California Nursing Home Abuse Lawyers Blog

Filing under Chapter 7 bankruptcy laws has perhaps one major advantage, and one major disadvantage.

Many people feel that the chapter 7 bankruptcy laws, with it's consequent legal writing off of liability for debts accrued allowing individuals to restart their financial life with a clean slate, is the preferred type of bankruptcy despite the fact that virtually all personal posessions have to be sold to pay off debtors as far as possible, as opposed to a chapter 13 filing that does not require the sale of personal assets, but does require that all debts are repaid.

A Chapter 7 bankruptcy stays on one's credit record for ten years, as opposed to Chapter 13's seven.

An "order of relief" and "automatic stay" is issued by the court when a chapter 7 case is filed, this does not apply to chapter 13 filings.

This means that all creditors are prevented from hounding the individual which is important, particularly if a foreclosure notice has been served.

Outstanding student loans and government tax are just two examples of debts that cannot be written off under any trype of bankruptcy, and have to be repaid regardless.

In this case a Chapter 13 filing may be more appropriate, one difference being is that Chapter 13 works out a repayment schedule.

These are the steps to a chapter 7 bankruptcy application:

1. An individual will be requested to list all assets (with values) and details of income. In addition, all debts must be listed, and to whom they are owed.

2. Complete required bankruptcy forms and file them at your nearest Federal court.

3. "Automatic Stay" is triggered, preventing creditors from approaching the individual for payment by any method.

The individuals and their accounts are scrutinized for veracity at a "Meeting of Creditors", for which it is compulsory for the individual to attend, approximately 30 days after filing for chapter 7 bankruptcy.

5. This is where a Trustee is appointed to oversee the liquidation of the individal's non exempt assets, which are duly sold.

6. After approximately 2 - 3 months the discharge is granted by the court and a discharge notice issued.

8. Once the discharge notice is served, no further action may be taken by creditors to recover any debt, and any liability on behalf of the individual is removed.

Individuals are granted a Chapter 7 discharge in 99% of cases.

However, there are grounds for denying a discharge under chapter 7 bankruptcy laws as follows:

1. The individual did not provide accurate accounts.

2. Failure to explain any loss of assets

3. The individual was attempting criminal bankruptcy.

4. The individual broke a bankruptcy court order

5. If any property has been removed, hidden or transferred that belonged to the individual's estate.

If property has been found to have been hidden, transferred or destroyed subsequent to the discharge, that discharge may be quashed.

Finally, in some cases, certain property, although pledged, for example a cherished classic automobile, may keep the property if the debt is "reaffirmed".

"Reaffirmation" allows an individual to keep an item, providing repayments are kept up. It takes the form of a written agreement between debtor and creditor and is filed with the bankruptcy court.

The two main alternatives to chapter 7 bankruptcy are chapter 13 and to a lesser extent, chapter 11.

Chapter 11 is useful if you are in business and wish to avoid liquidation, while Chapter 13 allows you to retain your personal property.

Repayment of debt is still the leading principle of bankruptcy. Should it be decided via means testing that an individual can repay their debt over the longer term (3 - 5 years), they will be forced into a chpater 13 filing by the court.

Continue reading "The Advantages and Disadvantages of Filing a Chapter Seven Bankruptcy Petition" »

There are several different types of bankruptcy. The one people most commonly think of is chapter 7 bankruptcy. It can be confusing to know which of the types of bankruptcy is appropriate in your situation. Here is some information on chapter 7 bankruptcy and whether it is right for you.

Chapter 7 bankruptcy is also referred to as liquidation bankruptcy. It will rid you of your outstanding debts, but the court may force you to liquidate some of your assets in order to satisfy your creditors. Chapter 7 bankruptcy will cost you about $299 between filing fees and paperwork, and will take between four and six months to be completed.

Chapter 7 bankruptcy typically only requires one visit to the courts. Most of the time you will be ordered to take a credit counseling course that is endorsed by the United States Trustee. Be aware that the laws concerning bankruptcy and the various types vary from state to state, so make sure you and your bankruptcy attorney are very familiar with the way bankruptcy law works in your state.

