Which chapter is right for me?
The following are the major factors you and your attorney need to consider in determining which chapter is the most appropriate for your specific situation.
Do you want to keep property that is secured by loan that is in default?
Do you have assets that are not exempt from Chapter 7 liquidation?
General Bankruptcy Frequently Asked Questions
What property is exempt from bankruptcy liquidation?
What is a discharge?
What is the automatic stay?
Is a bankruptcy filing public?
Can I be discriminated against for filing bankruptcy?
CHAPTER 7 Frequently Asked Questions
What is a Chapter 7 Bankruptcy?
Will I lose all of my property if a file a chapter 7 bankruptcy?
What debts are not dischargeable under Chapter 7?
Can anyone file a Chapter 7?
What is means testing?
What if I don’t qualify for a chapter 7?
How does a chapter 7 bankruptcy affect my credit?
Will my employer be notified?
What is the court process in a Chapter 7?
What is reaffirming a debt?
What happens after the meeting of the creditors?
What is the bankruptcy trustee?
What if I don’t have any nonexempt property?
What about my house and other encumbered property?
What encumbered property may I keep in a chapter 7 case?
What about utility services can they cut off my heat?
How long does a chapter 7 case take?
Chapter 13 Frequently Asked Questions
What is a Chapter 13 Bankruptcy case and how does it work?
What’s the difference between a chapter 7 and a chapter 13?
A chapter 13 sounds like a debt consolidation plan, how is it different?
What is a chapter 13 discharge?
What types of debts are not dischargeable in a chapter 13 case?
What is a chapter 13 plan?
Must all debts be paid in full in a chapter 13 plan?
Are all unsecured debts treated the same under a chapter 13 plan?
How much income must I pay towards my debts under a chapter 13 plan?
When do I have to start paying on the plan?
How long does a chapter 13 plan last?
Do my creditors have to approve my plan?
Do I have to give up any property if I file a chapter 13?
How will a chapter 13 affect my credit?
Will my employer be notified that I filed a chapter 13?
What is a priority claim?
When will I have to appear in court?
What if the court does not approve my plan?
What if I am unable to make a few payments on my plan?
What happens if I am unable to complete my plan payments?
Which chapter is right for me?
The following are the major factors you and your attorney need to consider in determining which chapter is the most appropriate for your specific situation.
What kind of debts you have? There are 18 classes of debts that are not dischargeable under a Chapter 7 some of these types may be dischargeable under a Chapter 13. For example in a chapter 7 debts incurred of $550 or more for luxury goods or services or cash advances made within 90 days of filing will not be discharged however they may be discharged under a Chapter 13, depending on the case. In addition debts incurred under property settlement agreements that are not domestic support obligations, will not be dischargeable in a Chapter 7 but may be discharged under a Chapter 13.
Do you want to keep property that is secured by loan that is in default? A chapter 13 bankruptcy allows a debtor who is in default on secured loans such as automobile loans and home mortgages, cure the default within a reasonable period of time and retain the secured property. Curing defaults is generally not feasible under a Chapter 7. You may still keep secured property under a Chapter 7 but you must reaffirm the debt and immediately cure any defaults to avoid repossession or foreclosure.
Do you have assets that are not exempt from Chapter 7 liquidation? In a chapter 7 case you must turn over all nonexempt property to the bankruptcy trustee. In a chapter 13 this is generally not required provided you are making meaningful payments to your unsecured creditors. Therefore if you have a good deal of equity in your home or other significant non exempt assets, chapter 13 may be a better option.
What is your income? In order to qualify under Chapter 13 a debtor must have regular income which is defined as income sufficiently stable and regular to enable you to make payments under a chapter 13 repayment plan. This means that if you are unemployed a chapter 13 case may not be possible. Alternatively if you have income sufficient as determined by the court to pay at least $109.58 a month to your unsecured creditors you may not qualify for a chapter 7.
