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Bankruptcy Information

Chapter 7 Information

Chapter 7 InformationMeans Test

Before you can file a Chapter 7 bankruptcy petition, you must show that you are eligible by passing a "means test."  Don't be intimidated -- it's a very straightforward test and most debtors qualify for Chapter 7 bankruptcy. Even if you do't pass, you can still file under Chapter 13.

The Chapter 7 means test is divided into two parts, both focusing on your income and expenses.

Step One: Assess Monthly Income

The first part of the test compares your monthly income to the median income for your area and household size. If your monthly income is at or below the median, you pass the means test and you can file for Chapter 7 bankruptcy.

Even if you are over the median income, you may still qualify for Chapter 7. The median varies according to your geographic location and the size of your family. The U.S. Trustee's Office has a page on their web site with the most up-to-date median incomes located here.

Step Two: Deduct Allowable Expenses

If you find that your income exceeds the state median, it doesn't necessarily mean that you won't be able to file under Chapter 7. This just means you must move on to the second part of the test. During the second step, you will deduct certain allowable expenses from your monthly income based on IRS standards. The remaining amount over after these allowable expenses is your disposable income. Then you will multiply that number by 60 to determine how much disposable monthly income you'll have over the next five years.

If the total turns out to be less than $6000, then you have passed the means test, and you may file bankruptcy under Chapter 7, since there is no presumption of abuse. On the other hand, if the total is over $10,000, then there is a presumption of abuse, though you will be given the chance to include additional necessary expenses to reduce your monthly income.

However, if your total disposable income for the five-year period falls between $6000 and $10,000, then you must make one more calculation. For this step, you will take your expected disposable income over the next five years (the number you calculated between $6000 and $10,000) and compare it to the total amount of your non-priority unsecured debts.

If your disposable income is less than 25% of the total of those debts, there is no presumption of abuse, and you therefore qualify to file under Chapter 7. Just as before, you will have the opportunity to show special circumstances that justify the inclusion of additional expenses.

Means Test Summary

In short, the means test works like this:

1. Compare your monthly income to the state median:

If your income is at or below the state median, the presumption does not arise and you "pass" the means test; * If your income is above the state median, go on to calculate your disposable income for the upcoming five year period. * 2. Calculate your disposable income over the upcoming five years: * If that number is below $6000, the presumption does not arise and you "pass" the means test; * If that number is above $10,000, the presumption does arise, and you can file under Chapter 7 only with a showing of special circumstances; * If that number is between $6000 and $10,000, calculate 25% of your outstanding unsecured, non-priority debts. * 3. Multiply your outstanding unsecured, non-priority debts by .25: * If your disposable income over the next five years (as calculated in step 2) is greater than 25% of your unsecured, non-priority debts, the presumption arises and you can file under Chapter 7 only with a showing of special circumstances; * If your disposable income over the next five years (as calculated in step 2) is less than 25% of your unsecured, non-priority debts, you "pass" the means test and can file under Chapter 7. Even if you've passed the means test, you should know that your bankruptcy trustee can still throw your case out for abuse if he deems that your particular case warrants it. In any case, your bankruptcy lawyer can give you more specific advice about what kinds of circumstances might cause a trustee to challenge or dispute your bankruptcy case.

We know this is confusing. That is why should talk to an experienced bankruptcy lawyer!

Important Time Periods

  • 8 Years Before Filing: A minimum of eight years must pass between petitions under Chapter 7 of the U.S. Bankruptcy Code. You may be eligible to file Chapter 7 just six years after a Chapter 12 or 13 discharge, depending on your repayments.
  • 180 Days Before Filing: In this time period, you must receive a Credit Counseling Briefing from an approved budget and credit counseling agency. This is one of the requirements introduced by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
  • 90 Days Before: You must live in a state for at least 90 days in order to file in that state. Further, repayment of debts to family members or friends is a prefential transfer and is not permitted. Certain debt incurred in this period (e.g. for acquiring luxury goods) is considered non-dischargeable by the bankruptcy court.

Pre-Filing Requirements

All individuals filing personal bankruptcy under Chapter 7 or Chapter 13 of the United States Bankruptcy Code must complete a Credit Counseling Course approved by the U.S. Trustee. When your bankruptcy lawyer files your bankruptcy petition, he will also file your Credit Counseling certificate.

