Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common chapter of bankruptcy and it is what most people think of when they think of bankruptcy. When a borrower files chapter 7 the court will discharge their debts in exchange for the borrower allowing their non-exempt assets to be liquidated to pay their creditors.
While this sounds scary, most borrowers have a “no asset” case where the borrower’s exemptions exceed the value of their assets so they do not lose anything. However, even if people have non-exempt assets they are usually able to keep them by working out a “buy back” agreement with their chapter 7 trustee.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy one of the reorganization bankruptcy chapters. Generally, it is a payment plan that is forced on the creditors if the plan is approved by the court. The plan will be approved by the court even if creditors object as long as it meets the requirements in the bankruptcy code.
The code gives chapter 13 debtors quite a bit of flexibility when drafting their plan. For example, a plan can use the bankruptcy to force the mortgage or homeowners association to allow an arrearage to be paid back over the life of the plan. On the other hand, the plan can surrender the property back to the creditors. A plan can also cram down secured debt to the value of the collateral and reduce the interest rate on secured debt.
Frequently Asked Questions
What are bankruptcy schedules?
The bankruptcy schedules are the portion of the bankruptcy petition where the filer lists their assets, exemptions, debts, cosigners, leases, income and expenses. The schedules are signed under penalty of perjury so one must take care that all statements on the schedules are absolutely true.
The content of the schedules are generally governed by 11 U.S.C. § 521 and Rule 1007 of the Federal Rules of Bankruptcy Procedure. The schedules are extremely thorough in their review of the filer’s financial situation. You should contact us for a free consultation if there is any doubt on how to complete the schedules.
What happens at the meeting of creditors (or 341 meeting)?
The bankruptcy trustee presides over the meeting of creditors and uses the bulk of the meeting to ask the debtor questions about their case. Most of the questions tend to be routine questions such as “can you file a lawsuit to make money for yourself?” Once the trustee is finished with his routine questions, he has a chance to ask specific questions about the case. Creditors have the opportunity to attend and ask questions as well, but they rarely chose to attend unless there are unusual circumstances surrounding the creditor’s debt or collateral.
What is a bankruptcy discharge?
The bankruptcy discharge is the relief that a filer is seeking when they file bankruptcy. Many practitioners describe the bankruptcy discharge as an order that wipes out all of the debtor’s dischargeable debt.
While this description describes the effect of a discharge, it is not technically true. The bankruptcy discharge is an injunction issued by the bankruptcy court that forbids creditors from taking any act to collect on the discharged debt. The injunction allows the debtor to seek damages from the bankruptcy court for any violation of its order which is what gives the bankruptcy court power.
What is the bankruptcy automatic stay and why is it important?
The automatic stay is described in 11 U.S.C. § 362. The bankruptcy stay will automatically stop all collections activity unless it is listed as an exception to the rule (e.g. criminal proceedings, dissolution of marriage, etc.). If a creditor violates the bankruptcy stay, it can be liable for actual damages, attorneys fees, costs and punitive damages.
When can I make my creditors stop harassing me?
Creditors are required to stop all collections activity as soon as the case is filed.
May I leave a creditor out of my bankruptcy?
No, a common misconception of bankruptcy is that a filer can leave certain debts out of the bankruptcy by omitting them from the schedules. The bankruptcy code requires all debtors to list all of their debts and the trustee will ask if all of the debts were listed at the meeting of creditors. The bankruptcy has procedures that allow a debtor to keep their car or boat through a bankruptcy. Leaving a creditor off of the forms is not a good idea.
What will happen to my credit score?
It depends. Short term, a bankruptcy filing will hurt a filer’s credit score. However, the bankruptcy discharge will force the discharged creditors to stop negatively reporting to the credit bureaus which will allow positive trade lines on the credit report to improve the credit score. Generally, a person’s credit will be much more healthy one to two years after a bankruptcy than it was before the bankruptcy was filed.
Is my spouse required to file bankruptcy with me?
No, nothing in the bankruptcy code requires both spouses to file together. This is helpful for couples that have separate debt or when one spouse has an excellent credit score.
Can a Christian file a bankruptcy without disobeying scripture?
Absolutely. The first known mention of bankruptcy is found in the Bible in Deuteronomy 15:1-2. See this article for a more in-depth of the Biblical view on bankruptcy.
Can I transfer my car or boat out of my name so that the trustee can’t sell it?
No, transferring assets without receiving fair compensation for the transfer is a fraudulent transfer which can be avoided by the trustee. Likewise, transferring assets to one creditor in exchange for the cancellation of the debt can be considered a preferential transfer which can also be avoided by the trustee. To make matters worse, if the trustee avoids a transfer the filer may not be allowed to use any available exemptions on the avoided property.
I have a co-signer on my loan. What will happen to them if I file bankruptcy?
It depends which chapter you file. In a chapter 7 bankruptcy the co-signer will not be protected by the bankruptcy stay and the filing borrower must decide whether it is wise to reaffirm the debt or whether it is better for the non-filing borrower to continue to make payments. In a chapter 13 bankruptcy, a co-borrower can be protected by the automatic stay if the loan is a consumer debt that is being paid in the bankruptcy plan.
What is a reaffirmation agreement?
A reaffirmation agreement is an document which protects a debt from being discharged in bankruptcy. It is most commonly used to reaffirm vehicle loans but can also be used to protect credit cards in certain circumstances.
What does a chapter 13 trustee do in my case?
The chapter 13 trustee is in charge of reviewing each case and making sure that each plan complies with the bankruptcy code. The chapter 13 trustee also receives and disperses payments from the debtor in each case to the creditors in accordance with the bankruptcy plan.
How much will I have to pay in a chapter 13 plan?
It depends because each plan is different. The plan payment depends on a number of factors such as: the filer’s income; the filer’s family size whether vehicles and houses are surrendered; etc.
What is the minimum that I will have to pay to my unsecured creditors in a chapter 13?
The minimum payment to the unsecured creditors in a chapter 13 case is determined by the best interest of the creditors test. Under the best interest of the creditors test a chapter 13 has to pay the unsecured creditors at least what they would receive in a chapter 7 case if the trustee was liquidating their assets (even though the trustee is not actually liquidating assets in the chapter 13 case).
When do I have to begin paying my chapter 13 plan payments?
Chapter 13 plan payments begin 30 days after the case is filed.
When do I get my chapter 13 discharge?
The chapter 13 discharge is entered after the completion of all plan payments.
Can I file another chapter 13 bankruptcy if I previously filed chapter 13 and the case was dismissed?
Yes, but the automatic stay in the new case will terminate after 30 days unless it is extended by the court. If a new case is filed, it is imperative that a motion to extend the automatic stay is filed shortly after filing. The court typically wants to know why the first case was unsuccessful and how the new case will succeed.
Can I get out of a chapter 13 if I can’t afford the payments in the future?
Yes, a chapter 13 can always be dismissed if there is a change in circumstances that makes the reorganization impracticable or impossible.