Not everyone is able to file for chapter 7 bankruptcy. If you have had a bankruptcy discharged in the last six to eight years, you may not be eligible to file a chapter 7 bankruptcy. The courts will also review whether you might be eligible to file a chapter 13 instead. This is a repayment plan instead of completely canceling the debt. This is based on things like your income, debt load, and expenses.

New rules dictate exactly what guidelines should be used when determining whether someone has enough income to repay their debts or not. If you are a disabled veteran and your debts were racked up during active duty or your financial burdens were due to a business loss, you are more likely to be able to file a chapter 7 bankruptcy.

Chapter 13 bankruptcy differs from chapter 7 bankruptcy quite a bit. Chapter 13 is a reorganization plan for people who want to pay off their debts over a period of three to five years. Usually the people who choose this option are ones who have assets that are not exempt under chapter 7 bankruptcy rules. People who choose chapter 13 must have enough income to cover their living expenses and enough left over to pay on their debts.

Chapter 11 bankruptcy is used primarily by large businesses to reorganize their debts and pay their creditors. The debtor must come up with a plan and get it approved by the creditors. If they cannot get it approved, they can try to force it through the courts anyway. However, the success rate of this type of bankruptcy can be as low as 10%. This is not a bankruptcy option for consumers.

Chapter 7 bankruptcy is most appropriate for those individuals who have overwhelming amounts of debt and do not have sufficient income to repay those debts. You can keep some assets, but some possessions may need to be sold to help pay back your debt. Once you file the papers, the courts will decide whether you are eligible for a chapter 7 bankruptcy or if a chapter 13 is feasible. It is a fairly quick process and will help end collections harassments.

Continue reading "Information Pertaining to Chapter 7 and Chapter 13 Bankruptcy" »

In February, 1,314 Orange County individuals and businesses filed for bankruptcy, up 35.9 percent from a year earlier.

That is the highest number of February filings in the Santa Ana federal bankruptcy court since 2000, according to data from the U.S. Bankruptcy Court.

In the Central District of California, 9,909 bankruptcies were filed, up 40.5 percent from a year earlier. The Central District covers eight counties from San Luis Obispo to the Arizona border.

Many of the Orange County business filings are driven by real estate,fewer residential-related businesses are filing and more commercial and retail developers and subcontractors are.

Nationwide, almost 111,700 consumer bankruptcies were filed in February, a 14 percent increase from a year earlier, according to the American Bankruptcy Institute.

The vast majority of bankruptcy filings are by consumers, although that number includes many small-business owners whose personal finances tank because their businesses are struggling.

Continue reading "Central District of California Bankruptcy Filings have Increased Over Forty percent" »

If you're considering bankruptcy, keep in mind there are several options to protect your secured car loans and keep the repo man away from your door.

In many states you may be able to avoid repossession through allowable bankruptcy code exemptions, says Steven C. Peck, a Van Nuys, California Bankruptcy Attorney. These exemptions vary greatly from state to state and there are advantages and disadvantages to each.

First, whether you file under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code, you can expect an automatic stay to take effect, Peck says. This stay prevents debt collection, wage garnishment, lawsuits related to your finances, foreclosure and repossession. The automatic stay remains effective until the court discharges your case.

What happens to car loans when you file bankruptcy depends on how long ago you purchased the car. Here's how car loans are handled in Chapter 7 and Chapter 13 personal bankruptcy:

Car loans under Chapter 7
Car loans are secured debt -- the car is pledged as collateral to back the loan. Under Chapter 7 you have three options:

1.Redeem: This option involves one lump sum payment to your creditor for the car's current fair market value. If you can afford to do this, it may make life easier in the future, since you'll have eliminated car payments. But because most people file for bankruptcy at a time when cash is not handy, it may not be a viable option for many filers.
2.Reaffirm: This option allows you to essentially continue making payments on your lease or loan as you did before you filed for bankruptcy. In reaffirming your debt, you agree a second time to continue making payments according to a schedule agreed upon by you and your creditor.
3.Surrender: If neither continuing payments nor redeeming the car will work for you financially (for example, if you owe more on the car than it's currently worth), you can also choose to surrender your vehicle to your creditor and have the remainder of your debt discharged.
Car loans under Chapter 13
Under Chapter 13 bankruptcy, your car's future will depend on when you bought it.

