Bankruptcy Law

    What is Bankruptcy? Bankruptcy is a federal court action that allows debtors to either
    eliminate or repay their debt.

    Is there more than one type?

    Four types of bankruptcy proceedings:
  • Chapter 7 is a liquidation proceeding where a debtor can ask the bankruptcy court to discharge
    (eliminate) your debt.

  • Chapter 11 is a reorganization proceeding that is used by corporations and partnerships. The company
    enters into a repayment plan with its creditors and generally retains its assets in order to operate daily
    business.

  • Chapter 12 is reorganization for farmers.

  • Chapter 13 is a repayment plan for debtors with a regular income. The debtor keeps the property and
    makes payments to the trustee over a 3 to 5 year plan.

    Once I file, can debt collectors continue to call me?  Once a debtor files bankruptcy, the debtor is given
    an automatic stay by the court. The automatic stay prevents creditors from collection debts owed to them by the
    debtors. However, the creditor can ask the court to lift the stay in order to proceed with the collection or acquire
    the assets used as collateral for the debt.

    Didn't the Bankruptcy laws change?  The bankruptcy laws were amended in 2005, and went into effect in
    October 2005. The changes require all debtors to get consumer credit counseling before filing bankruptcy.
    Debtors with higher incomes will be precluded from filing Chapter 7 will have to file Chapter 13.
    After your bankruptcy has been completed the consumer is still required to attend a personal financial
    management counseling session.

    The new rules have restricted debtors that can qualify to file Chapter 7. In order to qualify to file Chapter 7, a
    debtor will have to compare your monthly income to the median income for a family size of the debtors in its
    state of residency. The income is measured as an average of the debtors’ income six months prior to the filing.

    The median income levels are available at the U.S. Trustee website.          
     www.usdoj.gov/ust

    If a debtors income is less than or equal to the median you may qualify to file under Chapter 7 of the U.S.
    Bankruptcy Code, if its greater than the median you have to take the means test.

            The Means Test:        
    The means test will determine if you have enough residual income to file Chapter 13. If the debtor’s monthly
    disposable income is less than $100.00 the debtor may file Chapter 7; if it is more than $166.66 then you cannot
    file Chapter 7. If the debtors are in the middle, then the debtor must determine if they have enough to pay 25%
    of the consumer debt over a five-year period.

    Can I discharge my student loans?  Not all debts are dischargeable. Those debts of back child support,
    alimony and some tax debts, student loans may be dischargeable if the debtor can prove that repaying the debt
    would be an undue burden.     

    What is a Chapter 13?  In a Chapter 13, you a participating in a repayment plan of your debt with the
    bankruptcy court over a period of 3 to 5 years.

    What are the changes to a Chapter 13 bankruptcy filing?  Prior to October 2005, Chapter 13 filers had to
    turnover all of their disposable income to their repayment plan.  Now, although you still have to give all of your
    disposable income, how it is calculated is different.  Under the new rules your disposable income is an allowed
    expense amounts pursuant to the IRS not a person’s actual expenses.  This means that your expenses may be
    lower than your actual costs; which means less money to live on while under a Chapter 13.

    Can I keep my property?  You may keep your property under a Chapter 13; however, a Chapter 7, you are
    allowed to choose property that you would like to keep, if eligible under your state’s exemptions or federal
    exemptions. The state exemptions generally include: Equity in your home, cash value of insurance policies;
    pension which qualify under the ERISA plans; some personal property averaging in $3500; benefits sponsored
    by the government; business/professional tools; and 75% of your wages.
Chapter 13
Chapter 7
Can stop creditor harassment
 Can stop creditor harassment
Will not stop child support and alimony
 Will not stop child support and alimony
Will stop a mortgage foreclosure and
allow a repayment of missed payments
over a 3 to 5 year plan
 Will demand repayment of all past due
payments in order to keep your home
Keep nonexempt property that you want
to retain through a repayment plan
 Can not keep nonexempt property; will
be sold by trustee to pay debts
Reduce a secured debt to the
replacement value; then pay off the debt
through your plan
 Discharge a debt must return the
secured property
Eliminates some tax debts
 Eliminates some tax debts

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Attorneys At Law Since 1974    
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