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| Copyright ©2006 by Deming, Parker, Hoffman, Green, Campbell & Daly, L.L.C. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include the above copyright notice. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. |
Green, Campbell & Daly, L.L.C. |
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| 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:
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.
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