Newer cars: If you bought your car within 910 days of your bankruptcy filing, you're required to pay the full value of the car loan, though your interest rate may be reduced.
Older cars: If you purchased your car more than 910 days before filing for bankruptcy, you're only required to repay the car's current fair market value.

Continue reading "Protecting Secured Car Loans Through Allowable Bankruptcy Code Exemptions" »

When the changes were made a few years back to Bankruptcy laws, Chapter 13 seemed to be where most people landed after taking the Means Test. However, this has changed in more recent times. Chapter 13 Bankruptcy requires the person filing to a strict repayment plan that is intended to pay off the debt. After a person files the plan the bankruptcy court reviews the debts versus the income. This chapter generally allows for a repayment plan ranging from three to five year and this is based on the overall debt and income.

The Chapter 13 Bankruptcy Might Have Monthly Charges Changed
When you enter into the agreement with the court you will be required to provide the court a copy of your income tax return. If your income has decreased it might be possible to lower your monthly payment to the court. However, if you have an increased amount of income your monthly payment may increase.

Your Creditors Can Reject Your Proposal
When your payment plan is presented the creditors are each allowed the opportunity to reject the plan. If you ask for a reduction in the monthly payment plan, perhaps two years after you have been paying, the creditors may hesitate to accept an amount less than what was originally proposed. If negotiations cannot be arranged between the two parties then the case may be dismissed. If it is not dismissed it may be changed to a Chapter 7. Creditors do not like the Chapter 7 possibility as they know they will not receive any future payments. Instead, the creditors usually try to compromise with the person.

Chapter 13 Allows Individuals To Save Their Home
This chapter allows an individual to save their home from foreclosure. However, they still must meet the monthly mortgage payments. The filing party must still remain current on all of the other monthly obligations.

Contact Steven Peck's Premier Legal to talk to an experienced California Bankruptcy Attorney toll free at 1.866.999.9085 and visit us on-line at www.premierlegal.org.

Many people filing for bankruptcy are surprised to find out that not all of their debts are discharged - that is, erased. Certain debts are not eligible for discharge, including:

-- Back taxes
-- Child support and/or alimony
-- Any debts that resulted from a government fine or legal decision - for
example, DUI fines, personal injury suits, damage to the property of
others, unpaid parking tickets, and so on
-- Student loans
-- Some types of condominium or cooperative housing fees

In many bankruptcy proceedings, the debtor does have a right to challenge which debts are or are not discharged, but so do the debtor's creditors. A creditor, such as a bank or a credit card company, can object with the court in writing before the deadline set in the bankruptcy notice. If the court finds that the debtor has provided incomplete paperwork, fraudulent records, a failure to account for lost assets, etc., the court can side with the creditor and force the debtor to repay the debt in full. Given that some of the reasons for denying a discharge can be as minor as incorrectly completing paperwork, Californians facing bankruptcy should seriously consider hiring an attorney says Los Angeles Bankruptcy Attorney Steven C. Peck who may be contacted toll free at 1.866.999.9085

The Bankruptcy means test helps to determine for which type of bankruptcy you qualify for. The outcome of a bankruptcy means test will decide whether you can file for Chapter 7 bankruptcy, in which most of your unsecured debts are completely discharged, or a Chapter 13 bankruptcy, in which your bankruptcy attorney works with the court to design a realistic payment plan to get your finances back on track.

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Congress has been given power under the Constitution to establish the Bankruptcy Code. As such, bankruptcy law is federal law. Congress allows for five types of bankruptcy, Chapter 7, Chapter 9, Chapter 11, Chapter 12, and Chapter 13. Each type of bankruptcy has its own purpose and guidelines: a Chapter 7 is used by individuals (consumers) and is referred to as a "liquidation" because they must sell off any thing of value to pay off creditors; a Chapter 9 is used by insolvent municipalities to adjust for debt; a Chapter 11 is used by business owners, and the court and creditors must approve the payment plan to repay the creditors; a Chapter 12 is similar to Chapter 13, but is used by family fishermen and farmers; and a Chapter 13 is used by consumers and businesses who want to keep their assets and are placed on a payment plan to repay their creditors says Los Angeles Bankruptcy Lawyer Steven Peck.

