What are the effects of the recent changes in the Bankruptcy laws on Bankruptcy filing?
In April 2005, Congress revised the Bankruptcy laws by enacting the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This revision of Bankruptcy laws became effective October 17, 2005. It is now more difficult and more expensive to file a Bankruptcy case. However, people who really need to file a Bankruptcy case may still do so.
The following are some of the revised features of the new Bankruptcy laws.
Before individuals can file a Chapter 7 or Chapter 13 Bankruptcy case, they must obtain a certificate of pre-bankruptcy credit counselling. This certificate must be obtained from an approved credit counselling agency. A person considering filing a Bankruptcy case will receive a briefing on opportunities for available credit counselling and will be assisted in performing an individual budget analysis.
The new Bankruptcy laws implemented what is known as a "means test." If the combined gross income of a family is greater than the median family income in the state, a person may be required to file a Chapter 13 repayment plan where debts are paid over a period of 36 months to 60 months instead of a Chapter 7 case where dischargeable debts are eliminated. Your attorney will gather financial information from you and perform this means test prior to Bankruptcy filing.
In addition, in order to obtain a discharge in a Chapter 13 case or a Chapter 7 case, a person must obtain a certificate of completion of an instructional course in personal financial management.
What is a Chapter 7 Bankruptcy?
A Chapter 7 Bankruptcy case is a proceeding in which a person seeks total debt relief under Chapter 7 of the Bankruptcy code. A person who files a Chapter 7 case seeks to obtain a Court order releasing them from all of their dischargeable debts, which is known as a “discharge”. A person is released from and does not have to repay a debt that is discharged and creditors may not send bills, make collection phone calls, file lawsuits, garnish wages or take any action to collect debt that has been discharged.
Who is permitted to file a Chapter 7 case?
An eligible individual or business may file.
What types of debts are dischargeable in a Chapter 7 case?
- Unsecured debts/loans
- Credit card Debit
- Installment loans
- Claims subsequent to a foreclosure or repossession
What types of debts are not dischargeable in a Chapter 7 case?
The following debts are by law non-dischargeable in a Chapter 7 case.
- Most tax debts
- Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement
- Debts not listed on the debtor's Chapter 7 Petition
- Debts for domestic support obligations, which include debts for child support, alimony, maintenance, or support
- Debts for intentional or malicious injury to the person or property of another
- Debts for certain fines or penalties
- Debts for student loans
- Debts for personal injury or death caused by the debtor's operation of a motor vehicle, vessel or aircraft while intoxicated
Will a person lose property in a Chapter 7 case?
In some cases yes, however, under certain circumstances a person may keep property that has been purchased subject to a valid security interest such as: a house, car, furniture or electronic equipment.
Are there any requirements to be met before a Chapter 7 case can be filed?
Yes, in order to file a Chapter 7 case a person must be eligible to file, then must obtain a Credit Counseling Certificate from an approved credit counseling agency that outlines the opportunities for available credit counseling and assists the person in performing a budget analysis. This briefing may be conducted by telephone or on-line. When the Chapter 7 case is filed, a certificate from the agency must be filed with the Court.
May a husband and wife file a Chapter 7 case jointly?
Yes, a husband and wife may file a joint case under Chapter 7.
Under what circumstances should a joint Chapter 7 case be filed?
A husband and wife should file a joint Chapter 7 case if both of them are liable for one or more significant debts. If both spouses are liable for a substantial debt and only one spouse files under Chapter 7, the creditor may later attempt to collect the debt from the non-filing spouse, even if he or she has no income or assets.
How does the filing of a Chapter 7 case by a person affect collection and other legal proceedings that have been filed against that person in other Courts?
The filing of a Chapter 7 case automatically suspends all collection and other legal proceedings pending against a person. Criminal proceedings and actions to collect domestic support obligations are not affected by the automatic stay. The automatic stay does not protect cosigners and guarantors of the person filing, and a creditor may continue to collect debts from cosigners and guarantors after the case is filed.
How does a Chapter 7 case affect a person's credit rating?
It will usually lower a person’s overall rating. The fact that a person has filed a Chapter 7 case can appear on his/her credit report for as long as ten (10) years.
Are the names of persons who file Bankruptcy cases made public?
When a Chapter 7 case is filed, it becomes public record and the names of the persons filing may be published by credit reporting agencies.