General Bankruptcy Frequently Asked Questions
What property is exempt from bankruptcy liquidation?
Exempt property typically includes all or a portion of your unpaid wages, home equity, household furniture and personal effects. You will need to speak with a bankruptcy attorney to determine what of your property is exempt.
What is a discharge?
A discharge 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. In other words a debt that is discharged is a debt that the debtor does not have to pay.
What is the automatic stay?
The filing of a bankruptcy case automatically suspends virtually all collection efforts on the part of creditors and other legal proceedings pending against you. A few days after your petition is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against you. This is called the automatic stay. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to you for damages. However it is important to note that criminal proceedings and actions to collect domestic support and child support payments from any property you acquired after filing are not affected by the automatic stay. The automatic stay also does not protect cosigners or guarantors on any of your debts in a chapter 7 case. If you have filed a chapter 7 or 13 case that was dismissed within the past year, you may be denied the protection of the automatic stay.
Is a bankruptcy filing public?
Yes bankruptcy filings are public record however they are generally not published by anyone but if someone were to search the bankruptcy courts records they would find your name.
Can I be discriminated against for filing bankruptcy?
No, it is illegal for either a private or a governmental employer to discriminate against a person as to employment because you have filed bankruptcy. It is also illegal for local state or federal governmental agencies to discriminate against a person as to the granting of licenses of any kind, permits, student loans and the like because a person has filed bankruptcy.
CHAPTER 7 Frequently Asked Questions
What is a Chapter 7 Bankruptcy?
Chapter 7 of the bankruptcy code deals with liquidation. In a chapter 7 case the debtor must turn over their nonexempt property, if any exists, to the bankruptcy trustee who then sells the property and uses the sale proceeds to pay the debtor’s creditors. In return the debtor receives a chapter 7 discharge.
Will I lose all of my property if a file a chapter 7 bankruptcy?
Usually no. Certain property is exempt from liquidation and may not be taken by the bankruptcy trustee unless it is encumbered by a valid mortgage or lien. You are usually allowed to retain certain encumbered exempt property as well. Encumbered property is property against which a creditor has a valid lien, mortgage or other security interest.
What debts are not dischargeable under Chapter 7?
Generally the following is a list of debts that are not dischargeable under Chapter 7:
Most tax debts
Debts for obtaining money, property, services or credit by means of false pretenses, fraud or a false financial statement
Debts not listed on the petition
Debts for fraud, embezzlement or larceny
Debts for domestic support obligations, including child support alimony and debts incurred under property settlement agreements pursuant to a divorce
Debts for intentional or malicious injury to the person or property of another
Debts for certain fines and penalties
Student loan debts
Debts for personal injury or death caused by the debtor’s operation of a motor vehicle while intoxicated
Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge
Can anyone file a Chapter 7?
No, you 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 maintain a chapter 7 case. Under means testing if a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income as reported by the U.S. Census Bureau, for that persons state and family size, they must show that they are not able to pay a minimum of $109.58 per month for 60 months to their unsecured creditors from their disposable monthly income, to be eligible to file under chapter 7.
What if I don’t qualify for a chapter 7?
Your may still file under Chapter 13 if you receive regular monthly income.
How does a chapter 7 bankruptcy affect my credit?
It will usually worsen your credit. However some financial institutions openly solicit business from people who have recently filed under chapter 7. Probably because they know it will be at least 8 years before you can file again. If there are compelling reasons for filing a chapter 7 case that are not within your control such as illness or injury, some credit rating agencies may take that into account in rating your credit after filing.
Will my employer be notified?
Generally employers are not formally notified when a chapter 7 case is filed. However, the bankruptcy trustee often contacts the debtor’s employer to verify income information. If there are compelling reasons for not informing an employer in a particular case, the trustee should be informed and he or she may be willing to make other arrangements to obtain the necessary information.
What is the court process in a Chapter 7?