Those who attempt to file bankruptcy without a Credit Counseling certificate may lead to a dismissal. A dismissal might give creditors an opportunity to take collection action, including foreclosure proceedings and repossessions, since the automatic stay would not be in effect.

Your Case Is Filed with the Court

When your bankruptcy lawyer files your petition with the court, your Chapter 7 case officially begins. You can expect three things to happen at the time your case is filed:

  1. The automatic stay goes into effect, halting all collection actions against you. This means that you are protected from repossession, foreclosure, lawsuits, collection calls, etc..
  2. Everyone you owe money to (your creditors) receives notice that you have filed Chapter 7 bankruptcy.
  3. A bankruptcy trustee is assigned to your case and a meeting of creditors is scheduled. The trustee is responsible for the adminsitration of the bankruptcy case.

Your Chapter 7 Case: the Next Six Months

After filing your Chapter 7 petition, your case should move pretty quickly, but you'll still have many steps to complete before you can get your discharge.

  • 15 Days after Filing: Within this time, you'll have to file schedules detailing your debts, assets, expenses, income and statement of affairs. Also within this time, the court will mail a Notice of Commencement of Case to all your creditors. The Notice will include the date for the Meeting of the Creditors and the deadline for creditors to object to any debts listed in your case.
  • 30 Days after Filing: Within this time, you'll have to file your Statement of Intention, which details how you intend to handle collateral you have for loans. In other words, you'll have to report whether you plan to reaffirm secured debts (like that for your car), redeem your property or surrender it. You must serve a copy of this Statement on your trustee and all creditors. You then have 45 days to take the actions outlined in the Statement.
  • 4 - 6 Weeks after Filing: The Meeting of the Creditors takes place. You must come to the meeting with your original social security card and a valid photo ID such as a drivers license. You're required to attend the meeting and testify to the truth of the statements in your Chapter 7 petition. Usually, these meetings are quick and informal affairs.
  • 45 Days after Filing: Within this time, you need to file a statement with a certificate from your lawyer verifying that you were told about the bankruptcy chapters available to you. You'll also need to file a statement of any income from your employer within 60 days of your filing, an itemized receipt of your monthly income and an estimate of any increases in income and/or expenditures you expect in the next 12 months.
  • 30 Days after the Meeting of the Creditors: During this time, your trustee can object to any exemptions you claim in your petition. Similarly, your creditors can object to any debts you listed.
  • 60 Days after the Meeting of the Creditors: During this time, your creditors can object to the discharge of any debts listed in your petition and schedules. Generally, you can expect objections if you engaged in questionable or illegal activity at some point in relation to the debt.
  • 90 Days after the Meeting of the Creditors: Creditors (except government entities) have this time to furnish evidence to support their objections to discharges.
  • 180 Days after the Meeting of the Creditors: Government creditors must submit their evidence within this time.

Any questions? Contact us.

The Automatic Stay

One of the most immediate benefits of Chapter 7 bankruptcy protection is the automatic stay provision, which prevents creditors from collecting debts from you. Under the automatic stay, creditors are not allowed to call you or send you collection letters or engage in any activity in an attempt to collect a debt.

What Does the Bankruptcy Automatic Stay Stop?

Stop Foreclosure: If your home is undergoing foreclosure proceedings, the automatic stay will stop the foreclosure action. Though Chapter 13 bankruptcy is the best option for stopping foreclosure of your home, a Chapter 7 bankruptcy filing will also temporarily halt foreclosure action in most cases. The automatic stay will normally halt an eviction proceeding as well.

Stop Lawsuits: Lawsuits against you will be immeditely halted during the pendency of the bankruptcy. If the debt at issue in the lawsuit is discharged, the case ends permanently.

Stop Repossession: If you have an automatic stay, creditors or repossession agents cannot take your car. However, in this case, the automatic stay is just a temporary solution. In order to keep the car on a permanent basis, you will have to reaffirm your car loan or return the car in your bankruptcy filing.

Stop Wage Garnishments & Bank Levies: If you file for Chapter 7 bankruptcy, your automatic stay will stop wage garnishments, effective immediately from the time that you file your petition. And, on top of getting your full pay check, if your debt is dischargeable, you will likely be able to eliminate the entire outstanding debt in bankruptcy. In most cases, bank levies will also be lifted by the atuomatic stay.