Although a consumer client may choose a Chapter 7, he or she may not qualify. Ultimately, the bankruptcy trustee appointed by the court will decide which bankruptcy filing is appropriate according to the Bankruptcy Code. The bankruptcy trustee makes this determination based, in part, upon documentation the consumer provides the court. Attorneys often want to review several items before filing with the US Bankruptcy Court.

Continue reading "Congress Empowered the Establishment of the Bankruptcy Act" »

11 U.S.C. § 522(c) provides:

(c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose... before the commencement of the case, except --
(1) a debt of a kind specified in paragraph section 523(a)(1) or 523(a)(5) of this title; [or]
(2) a debt secured by a lien that is --
(A) (i) not avoided under subsection (f) or (g) of [§ 522] or under section 544, 545, 547, 548, 549, or 724(a) of this title; and
(ii) not void under section 506(d) of this title.
Section 522(f)(1)(A)(i) prohibited the avoidance of a judicial lien "that secures a debt... to a spouse, former spouse, or child of the debtor for... support of such spouse or child, in connection with a separation agreement, [or] divorce decree." 11 U.S.C. § 522(f)(1)(A)(i) (2000).

Accordingly, because liens securing child support judgments could not be avoided under § 522(f), those type of liens were not avoided or voided in this case, and any such property was not exempt from liens.

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Continue reading "Avoidance of Liens in Bankruptcy pursuant to 11 U.S.C. § 522(c) - Child Support Judgment Avoidance" »

When the collectors start calling, about debt, and are hounding you every day about how exactly you are likely to pay back the debt and you say you do not have the cash, these people will try to contact other people around you in order to collect that debt.

Sometimes these collectors get completely rude and threaten you or even yell at you whenever you tell them that you have absolutely no means with which to make a repayment. If you choose not to respond, they call back, again and again, usually as often as several times an hour or so. The phone rings and rings with the ominous sound of the upcoming collection call. Those who have ever been in this situation knows how completely annoying and irritating these continuous calls can be. What these debtors should understand, however, is that they can protect themselves from this harassment when they file for Chapter 7 bankruptcy.

Whenever one goes to file Chapter 7 bankruptcy, they're essentially acknowledging that they're in such a financial situation where they are unable to pay back their current debts. Normally this insolvency is not sure to just anyone- presently there is a 'means test' which anyone thinking about filing must pass in order to be qualified to file Chapter 7 bankruptcy. If a person's income is above the average income in their state according to family size, it's entirely possible that the court can dismiss the case depending on this particular fact. Another essential point to note is that only particular debts are discharged under the law. Obviously credit card debts are able to be dismissed, but if an individual owes back kid support, past due taxes, student loans or criminal restitution penalties, for instance, these are not really pardoned under bankruptcy laws, unless they fall under certain criteria says Los Angeles Bankruptcy Attorney Steven C. Peck.

People planning to file Chapter 7 bankruptcy may want to make contact with legal counsel before they do so. If a person wants relief from their expanding consumer debt, then considering the possibility to file Chapter 7 bankruptcy is smart. California Bankruptcy Attorney Steven Peck wo may be contacted toll free at 1.866.999.9085 will counsel you on the choice between a Chapter 7 and a Chapter 13 Bankruptcy.

Chapter Seven personal bankruptcy is quite often called "straight" or sometimes "liquidation" personal bankruptcy -- it cancels a person's debts, however an individual could have to let the bankruptcy court liquidate some of a person's possessions for the benefit of ones own debt collectors. ("Chapter 7″ refers to the section of the actual federal Bankruptcy Code which includes the bankruptcy law.)

Chapter 7 Personal Bankruptcy Fees in Time and Dollars

The full Chapter Seven individual bankruptcy course of action will take about four to 6 months and typically requires only a single visit to the courthouse.

One will have to also complete credit counseling with a particular agency authorized by the United States Trustee.

An individual will not always be able to utilize Chapter Seven individual bankruptcy in the event that an individual previously obtained a personal bankruptcy discharge during the previous 6 to 8 years depending on which sort of individual bankruptcy a person filed) or if, depending on ones own earnings, obligations, and debt burden, an individual might possibly perform a Chapter Thirteen repayment deal.