The first court appearance you must make is for a hearing called the “meeting of the creditors” or a “341 hearing.” This hearing is usually held about a month after your case is filed. You must attend the hearing and bring a photo id and your social security card, your most recent pay stub and all of your bank and investment account statements to the hearing. At the hearing you are put under oath and questioned by the bankruptcy trustee about your debts, assets, income and expenses. In most chapter 7 cases, no creditors actually appear at the meeting of the creditors. But if they do, they are allowed to question you as well. For most people in most cases this will be the only time you are required to go to court unless you are not granted a discharge or you wish to reaffirm a debt, there may be another hearing about three months later that you will have to attend.
What is reaffirming a debt?
If you wish to keep encumbered property and you are current on payments, you may reaffirm the debt during the bankruptcy proceedings after you file the case. This is usually done in the case if you have a car that is not paid off. If you reaffirm a debt it is not discharged however you do get to retain the property.
What happens after the meeting of the creditors?
This is when the bankruptcy trustee begins to collect your nonexempt assets, if any exists. If you have nonexempt property that the bankruptcy wishes to collect the trustee may contact you and the court may issue orders to you that are sent by mail and may require you to turn certain property over to the trustee. If you fail to comply with these orders, the case may be dismissed and your debts will not be discharged.
What is the bankruptcy trustee?
The trustee is a person appointed by the court to examine you and collect your non exempt property. The trustee also is there to make sure that you perform all the duties required of you in your case. The trustee represents the interests of the non secured creditors and does not represent you.
What if I don’t have any nonexempt property?
In this case a notice will be sent to your creditors advising them that there appear to be no assets from which to pay them, that it is therefore unnecessary for them to file claims and that if assets are later discovered then will then be given an opportunity to file claims. This type of case is referred to as a no asset case and most chapter 7 cases filed by individuals are of this type.
What about my house and other encumbered property?
You may remember that encumbered property is property that is encumbered by a lien, mortgage or other security interest. This is commonly known as collateral for a loan. These are called secured creditors. A secured creditor is usually permitted to repossess or foreclose on its secured property during the bankruptcy case unless the value of the property securing a debt greatly exceeds the amount owed to the creditor. Secured claims are not paid by the trustee. A secured creditor must prove the validity of its mortgage, lien or security interests and must usually obtain a court order before repossessing or foreclosing on encumbered property. Secured property should not be turned over to a secured creditor until a court order to do so has been obtained. Remember that you may be permitted to keep certain types of encumbered personal property.
What encumbered property may I keep in a chapter 7 case?
You may keep such things as household furniture, appliances, goods, wearing apparel, and tools of your trade, without payment to the secured creditor, if the property is exempt and if the loan against the property was not incurred to finance the purchase of that same property. Also you may keep, without payment to the secured creditor, any encumbered property that is both exempt and subject only to a judgment lien that is not divorce related. Also you may keep certain encumbered personal family or household property by paying the secured creditor an amount equal to the replacement value of the property regardless of how much is owed to the creditor.
What about utility services can they cut off my heat?
If you are in arrears on any of your utility bills, and will be listing such arrearage on your bankruptcy petition for discharge, you must within 20 days after filing a chapter 7 case; furnish the utility company with a deposit or other security to insure the payment of future utility services. If you do so, it is illegal for a utility company to refuse to provide utility services to you after the case is filed or to otherwise discriminate against you if its bill for PAST utility services is discharged in your case.
How long does a chapter 7 case take?
If there are no non exempt assets for the trustee to collect, the case will most likely be closed within about four months after the case is filed. If you do have nonexempt assets that need to be liquidated the length of the case will depend on how long it takes form the trustee to collect the assets and perform his or her duties in the case. Most generally are resolved within six months but some can last much longer.
Chapter 13 Frequently Asked Questions
What is a Chapter 13 Bankruptcy case and how does it work?
