose it in a bankruptcy. However, there is never a guarantee that you will not lose property in a Chapter 7 bankruptcy.

Many debtors can go through Chapter 7 bankruptcy without losing property. But, it is important to consult with a bankruptcy attorney to see if Chapter 7 would be appropriate for your specific situation.

Chapter 7 Income Levels

The bankruptcy code sets up certain barriers to filing Chapter 7 bankruptcy. One such barrier is income. If you make too much money, you will not be permitted to go through Chapter 7 bankruptcy. Additionally, if your monthly budget (i.e. your income minus your expenses) shows that you have too much money left over at the end of the month, you may not be able to successfully complete a Chapter 7 bankruptcy.

Determining if you fit within the income levels and if your budget is acceptable for a Chapter 7 bankruptcy is very complicated. It is best to consult with a bankruptcy attorney to determine if you will qualify for Chapter 7.

Chapter 7, What Debts are Discharged

Generally, most unsecured debts are discharged in a Chapter 7 bankruptcy. This means that most credit card and medical debts would be discharged as long as the debts were not fraudulently incurred.

Certain types of debts are generally not dischargeable in bankruptcy. For example, student loans are generally not dischargeable but can be in certain scenarios. Taxes are also generally not dischargeable in a bankruptcy but could be if certain exceptions are met.

The exceptions to having certain debts discharged are too voluminous to list in this article. It is always best to consult with a bankruptcy attorney regarding all of your debts to see if they would likely be discharged in a bankruptcy case.

Can I Keep my Car and/or House in Chapter 7?

If your car or house are below the applicable exemption levels, the trustee most likely would not sell your car or house in the bankruptcy. If you have a mortgage or auto loan, you normally would have to continue paying on that debt in order to keep your property.

Additionally, if you cannot afford your car or house payment, you can surrender the property in a bankruptcy case and relieve yourself of the debt. To do this, you must give the piece of property back to your creditor.

Since a house and vehicle are generally the two most important pieces of property that normal Americans own, it is important to speak with an attorney before filing a bankruptcy so that you can get advice on whether you will be able to keep this property and whether you should keep this property.

How Long Does a Bankruptcy Stay on My Credit Report?

Generally, a bankruptcy can remain on your credit report for ten (10) years.

Who Finds Out About Bankruptcy Filings

Bankruptcy filings are matters of public record and most of the case documents that do not have sensitive information on them, such as social security numbers, are available for the public to view. Additionally, any person or entity listed as a creditor on the bankruptcy paperwork is notified about your bankruptcy.

Difference Between Chapter 7 and Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a payment plan to your creditors that lasts between 3 and 5 years. This does not mean that you must repay your debts in full in a Chapter 13 bankruptcy case however. There are complex methods used to calculate how much you must pay into the bankruptcy system during the 3 to 5 year bankruptcy plan. Chapter 7 bankruptcy has no payment plans associated with it.

Another major difference is that debtors do not lose property in a Chapter 13 bankruptcy. If a person would lose property in a Chapter 7 bankruptcy, he/she could file a Chapter 13 bankruptcy and pay the value of the property they would have lost to their creditors through the Chapter 13 plan. Therefore, Chapter 13 bankruptcy could be a better option for certain individuals that are afraid of losing their homes or other property.

Chapter 13 bankruptcy also provides individuals with the power to “cure” mortgage arrears. For example, if you are behind on your mortgage payments and your house is in foreclosure, you could file a Chapter 13 bankruptcy plan that repays your mortgage arrears and stops the foreclosure sale. However, a person attempting to do this would have to make their normal mortgage payment while simultaneously paying their mortgage arrears and possibly other debts during the Chapter 13 plan.

Determining if Chapter 13 or Chapter 7 bankruptcy is appropriate for you is extremely complicated. You should always speak to a bankruptcy attorney about what chapter of bankruptcy is right for you. Every situation is different and there are many other exceptions and/or benefits of the various types of bankruptcy that are not specifically stated in this article. Consulting with a bankruptcy attorney regarding your specific situation is the best way to examine if bankruptcy is the best option for you.

Free Consultation and Case Review

If you are having financial troubles and would like to see if a bankruptcy is appropriate for your situation, Lampman Law offers free initial consultations. Lampman Law will also review your collection activity for free to determine if any creditors have broken the law trying to collect debts from you, such as by calling you without permission or sending you threatening or deceiving communications. Call us today at 570-371-3737 for a free consultation and case review.