Stop Utility Shut-Offs: If your lights and gas have been disconnected by the utility company, the automatic stay in your bankruptcy petition will require the utility company to reconnect your home to their utilities. Sometimes the utility company will require a small deposit within a reasonable time after you file for bankruptcy relief-if you cannot provide the deposit, they may be able to turn off your lights and heat after the bankruptcy filing.

Stop Collection of SSI/Food Stamps/Public Benefit Overpayments: Public assistance agencies can collect any overpayment that they may have mistakenly issued to you in the form of SSI or food stamps. If this overpayment is being collected, the automatic stay will stop that process. Also, if your debt is discharged, this overpayment debt will be eliminated, unless the government agency can prove that it arose from fraud.

Stop Some Tax Levies: An automatic stay can protect you from some IRS processes, including a tax levy or property seizure, for any debt you might owe. However, the IRS still has authority to audit you, require filing of tax returns, assess a tax liability and require payment of the assessment.

What Can't Be Stopped with the Bankruptcy Automatic Stay?

Criminal Proceedings: The automatic stay will not stop a criminal action from proceeding. If you are facing charges of driving under the influence, drug charges or another other criminal charge, filing bankruptcy cannot prevent the state from prosecuting you or imposing fines and court costs. On the other hand, if your criminal charge can be separated into criminal and debt liabilities, the court may be able to stop a creditor from collecting the debt. Regardless, it is a smart idea to consult a local criminal defense attorney for a consultation if you've been charged with a crime.

Child Support Actions: The automatic stay is not able to stop a lawsuit against you seeking to establish paternity or to establish, modify, or collect child support or maintenance.

How Long Does the Bankruptcy Automatic Stay Remain in Effect?

If you've filed a Chapter 7 bankruptcy petition and received an automatic stay, it will remain in effect until:

  • you complete the bankruptcy and receive a discharge;
  • the bankruptcy judge lifts the stay at the request (motion) of the creditor; or
  • the property you wish to protect is no longer part of the bankruptcy estate.

In exceptional circumstances, the automatic stay will not be automatically granted when you file your bankruptcy case, or may require a motion from your bankruptcy lawyer to remain in effect. This most often applies to those who have filed one or more other bankruptcy cases recently. However, a bankruptcy attorney will know whether or not these restrictions might apply to your bankruptcy case.

Whatever your current financial situation and interest in Chapter 7 Bankruptcy, an experienced bankruptcy attorney can be a useful resource for advice and up-to-date information for consumers. If you have any questions, feel free to Contact us.

Bankruptcy Court Filing Fees

The bankruptcy filing fees listed below are accurate as of 2012. However these fees do change from time to time. The most current fees can be found on the website of the U.S. Bankruptcy court, which you can visit by clicking here.

The fees listed below are statutory filing fees, payable to the bankruptcy court. These figures DO NOT include attorney fees, which vary depending upon location, the complexity of your case, and a variety of other factors.

  • Chapter 7 Filing Fee: $306
  • (Discharge of most unsecured debts)
  • Chapter 13 Filing Fee: $274
  • (Structured partial repayment plan for debtors who want to keep assets like homes)
  • Conversion Fee: $15
  • (to change a Chapter 13 case into a Chapter 7 case)
  • Amendment Fee: $26 per amendment
  • (if you have to make changes to certain documents after initial filing)

Chapter 13 Information

Chapter 13 InformationHow does a Chapter 13 bankruptcy work?

The Chapter 13 bankruptcy process is more detailed and more complex. Mistakes can lead to the loss of the automatic stay, the rejection of a payment plan, or extensions and delays for the bankruptcy filer. If you are not sure if Chapter 13 bankruptcy is the right choice for you, you should consider consulting a bankruptcy lawyer in your area.

If you do choose to file under Chapter 13 bankruptcy, your bankruptcy attorney will be able to advise you during your filing process and help you navigate the various filing requirements and deadlines involved. Your lawyer can make sure your proposed plan will leave room for regular expenses as well as payments and affirm that you've accounted for all your allowable expenses.

The Process of Chapter 13 Bankruptcy

Chapter 13 bankruptcy cases officially start when the bankruptcy petition is filed. Most of the time, the court will enact the automatic stay immediately after the case is filed, which prevents creditors from making any collection efforts while the bankruptcy is pending or until the bankruptcy court gives further notice.

The bankruptcy court will then provide notice of the filing to all creditors named in the Chapter 13 petition, and assign a bankruptcy trustee to the case.