Declaring for Chapter Seven personal bankruptcy puts in to effect an "Order for Relief" -- identified informally as the "automatic stay." The automatic stay immediately prevents the majority of debt collectors from trying to collect everything that you owe them. Consequently, at least for the short term, creditors are not able to lawfully seize ("garnish") an individual's wages, clean your bank account, go after an individual's motor vehicle, dwelling, or additional property, or cut off ones own utility services or welfare benefits.

By declaring for Chapter 7 personal bankruptcy, you are likely going to be putting the property you have as well as the debts you have in the hands of the personal bankruptcy court. An individual can't sell or simply give away any of the property you own when you file, or pay off your pre-filing financial obligations, without having the court's consent. Nonetheless, with a handful of exceptions, you can accomplish what you wish with property you acquire and income you get paid after you file for bankruptcy.

A week or maybe 2 after you file, you (and all the creditors you record inside your personal bankruptcy papers) are going to get a notice that a "creditors meeting" has been planned. The bankruptcy trustee leads the meeting and, after swearing you in, might ask you questions about your individual bankruptcy and the documents you filled out. In the vast majority of Chapter 7 bankruptcies, this is the debtor's only visit to the courthouse.

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Continue reading "The Basic Procedures After Filing for Chapter 7 Bankruptcy Relief" »

We have all heard of bankruptcy, and the confusing sounding terms "Chapter 7″ and "Chapter 13″. Seemingly everyone is talking about Chapter 7 or Chapter 13 bankruptcy. What do those terms really mean though? And what is the difference between the two?

Chapter 7 bankruptcy is used more for your classic paycheck to paycheck type worker. Chapter 7 bankruptcy would be used by someone who does not have any real significant assets. That is to say people who don't have many assets beyond the basic day to day necessities. Chapter 7 bankruptcy moves along rather quickly in eliminating your unsecured debt. Also any creditors can contact or harass you once that debt is eliminated. You must pass through some particular requirements in order to qualify to file for Chapter 7 bankruptcy, but most middle and lower class individuals are likely qualified. In short Chapter 7 bankruptcy is the more common type of bankruptcy, and is the one most likely to affect individuals.

As for Chapter 13 bankruptcy, this is used by individuals who do have some significant assets and intend to keep them. People filing Chapter 13 bankruptcy also have regular income that can provide for their necessary expenses. They would file for bankruptcy simply because they are unable to keep up with a their debt payment. Likely their debts have simply spun out of control, or were just too large to begin with in the first place. Chapter 13 bankruptcy does not eliminate your debts, but simply puts forward a 3-5 years schedule for you to pay off your debtors. When examining bankruptcy, it is important to remember that some types of debts (such as student loans) cannot be eliminated via bankruptcy. Both types of bankruptcies help individuals manage or eliminate their debts, and protect them from their creditors.

Continue reading "The Difference Between Chapter 7 and Chapter 13 Bankruptcy" »

Debt is one of the most dreaded and troublesome aspects of a person's finances. When people are in debt they need to pay back money that they once borrowed and this can be tough for many people. In this situation a person might have used debt to leverage their needs but unfortunately they had an unexpected setback financially. This could be job loss or loss of income, medical problems, or they eventually find out that their monthly debt payments are too much to cover at the present time. As a result people are in over their heads and are in desperate need of help in order to make their debts payments more affordable.

There are quite a few options for someone who is in debt. They can get credit counseling in order to find a good payment plan for them. These people can also go into a debt consolidation program or a debt settlement program. Negotiating with creditors directly can also be an option for people who are having difficulty paying their debts.

However when it comes to debt settlement there is a last resort which is bankruptcy. Bankruptcy is a legal declaration that an individual cannot pay back their debts. During bankruptcy there are usually two common arrangements that can be made during this process. The first option is Chapter 7 which is declaring insolvency and in most cases all the person's debts are excused and they are no longer liable for the debts. The second option is known as Chapter 13 which is a type of bankruptcy where a person in debt agrees to make a payment plan with their creditors. Chapter 13 and Chapter 7 bankruptcy are among the best bankruptcy plans for debt settlement.