Chapter 13 is the chapter which allows you to repay all or a portion of your debt under the supervision and protection of the bankruptcy court. In a chapter 13 case, you must submit to the court a plan for repayment of all, or a portion of, your debts over a period of 3 to 5 years. If the court approves your plan, most creditors will be prohibited from collecting their claims from you. You must make regular payments to the chapter 13 trustee, who collects the money you pay and disburses it to the creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, you are released from liability for the remainder of your dischargeable debts.
What’s the difference between a chapter 7 and a chapter 13?
The main difference is that in a chapter 7 your nonexempt property, if any, is liquidated to pay as much of your debt as possible. In a chapter 13 case on the other hand, a portion of your future income is used to pay as much of your debt as you can depending on your circumstances. As a practical matter, under chapter 7 you will lose all or most of your nonexempt property and receive a discharge which will release you from liability from most of your debts. In a chapter 13, you usually retain your nonexempt property but must pay of as much of your debt as the court thinks you can, and then you receive a chapter 13 discharge while is slightly broader than a chapter 7 discharge and will release you from liability for a few types of debts that are not dischargeable under chapter 7. However, a chapter 13 case usually lasts much longer and is usually more expensive.
A chapter 13 sounds like a debt consolidation plan, how is it different?
In a chapter 13 case, the bankruptcy court can provide relief to you that a private debt consolidation service cannot. For example, the court can prohibit creditors from attaching or foreclosing on your property, to force unsecured creditors to accept a repayment plan that pays only a portion of their claims and to discharge you from liability on the unpaid portions of your debts. Private debt consolidation services can do none of these things.
What is a chapter 13 discharge?
Like in a chapter 7, a discharge is a court order releasing you from all of your dischargeable debts and ordering your creditors not to collect them from you. There are two types of Chapter 13 discharges. First there is a full or successful plan discharged which is granted to you when you complete all payments called for in the plan. Second there is a partial or unsuccessful plan discharge which is granted to you if you are unable to complete the plan payments due to circumstances for which you should not be held accountable.
What types of debts are not dischargeable in a chapter 13 case?
It depends on the type of discharge you get; full or partial.
In a full discharge the following debts are not dischargeable in a chapter 13:
Debts paid outside of the plan and not covered in the plan
Debts for domestic support obligation which includes payments for child support and alimony
Debts for death or personal injury caused by the debtors operation of a motor vehicle while intoxicated
Most tax debts
Debts for restitution or criminal fines
Debts for fraud, embezzlement or larceny
Debts for most student loans
Debts for damages caused by willful or malicious conduct by the debtor
Installment debts whose last payment is due after the completion of the plan
Debts incurred while the plan was in effect and were not paid under the plan
Debts owed to creditors who did not receive notice of the case
Long term debts upon which payments were made under the plan
A partial discharge the following debts are not dischargeable in a chapter 13
Secured debts
Debts that were paid outside the plan and not covered in the plan
Installment debts whose last payment is due after the completion of the plan
Debts incurred while the plan was in effect that were not paid under ht plan
Debts owed to creditors who did not revive notice of the case
Debts that are not dischargeable in a chapter 7 case
Long term debts upon which payments were made under the plan
What is a chapter 13 plan?
It is a plan that you present to the court that states how much money or property you will pay to the chapter 13 trustee, how long the payments will continue and how much will be paid to each creditor.
Must all debts be paid in full in a chapter 13 plan?
No. Priority debts such as debts for domestic support obligations, taxes and fully secured debts must be paid in full under a chapter 13 plan, only an amount that you can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under your plan are discharged upon completion of the plan.
Are all unsecured debts treated the same under a chapter 13 plan?
No, if you have a reasonable basis for doing so, you may divide unsecured debts into separate classes and treat them differently. Therefore, it may be possible to pay some debts in full while paying much less on others.
How much income must I pay towards my debts under a chapter 13 plan?
Generally all of your disposable income for a 3-5 year period must be used to pay debts in a chapter 13 plan. Disposable income is income received by you and your spouse that is not deemed necessary for the support of yourself and your family.