The court will send a Notice of Commencement of Case to the petitioner and all creditors named in the petition within approximately 15 days of the petition being filed. In this notice will be key information like deadlines for claims and/or objections from creditors and the details about the creditors' meeting (date, time, location).

Schedules detailing the petitioner's assets, debts, expenses and income have to be filed within 15 days of the case's start. In many cases, these schedules are filed at the same time as the petition, but in emergency situations (as when a bankruptcy filer is trying to prevent repossession or foreclosure), they can be filed separately so that bankruptcy protection isn't delayed by the collection of information.

The Chapter 13 repayment plan must also be filed within 15 days.

Any questions? Contact us.

The Repayment Plan in Chapter 13 Bankruptcy

One of the main contrasts between Chapter 7 bankruptcy and Chapter 13 bankruptcy is that Chapter 13 involves neither liquidation of assets nor quick completion. Chapter 13 filers develop a plan to catch up on their past due balances while staying current on new payments. A typical Chapter 13 bankruptcy repayment plan includes 36 to 60 months of payments during which debts are paid based on their priority. Secured creditors receive payment first, and remaining disposable income is funneled toward paying unsecured creditors. The hierarchy of payment has been established by U.S. Bankruptcy Code.

If all payments are made on time, any unsecured debt left over at the end of the plan can be discharged.

Any questions? Contact us.

Chapter 13 Bankruptcy's Pre-Discharge Requirements

Besides making the payments outlined in the Chapter 13 bankruptcy repayment plan, Chapter 13 petitioners must complete a financial management course ("Debtor Education") approved by a U.S. Trustee to be eligible for a discharge. Your bankruptcy lawyer can recommend a Debtor Education course for you or you can easily find one online.

Any questions? Contact us.

Who Is Eligible for Chapter 13 Bankruptcy?

Not everyone qualifies for Chapter 13 bankruptcy. To be eligible, a debtor must:

  • Have a steady source of income from which to make pre-established payments to the bankruptcy trustee to benefit creditors;
  • Have adequate disposable income for these payments after covering necessary living expenses; and
  • Fall between the acceptable limits established for secured and unsecured debts.

These limits are periodically updated and can be found here. A bankruptcy lawyer in your area can let you know what exact current limits are. As of 2012, the limit for secured debt was just over $1,081,400, and the limit for unsecured debts was about $360,475.

If you do not qualify for Chapter 13 bankruptcy, you may still be eligible to file for Chapter 7 or a Chapter 11 bankruptcy.

Any questions? Contact us.

Chapter 13 Bankruptcy Benefits

As yet, no "cure-all" has been discovered for financial difficulties. The best alternative, whether it's Chapter 13 bankruptcy, Chapter 7 bankruptcy, or some other alternative entirely, depends upon the debtor's circumstances, amount and nature of debt, current income, and many other variables. Many people find Chapter 13 bankruptcy beneficial in the following situations:

  • They've fallen behind on payments for secured property they want to keep. Many Chapter 13 bankruptcy petitions are filed specifically to stop vehicle repossession or foreclosure, but Chapter 13 can also be used to catch up on secured debts while keeping the property that secures those debts.
  • They have a second mortgage on their home that is "fully underwater" which means the amount they owe on the first mortgage is more than the house is worth. In this case, a Chapter 13 Bankruptcy allows them to "strip" the second mortgage and discharge the debt.
  • They're facing tax debts that are non-dischargeable through Chapter 7 bankruptcy. Some tax debts cannot be discharged, but can be included in a Chapter 13 repayment plan to be paid off over time.
  • They have non-exempt property they wish to keep. Non-exempt property can be sold (liquidated) to benefit creditors in Chapter 7 bankruptcy, but Chapter 13 allows debtors to maintain ownership of their property while making scheduled payments.
  • They've already filed for Chapter 7 in the past eight years and so are ineligible to file under Chapter 7.
  • They want to protect cosigners on some debts. In Chapter 7 bankruptcy filings, cosigners who do not file bankruptcy are still liable for debts even if that debt has been discharged to the primary debtor. In Chapter 13 repayment plans, though, cosigners are protected as long as the debtor adheres to the plan.
  • They have overdue student loan debt. Student loans are only dischargeable in Chapter 7 bankruptcy in very rare cases, but they can be included in Chapter 13 repayment plans.

Any questions? Contact us.

*We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. (Federal Law Requires that we make this disclosure, but don't worry, we do lots more that just bankruptcy practice.)

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