If you are drowning in debt, collections, or garnishments, filing bankruptcy can provide you with a fresh start. We can assist you in understanding your options, including Chapter 7 or Chapter 13 bankruptcy. An experienced bankruptcy attorney can also help you develop a comprehensive debt relief strategy. Call Farmer & Wright, PLLC today to learn more about your legal options.
What Is Bankruptcy?
Bankruptcy is a legal proceeding overseen by the federal court that eliminates most types of debt. Filing bankruptcy can be a scary prospect, and people often delay the process because of the stigma attached to it.
Don’t be swayed by myths and misconceptions. Thousands of hardworking Americans file for bankruptcy relief each year. Due to unforeseen circumstances — such as employment changes, divorce, or medical situations — people become unable to pay meet their financial obligations. Bankruptcy can be the answer to rebuilding your finances.
Consumer bankruptcy takes two forms:
Chapter 7 is sometimes called a “fresh start bankruptcy.” You will be able to keep certain exempt property. Any nonexempt property will then be sold to pay your creditors. In many cases, people who file for Chapter 7 get to keep all their property, including both their houses and cars. A typical case lasts 3-6 months. At the end of your case, you will receive a legal discharge.
Chapter 7 Bankruptcy Exemptions
Chapter 7 bankruptcy is also often called “liquidation bankruptcy” because it involves liquidation of property in order to repay your debts. However, the majority of your debt will likely be eliminated, or discharged. You will not lose all of your property. In fact, you can generally keep the following:
- Your home
- One motor vehicle
- Personal property
- Accounts considered pension or retirement funds
- Compensation and awards from personal injury settlements and verdicts
- Alimony from a divorce
- Payments from public benefits
- Professional tools and items that you need to perform your job
There are different state and federal exemptions. You may choose to utilize either state or federal exemptions, but not both. A bankruptcy attorney can help you understand which exemptions are right for you.
Chapter 7 Bankruptcy Process
The Chapter 7 bankruptcy process can be complex. It’s often best to work with a bankruptcy attorney who is familiar with the process and can help you through it.
One of the first steps in the Chapter 7 bankruptcy process is to determine if you qualify through the means test. The means test evaluates your income and debt level to determine if you qualify for Chapter 7 bankruptcy. If you make too much, then you may be able to file Chapter 13. Next, you will have to file a bankruptcy petition and other paperwork with the court. These forms are extremely detailed and required you to gather a lot of information. A bankruptcy attorney can help you fill out these forms so your bankruptcy is not denied due to a lack of proper information.
You must attend a meeting of creditors, where your creditors will be able to face you regarding your debts. However, few creditors ever attend this hearing. You will likely just be asked questions by the bankruptcy trustee to verify your information. Most other hearings can be attended by your bankruptcy attorney on your behalf.
After your hearings, the court will review your bankruptcy information and discharge your debts. The entire process takes only a few months and can result in a clean slate for you to start over.
Under Chapter 13, you enter a repayment plan that lasts 3-5 years. The repayment plan requires court approval and keeps you under the protection of the bankruptcy court. There are some debts that must be repaid in full (e.g., child support) and others that will only partially be repaid. At the end of the plan, you receive a legal discharge.
Both Chapter 7 and Chapter 13 have pros and cons associated with them. An experienced bankruptcy attorney can help you determine which bankruptcy chapter is best suited to your situation.
Chapter 13 bankruptcy is often the best option if you have specific situations, such as you:
- Make too much money to qualify for Chapter 7.
- Have codebtors who you don’t want to be stuck with your debt.
- Have nondischargeable debts, such as child support and past due taxes.
It’s best to contact a bankruptcy attorney to discuss your exact situation in order to determine if Chapter 13 is right for you.
The Automatic Stay in Bankruptcy
When you file Chapter 7 or Chapter 13, the court will issue an automatic stay that stops all creditor action against you. This may include lawsuits, repossessions, calls, and more. The automatic stay can only be lifted by court order. In that time, your bankruptcy attorney can work with your creditors to try and negotiate better terms for your debt or help you keep any property that was being repossessed.
Your automatic stay will be limited or nonexistent if you have previously filed bankruptcy within the past year. The court does not want people filing bankruptcy just to stop creditors from collecting money. Thus, if you’ve filed bankruptcy and dismissed it, only to utilize the automatic stay, then you may not be granted an automatic stay upon subsequent filings. A bankruptcy attorney can help you understand how to use an automatic stay and whether you qualify for one if you file bankruptcy.
Is Bankruptcy the Best Option for Me?
Bankruptcy can be a viable option to handle debt, but it’s not the best option for all debt matters. Certain debts cannot be discharged, such as:
- unpaid child support,
- unpaid alimony,
- student loans, and
- certain types of taxes.
It’s important to educate yourself regarding your options before filing bankruptcy. For example, you may benefit from such things as debt settlement, counseling, or restructuring.
However, if you have significant unsecured debt (for example, credit card debt, medical debt or personal loans), bankruptcy can provide significant advantages. These debts are typically discharged in bankruptcy.
A bankruptcy attorney can help you navigate this process and end creditor harassment. Once you have a clean slate, you can rebuild your credit and financial profile.
How Do I Qualify for Bankruptcy?
In order to qualify bankruptcy, you must meet some strict eligibility requirements.
- Chapter 7 means test: Chapter 7 requires you to pass the “means test.” Your household income must fall below the median average for your state and household size.
- Chapter 13 eligibility: Chapter 13 requires your debts to be below a predetermined amount. Moreover, you must have at least some disposable income to repay at least a percentage of what you owe.
Bankruptcy eligibility is complex. If you need assistance determining your eligibility, an experienced bankruptcy attorney can assess your situation and then develop a debt relief strategy that addresses your needs.
Understanding the Bankruptcy Process
A bankruptcy filing requires you to file multiple documents (called a petition) with the United States Bankruptcy Court. The petition includes the following:
- Whether you seek Chapter 7 or Chapter 13 relief,
- Creditor lists and debt information,
- Personal and financial information, and
- Proposed repayment plan (for Chapter 13).
Petitions require precision and accuracy. If you make mistakes, the bankruptcy court can dismiss your petition. The court only grants a discharge of debts if a petition makes its way through the bankruptcy court process.
What Does the Trustee Do?
Once you file the petition and related documents, the court will appoint a trustee. The case trustee oversees your bankruptcy, liquidates assets if required, and/or reviews your repayment plan.
How Long Does the Process Take?
The overall duration and process for Chapter 7 and Chapter 13 are different. Your bankruptcy attorney will assist you in navigating the process, including trustee negotiation and court hearing attendance. If you do not hire an attorney, you’ll have to face all of these tasks alone. The bankruptcy court holds individuals to the same standards and rules whether they have attorney representation or not.
A Chapter 7 bankruptcy generally takes between three and six months from start to finish. However, this can be different if you do not provide all of the necessary information up front or there are variations in your bankruptcy.
Chapter 13 bankruptcy always involves a three to five year repayment plan for your debts. Thus, this type of bankruptcy generally takes longer than a Chapter 7.
Contact a Bankruptcy Attorney Today
A bankruptcy attorney can be critical in crafting an effective debt plan. Because the bankruptcy system is so complex, handling a bankruptcy filing on your own can be quite daunting. At Farmer & Wright, PLLC, we focus on our clients’ future and rebuilding their futures. Contact us for a free consultation today.