When do I have to start paying on the plan?
Within 30 days of filing. The payments must be made regularly on a weekly, bi-weekly or monthly basis
How long does a chapter 13 plan last?
It depends on your income. If it is less than the median family income for your state and family size the plan length must be 3 years unless you can justify a longer period which may not exceed 5 years. If your annual income exceeds the median family income, the plan must last 5 years unless all unsecured claims can be paid off in a shorter period.
Do my creditors have to approve my plan?
No, the court must approve the plan, not the creditors. Creditors may however file objections to your plan and the court must rule on those objections prior to approving your plan.
Do I have to give up any property if I file a chapter 13?
Generally not. In a chapter 13 case, creditors are usually paid out of our income and not from your property. However, if you have valuable nonexempt property and insufficient income to pay enough creditors to satisfy the court, some of your property may have to be used to pay your creditors.
How will a chapter 13 affect my credit?
It may make it worse, in the short term. However, if most of your debts are ultimately paid off under your plan, this maybe taken into account by some credit reporting agencies. If very little is paid on most debts the effect of a chapter 13 on your credit will be similar to that of a chapter 7.
Will my employer be notified that I filed a chapter 13?
In most cases yes. Many courts require your employer to make payments directly to the chapter 13 trustee on your behalf. In addition it is typical for the trustee to contact your employer to verify your income. It may be possible to make other arrangements to get the trustee the required information and payments if you can show compelling reasons for doing so
What is required for the court to approve my chapter 13 plan? The court will approve and confirm a chapter 13 plan if it finds that:
All required fees, charges and deposits have been paid
All priority claims will be paid in full under the plan
If the plan creates different classes of claims, it provides the same treatment for each claim within a particular class
The plan was proposed in good faith
Each unsecured creditor will receive under the plan at least as much as it would have if you had filed under chapter 7
Each secured creditor is dealt with in one of the following four methods
The creditor accepts your plan
The creditors retains its lien and will be paid in full in equal monthly installments under the plan
The debtor surrenders the collateral to the creditor
The creditor is paid or otherwise dealt with outside of the plan
What is a priority claim?
A priority claim is an unsecured claim that is given priority of payment under the bankruptcy code. It is a claim that must be paid before other unsecured claims are paid. For example, tax claims, wage claims and claims for alimony, maintenance or support are priority unsecured claims. There are some additional priority claims in a chapter 13 case. These are the trustee’s fee, the filing fee and your attorney’s fees.
When will I have to appear in court?
There are at least two court appearances you will have to make in the typical chapter 13 cases. First for the “341 hearing” also knows as the “meeting of the creditors” and second for a hearing on the confirmation of your chapter 13 plan. The meeting of the creditors is usually held about a month after filing, the confirmation hearing may be held the same day or at a later date depending on the court. Of course if difficulties or other unusual circumstances arise during the course of the case, additional court appearances may be necessary.
What if the court does not approve my plan?
If the court does not approve the plan, it will usually give you the reason for refusing to do so and you will be given the opportunity to modify the plan. If you do not wish to modify the plan, you may either convert your case to a chapter 7, if you qualify, or dismiss your case.
What if I am unable to make a few payments on my plan?
If you are temporarily out of work, injured or otherwise unable to make the required payments, you can usually modify the plan so as to allow you to resume payments when you are able. It appears that your inability to pay will continue indefinitely or for an extended period of time the case may be dismissed or converted to a chapter 7.
What happens if I am unable to complete my plan payments?
You will have three choices. First you can dismiss the case, second you can convert to a chapter 7 if you otherwise qualify, or third if you are unable to complete payments due to circumstances for which you should not be held accountable you may close the case and obtain a partial discharge.
Miller-Cerasuolo PLLC is a debt relief agency. I proudly help people file bankruptcy under the United States Bankruptcy Code.