We at Simon Law have put together a short lesson on the basics of bankruptcy. This does not cover everything, but it is a great starting place if you are considering bankruptcy for the first time.
Let’s stop the dominoes from falling together!
Filing for consumer bankruptcy allows most consumer debtors to eliminate most of their unsecured debt while keeping most if not all of their personal property, including household goods, furnishing, retirement accounts, and other property.
Chapter 7
Chapter 7 bankruptcy, often called a “straight bankruptcy,” is a liquidation. In this situation, the debtor files a petition with the court, listing his or her debts, expenses, assets and income. Any property that is not exempt from bankruptcy is liquidated (i.e., sold off) to pay off the debts. If the debtor has no assets, the debts are simply wiped clean through a discharge.
What happens when I file?
Your petition is filed with the bankruptcy court and assigned to a Chapter 7 trustee. Usually, the trustee is a local lawyer. The trustee represents the creditors and is responsible for ensuring your petition is correct and accurate and that you are entitled to a discharge. The trustee also is responsible for collecting any non-exempt property, selling it and disbursing the proceeds to the creditors.
How can I keep my property?
Property that is exempt from Chapter 7 bankruptcy may not be liquidated or sold to pay creditors. Federal and state laws protect some types of property for their full value. (For example, under state law, you can exempt an individual retirement account.) Other types of property, however, are protected only up to a certain amount. Only a qualified and experienced bankruptcy attorney can determine what property may be exempted—and do so while trying to protect as much of your property as legally permissible. For more details on what specific property is or may be exempt in your case, please contact us.
Won’t my credit be ruined forever?
Not necessarily, and you can begin to rebuild your credit as soon as your case is over. The bankruptcy will stay on your credit report for 10 years but there are legitimate methods of reestablishing your credit, such as reaffirming a secured debt or obtaining a secured credit card. Using those accounts responsibly and paying the debts on time will eventually help you reestablish your credit.
Do I have to go to court?
Yes, generally you are required to appear only once at a meeting of creditors. We will advise you of the time and location of the meeting of creditors soon after your bankruptcy is filed.
Chapter 13
A bankruptcy filed under Chapter 13 is designed for people with regular income who want to pay their debts but are presently unable to do so. A Chapter 13 bankruptcy enables the debtor, under court supervision and protection, to propose and carry out a plan for repaying creditors over an extended period of time.
Who is eligible?
Individuals, sole proprietors and the self-employed are eligible. Check with us to see if you can qualify.
What about interest payments and late charges? How does a Chapter 13 affect those?
A creditor must file a proof of claim with the bankruptcy court. This document states what you owe the creditor on the date you filed for protection. The amounts on the proofs of claim are incorporated into the repayment plan, and the plan payments are based upon these amounts. If a creditor does not file a proof of claim by the date the court establishes, it does not get paid and the debt is discharged at the end of a successfully completed plan. Interest and late charges cannot be added to the amount stated on the proof of claim.
How long is the plan?
Plans can range from 36 to 60 months, depending on your particular situation. There are even options for those who cannot pay all of their debt in 36 or even 60 months.
Here is an example of how it works:
In a Chapter 13, you pay back your unsecured creditors at a percentage. Therefore, if you have $85,000 in credit card debt, you may be able to pay back only 10% or 20% over the life of your plan. When you are finished with your plan payments, any of the remaining unsecured debt is discharged or erased. Secured debt, such as mortgages and car payments, has different repayment rules. Over the life of a plan, you must pay back 100 percent of what you owe on secured debt.
Once you make the payments under the plan, the remaining obligations are discharged and you have your fresh start. The discharge has the effect of releasing you from your debts covered in the plan.
Can all debts be discharged?
No. Certain debts cannot be discharged, such as alimony, child support, government-funded or guaranteed student loans, debts arising from death or personal injury caused while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine. Please contact attorney Simon for more information on how the bankruptcy rules apply in your situation.
