If you are overwhelmed by unsecured debts (such as credit card debt and medical bills), you may benefit from a Chapter 7 bankruptcy. When most people file for bankruptcy in Kentucky, they file under Chapter 7. Sometimes called a “liquidation bankruptcy,” it involves selling your nonexempt assets to pay off your creditors. In exchange, most of your remaining debt is wiped out.
In the past, bankruptcy was incorrectly viewed as shameful. However, we now understand that it is an important federal consumer protection. Chapter 7 bankruptcy is simply your first step towards a healthier financial future. We can help you reset and rebuild. Call Farmer and Wright, PLLC today to find out how we can help you.
Do I Qualify for Chapter 7 Bankruptcy?
In order to qualify for Chapter 7 bankruptcy, you must pass its means test. You must show that either:
- Your monthly household income is below Kentucky’s median income (as of May 1, 2017, $72,863 for a family of four), or
- After allowed expenses are subtracted, your monthly household is below the means test’s threshold.
It can be difficult to perform means test calculations without the help of an experienced bankruptcy lawyer. The median income and means test thresholds change over time. And, it’s important that you include all of your allowed expenses when performing calculations. (If you don’t qualify for Chapter 7 bankruptcy, don’t panic. You may still be eligible for a Chapter 11 filing.)
Do I Lose All My Property?
During a Chapter 7 bankruptcy, all of your nonexempt property is liquidated (or sold). However, bankruptcy exemptions cover certain types (and certain amounts) of property. If your equity in that property is within the exemption, you can keep it. Exempt property typically includes specific amounts of:
- Home equity,
- One motor vehicle,
- Personal property,
- Pensions and retirement funds,
- Personal injury and other compensation awards,
- Public benefit payments, and
- Certain professional tools and materials.
In Kentucky, you can choose between either the state or federal bankruptcy exemptions. (You cannot, however, “mix and match” state and federal exemptions — you must use one set or the other.) An experienced bankruptcy lawyer can help you decide which exemptions best serve your needs.
In many cases, most or all of your property is considered exempt. For example, under Kentucky’s bankruptcy exemptions, you can retain $23,675 of equity in your home ($47,350 if you are a married couple). Suppose your home is worth $200,000 and owe $170,000 on your mortgage. Since you only have $30,000 in equity in your home, your home is protected and exempt provided, however, you can afford to continue to make the mortgage payments.
The law also allows you to keep specific amounts of equity in vehicles, household good and furnishings and retirement accounts such as 401(k)s. Your Chapter 7 bankruptcy lawyer should be well versed in these exemptions and can explain how a Chapter 7 bankruptcy can help you.
If you do not have nonexempt property, your bankruptcy is considered a “no-asset bankruptcy.” In these cases, your bankruptcy trustee will file a no-asset report — and your creditors will receive nothing in exchange for the discharge of your debts.
Filing for Chapter 7 Bankruptcy
Before you file for Chapter 7 bankruptcy, we recommend that you organize your debts and assets and get an idea of your financial position. It’s important to have a solid understanding of your assets and debts. It is important to disclose all of your property so your attorney can properly advise you on what is best for you and your family.
Once you have fully compiled and organized your records, you and your lawyer will submit a comprehensive Chapter 7 petition. This petition includes a series of forms that explain your finances in detail. As soon as you file your petition, the bankruptcy court issues an automatic stay.
This automatic stay is a valuable benefit during bankruptcy. It prevents most of your creditors from attempting to collect your debts. In other words, the stay stops your creditors’ harassing phone calls, letters, wage garnishment, and lawsuits. No creditor can even call you without court permission! However, it’s important to note that you may not get an automatic stay if you have filed bankruptcy more than once within the last year. If you have filed once, your automatic stay may be limited. Discuss your specific situation with a Chapter 7 bankruptcy lawyer.
Next, the court will appoint a bankruptcy trustee. The trustee oversees the liquidation of your assets and the distribution of payments to your creditors. Typically, it takes less than six months to complete a Chapter 7 bankruptcy.