Are debtors’ employers notified of Bankruptcy cases?
Employers are not usually notified when a Bankruptcy case is filed.
Does a person lose any legal or civil rights by filing a Bankruptcy case?
No. By filing a Bankruptcy case a person does not lose any civil or constitutional rights by filing.
May employers or governmental agencies discriminate against persons who file Bankruptcy cases?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a Bankruptcy case. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses (including a driver's license), permits, student loans, and similar grants because that person has filed a Bankruptcy case.
What is exempt property?
Exempt property is property that is protected by law from the claims of creditors.
What should a person do if a creditor later attempts to collect a debt that was discharged in his Bankruptcy case?
When a Chapter 7 discharge is granted, the Court enters an order prohibiting creditors from later attempting to collect any discharged debt from the debtor. Any creditor who violates this Court order may be held in contempt of Court and may be liable to the debtor for damages.
How does a Chapter 7 discharge affect the liability of cosigners and guarantors who may be liable to a creditor on a discharged debt?
The Chapter 7 discharge releases only the person or persons who filed the Chapter 7 case. The liability of any other party on a debt is not affected by a Bankruptcy discharge.
How often can a person file a Chapter 7 case?
A person can file a Chapter 7 case once every eight (8) years.
What is the role of the attorney for the person filing a Bankruptcy case?
The attorney for the person filing performs the following functions in a typical Bankruptcy case:
- Analyze the amount and nature of the debts owed by the person filing and determine the best remedy for the person's financial problems
- Advise the person filing of the relief available under all chapters of the Bankruptcy Code, and the advisability of proceeding under each chapter
- Assist the person in obtaining the required pre-bankruptcy budget and credit counseling briefing
- Assemble the information and data necessary to prepare the Bankruptcy forms for filing
- Prepare the petition, schedules, statements and other forms for filing with the Bankruptcy Court
- Filing the Chapter 7 petition, schedules, statements and other forms with the Bankruptcy Court, and if necessary, notify certain creditors of the commencement of the case
- Attending the meeting of creditors with the person and appearing with the person at any other hearings that may be held in the case
- Assist the person filing in attending and completing the required instructional course on personal financial management
What is a Chapter 13 Bankruptcy case?
A Chapter 13 Bankruptcy case (also known as "Debt Consolidation Plan" or “Wage Earners Plan”) is to a debt consolidation plan where a person may repay all or a portion of his debts. Payments are made to a Chapter 13 Trustee who collects the money and disburses it to creditors.
How does the filing of a Chapter 13 case affect collection proceedings and foreclosure proceedings?
The filing of a Chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against a person or a person's property. This stay is called the automatic stay.
How does a Chapter 13 case differ from a Chapter 7 case?
The difference between a Chapter 7 case and a Chapter 13 case is that in a Chapter 7 case, the person filing the case seeks to extinguish and eliminate debt, while a Chapter 13 case, proposes to pay as much debt that is feasible under the person's circumstances, and in accordance with the debtors’ ability.
When is a Chapter 13 case preferable to a Chapter 7 case?
Chapter 13 is usually preferable for a person who wishes to repay all or most of his debts and has the income with which to do so within a reasonable time.
Chapter 13 is usually preferable for a person who has valuable property which may be lost in a Chapter 7 Case; and Chapter 13 is usually preferable if a person has debt that cannot be discharged in a Chapter 7 case such as child support, taxes, student loans, etc.
How does a Chapter 13 case differ from a private debt consolidation service?
In a Chapter 13 case, the Bankruptcy Court can order relief for the debtor that a private debt consolidation service cannot provide.
What is a Bankruptcy discharge?
It is a Court order releasing a person from all of his dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the person is released from and does not have to pay.
What is a Bankruptcy Plan?
A Bankruptcy plan is a debt repayment plan which is presented to the Bankruptcy Court by a debtor that states how much money or property the debtor will pay, how long the person's payments will continue, how much will be paid to each of the creditors, and certain other matters.
What is a Bankruptcy Trustee?
A Bankruptcy trustee is the Court appointed person who collects payments from the debtor, makes payments to creditors in the manner set forth in the debtor's plan and who administers the Bankruptcy case until it is closed.
What debts may be paid under a Bankruptcy Plan?
