A primary purpose of filing bankruptcy is to discharge certain kinds of debts to give debtor a "fresh start." As the debtor, you have no liability for debts having been discharged. However, in a Chapter 7 Bankruptcy, a debt discharge is only available to individual debtors, not to a partnership or corporation. Importantly to know as well that a bankruptcy discharge does not extinguish a lien on your property, for example your home.
Before filing a Chapter 7 or Chapter 13, a debtor has to have received credit counseling from an approved credit counseling agency. This must occur within 6 months (180 days) before you file. If during the course of credit counseling a debt management plan is developed, then this document must be filed with the court. We do not offer credit counseling services.
In order to qualify for Chapter 7 Bankruptcy, a debtor can be an individual, a partnership, or a corporation or some other business entity type. An individual debtor is subject to a means test. Your average household income is determined by averaging your monthly income over the last six calendar months. Your average annual income is your average monthly income multiplied by 12. If you are over the median limit, you may think about waiting a couple of months before filing until your income falls under the median.
How long a Chapter 7 will take in court depends a lot on the backlog. Currently, it's anywhere from 4 to 9 months, though this is subject to change. If you have been discharged in a Chapter 7, you will not be able to file again for Chapter 7 for 8 years.
A Chapter 7 Bankruptcy may be your best bet if you are not trying to keep your property, such as your home that still has a mortgage. That would convert your Chapter 7 Bankruptcy to a Chapter 13 Bankruptcy. A Chapter 13 Bankruptcy means test does not meet the Chapter 7 Means Test, it actually goes over the limit. This Chapter is best option for protecting your assets at risk in Chapter 7. In some cases, Bankruptcy can be sought to prevent home foreclosure through an automatic stay.
An automatic stay is available for Chapter 7 and for Chapter 13. This prevents foreclosure of your home, boat, car motorcycle or other investment property, if you're behind on payments. In order to bring you to a current payment level there is what's known as a 3 to 5 year repayment plan. Chapter 13 is often the best option for those who cannot pass the Chapter 7 means test or those seeking to protect assets that would be placed at risk by Chapter 7.
A question arises as to whether to file jointly if you share your marital finances. This depends on whether both spouses are facing a meaningful amount of debt. We would have to examine your finances closely and advise you as to the correct filing for you.
Questions arise as to what credit card debt can be discharged. Certain debts in Chapter 7 and Chapter 13 cannot be excused, for example student loans and child support. However, both types of Bankruptcies offer discharge of debts regarding credit card balances and medical debts. Again though, in Chapter 13 a debtor is subject to a repayment plan, so the unsecured debts in a Chapter 13 would be discharged after completion of the repayment plan.
The CARES ACT now modifies the definition of what what current monthly income is to now exclude payments made under federal law directly related to the national declaration made by the President according to the National Emergency Act concerning COVID-19. The Act now provides that any payments made to persons under the COVID-19 pandemic do not constitute "disposable income" required to be committed to a Chapter 13 debtor's plan.
A few items a debtor will need to gather prior to filing an application include:
- A list of all creditors with the nature and amount due;
- Wage amount with the source of the income;
- A list of all property; and
- A list detailing monthly expenses for food, clothes, housing, utilities, taxes, transportation, and medical needs to name a few
If you're considering Bankruptcy there are several advantages and several disadvantages. We'll discuss both as many factors need consideration before taking this step.
- Discharge of most debts and a fresh start
- Automatic Stay protection preventing repossession, garnishment, foreclosure and others
- Right to cure default on debts prior to filing bankruptcy for Chapter 13
- Protection of property deemed exempt from creditors
- Litigation in Bankruptcy Court where debtors may assert defenses against creditors, most often in Chapter 13 proceedings
- Some debts are not dischargeable such as student loans, alimony, child support, debt by fraud when the fraud is proven, criminal fines, obligations involving restitution payments and all debt incurred after filing Bankruptcy
- You lose your property even though you had built up equity beyond the allowable exemption or making payments that are simply unaffordable
- Secured creditors who retain a lien and the right to take your property if you default, such as your car or home, unless a debtor can afford to file a Chapter 13
- The impact of Bankruptcy on your credit score for 10 years rather than the normal 7 for other credit issues. Some mortgage lenders will reestablish good credit after 2-4 years post discharge
- Discrimination. Debtors may also be concerned that they may be discriminated against for having filed bankruptcy.
- Moral Obligations. Even the Bible mentions the need for debt forgiveness and a process similar to bankruptcy (Deuteronomy 15:1-2). Even Henry Ford who filed Bankruptcy twice didn't let it get him down. He simply used it as a new beginning for success!
You likely have many questions about whether to file Bankruptcy in Chapter 7 or Chapter 13. When you are ready, contact our office immediately to schedule an initial free consultation. During this consultation, you will learn how we will work hard to ensure you have the best options for your situation. Madeline McIntosh is informative. She is honest. She is committed to competent and thorough representation.
In accordance with 11 USC Sec. 528(a)(3), we are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.