Common Chapter 7 Bankruptcy Forms
In order to file Chapter 7 bankruptcy, you will have to submit a petition that will include forms with specific information. These forms can be complicated, but your bankruptcy attorney can help.
Chapter 7 bankruptcy forms include:
Petition for Filing Chapter 7 Bankruptcy
Form B 101 will include information about you, your address, phone number, and other identifying information.
Application to Pay Filing Fee in Installments or to Have It Waived
Form B 203A/B will allow you to request a waiver or allowance for your filing fee.
Summary of Assets and Liabilities
Form B 106 will include a broad summary of all of your assets and debts. Other forms will provide more in-depth information about each type of asset or debt you own.
Schedules A/B: Property
Form B 106A/B will allow you to list all of your property so that the court understands your assets as you file for Chapter 7 bankruptcy.
Schedule C: Exempt Property
Form B 106C allows you to list the property that you feel is exempt, such as a home, car, and other property you wish to keep.
Schedule D and E/F: Creditors
On forms B 106D and E/F, you will list all secured and unsecured creditors. You must list everyone you owe money for all property and other loans.
Schedule G: Executory Contracts and Unexpired Leases
Form B 106G will allow you to list any contracts or leases that you are named on.
Schedule H: Codebtors
Form 106H allows you to list anyone who is also named on loans or other liabilities. Those people will need to be notified that they may be responsible for the debt after you file Chapter 7 bankruptcy.
Schedule I: Income
In Form B 106I, you will list all of your income from all sources. You must be completely honest about your income so that the court knows whether you qualify for Chapter 7 bankruptcy and whether you can pay any of your creditors.
Schedule J: Expenses
Forms B 106J and J-2 will allow you to list all of your expenses and separate them from anyone else in your household.
Statement of Financial Affairs
Form B 107 will include a statement of your financial affairs, indicating that you cannot repay creditors and wish to file Chapter 7 bankruptcy.
Statement of Intent
Form B 108 is a statement of intent, verifying that you have honorable intent in filing Chapter 7 bankruptcy.
Other forms that you will complete deal with your personal information, the means test, and voluntary declarations. It’s important to work with a Chapter 7 bankruptcy attorney to ensure that you submit all of the necessary forms. If you fail to complete one, your petition may be denied or your Chapter 7 bankruptcy may be delayed.
How Much Will a Chapter 7 Bankruptcy Cost?
In order to file Chapter 7 bankruptcy, you must submit a filing fee and pay administrative fees to the federal court. That fee is currently $335; however, it does change periodically. If you are unable to afford the filing fee, you may be able to obtain a waiver. Contact a bankruptcy lawyer to find out if you qualify for a Chapter 7 bankruptcy filing fee waiver.
You will also have to pay for a mandatory credit counseling course. These courses often take place online and can cost between $25 and $35. However, if you are unable to pay for a credit counseling course, you may be able to qualify for a free course or reduction of the fee. This course must be completed before you file for bankruptcy, so contact an attorney right away if you are unsure about your status.
How Long Does a Chapter 7 Bankruptcy Take?
A Chapter 7 bankruptcy can take between four and six months to complete. However, the length of time you will be handling the case depends on how long it takes you to compile your debts and complete bankruptcy paperwork. You must also attend a meeting of the creditors and complete two necessary credit/debt counseling courses. If you are able to complete this within six months, then your Chapter 7 bankruptcy attorney can work to get your discharge within that time.
Speak With a Chapter 7 Bankruptcy Lawyer
Chapter 7 bankruptcy can give you a fresh start. Too frequently, hard-working people become overwhelmed by debt — especially after a job loss, medical emergency, or divorce. The lawyers at Farmer and Wright, PLLC are here to help. We combine extensive knowledge of accounting principles and bankruptcy law to our clients’ advantage. Contact us for a free consultation.