Any debts whatsoever, whether they are secured or unsecured.
Must all debts be paid in full under a Bankruptcy Plan?
No. While priority debts, such as debts for domestic support obligations and taxes, and fully secured debts must be paid in full, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Bankruptcy plan are discharged upon the completion or termination of the plan.
When must the debtor begin making payments to a Chapter 13 trustee and how are payments made?
The debtor must begin making payments to the Chapter 13 trustee within 30 days after the Chapter 13 case is filed with the Court. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the debtor is employed, some Courts require that the payments be made directly to the Chapter 13 trustee by the debtor's employer by withholding the payments from a debtor's wages.
How long does a Bankruptcy plan last?
The required length of a Bankruptcy plan depends on the debtor's income, but it is typically three to five years.
Is it necessary for all creditors to approve a Bankruptcy Plan?
No. A Chapter 13 plan must be approved by the Court, not by the creditors; however a Chapter 11 Plan must be approved by at least one class of creditors.
How are cosigned or guaranteed debts affected in Chapter 13 cases?
A cosigned or guaranteed debt is a debt that has been cosigned or guaranteed by another person. If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor. A consumer debt is a nonbusiness debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor's plan.
Who is eligible to file a Chapter 13 case?
An individual (i.e., natural person) is eligible to file a Chapter 13 case if he
- resides in, does business in, or owns property in the United States
- has regular income
- has unsecured debts of less than $307,675
- has secured debts of less than $922,975
- is not a stockbroker or a commodity broker
- has not intentionally dismissed another Bankruptcy case within the last 180 days
- has received a briefing from an approved credit counseling agency within the last 180 days
Corporations, partnerships, limited liability companies, and other business entities are not eligible to file a Chapter 13 case.
May a husband and wife file a joint Chapter 13 case?
A husband and wife may file a joint Chapter 13 case even if only one of them has regular income and their combined debts meet the debt limitations.
When should a husband and wife file a joint Chapter 13 case?
If both spouses are liable for any significant debts, they should file a joint Chapter 13 case, even if only one of them has income.
How does filing a Chapter 13 case affect a person's credit rating?
The fact that a person has filed a Chapter 13 case can appear on his credit report for as long as seven (7) years.
Is a debtor's employer notified when he or she files a Chapter 13 case?
In most cases, yes. Many Courts require a debtor's employer to make payments to the Chapter 13 Trustee on the debtor's behalf.
How often does the debtor have to appear in Court in a Chapter 13 case?
Most debtors have to appear at least twice: once for a hearing called the meeting of creditors, and once for a hearing on the confirmation or approval of the Chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing is usually held about two months after the case is filed. If difficulties or unusual circumstances arise during the course of a case, additional Court appearances may be necessary.
What occurs if the Court does not approve a Chapter 13 plan?
If the Court does not approve the plan initially proposed by a debtor, the debtor may modify the plan and seek Court approval of the modified plan. If the Court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as to become acceptable to the Court. A debtor who does not wish to modify a proposed plan may either convert the case to a Chapter 7 case or dismiss the case.
What happens if a person is temporarily unable to make the Chapter 13 Plan payments?
If a person is temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable the person to resume the payments when he is able to do so. If it appears that the person's inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to a Chapter 7 case.
What about new debts or needs credit during a Chapter 13 case?
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan. These are (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor's performance under the plan. All debts or credit obligations incurred after the case is filed must be approved by the Court.
What if a person decides to discontinue a Chapter 13 case?
A person has the right to either dismiss a Chapter 13 case or convert it to a Chapter 7 case for any reason. However, if the debtor simply stops making the required Chapter 13 payments, the Court may compel the debtor or the debtor's employer to make the payments and to comply with the orders of the Court.
What happens if a person is unable to complete the Chapter 13 payments?
A person who is unable to complete the Chapter 13 payments can:
- dismiss the Chapter 13 case or
- convert the Chapter 13 case to a Chapter 7 case, if eligible
What about a Chapter 11 reorganization Bankruptcy and how does it apply to individuals? Businesses?
Each Chapter 11 Bankruptcy filing and Plan is unique, whether it is for a business entity or individual. Therefore all questions related to a Chapter 11 Reorganization should be referred to an attorney for specifics - which shall be tailored to the set of circumstances related to the debtor and/or his/her business or income situation.