Continue reading "Bankruptcy Is a Legal Declaration That An Individual Is Unable to Pay Their Debts" »

A reaffirmation agreement legally obligates the debtor to pay all or a portion of otherwise dischargeable debts. It is a voluntary agreement not required by bankruptcy codes says Los Angeles Bankruptcy Attorney Steven C. Peck who may be reached toll free at 1.866.999.9085.
The reason for a reaffirmation agreement
Reaffirming your debt can be an important part of a bankruptcy procedure. You can voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid legal reasons for reaffirming a specific debt, such as a vehicle loan. Through a reaffirmation agreement, you can keep either collateral or mortgaged property that would normally be subject to being repossessed.
This kind of agreement is one made by the debtor and the creditor, where the debtor agrees to continue paying for the debt even though he filed for bankruptcy, and the debt could therefore be legally discharged. Basically, it is an agreement by a Chapter 7 debtor to continue paying debts after the bankruptcy.
In some cases, debtors have mortgage or car finance payments, and they want to keep their house or car. That's why they sign a reaffirmation agreement, which allows them to keep the asset as long as they continue to pay for them. Such an agreement is usually made when a debtor wants to keep any large piece of secured property, such as a house, a car or even an airplane.
When to sign a reaffirmation agreement
According to the 2005 Bankruptcy Reform Act, a reaffirmation agreement must be signed prior to the filing of a discharge in bankruptcy and before the debtor receives the disclosures required from the creditors.
No risk is involved unless you know that you are unable to pay back the debt. In other words, it can be worth signing if you need a vehicle to get you to and from work, but not if you know that finally you will fail to pay back the debt.

To date, our bankruptcy courts have done little to help the millions of people swimming in debt. Almost 5 percent of mortgage loans are now in foreclosure, an increase of more than 85 percent since the beginning of 2008, and more than 10 percent of credit card accounts are delinquent. Yet bankruptcy filings for the first two months of this year are only 1.5 times what they were two years ago. And even after that increase, current filing levels are far below those in the first half of this decade.

The problem is that our bankruptcy system is too difficult and expensive for the people who use it. The system has always been complicated, but in 2005 Congress made things worse by changing the rules to make it harder for bankrupt people to avoid paying their outstanding bills. Now that the recession has exposed the flaws of the system, Congress should go back to the drawing board and drastically simplify the bankruptcy system.

At the heart of the existing process is a strategic choice between liquidation under Chapter 7 or rehabilitation under Chapter 13. Under Chapter 7, households give up all of their nonessential assets (as determined by the law of the state where they live), but pay nothing out of any future income to clear their debts; those debts are simply erased. Under Chapter 13, households make payments out of future income, but are more likely to retain their homes and automobiles.

The 2005 reforms, driven by an exaggerated concern that debtors might game the system, instituted a series of paper-intensive procedural safeguards. All debtors must produce documents that estimate potential increases in expenses or income during the year to come, a monthly net income statement and a complex "means test calculation" that certifies expenditures in a large number of specific, carefully defined categories.

The result is a lawyer- and paperwork-centered system in which the families most in need of quick relief wait months to save up for the filing costs and attorneys' fees necessary to file a bankruptcy petition. Although total expenses vary a great deal, the statutory filing fees are now almost $300 and lawyer's fees alone average more than $1,000.

Congress's 2005 reforms also directly discouraged filings under Chapter 7 (the option typically used by people with few assets) and encouraged filings under Chapter 13 (the traditional procedure for homeowners).

If the bankruptcy system was doing its job, the mortgage-driven financial crisis should then have led to a sharp increase in filings under Chapter 13. Homeowners unable to keep up with their mortgages should have been able to file for relief under Chapter 13, resolve their problems and move on with their lives. Yet the share of Chapter 13 filings fell in 2009 to only 28 percent of all filings, from 42 percent in 2006.

That's another perverse result of the 2005 reforms: Chapter 13 does not let people avert foreclosure by paying the actual value of their homes, even when their bubble-era mortgages far exceed realistic market prices. In fact, a "special rule" for home mortgages allows lenders to prevent normal bankruptcy relief for borrowers. Thus, the reforms created a system that makes it harder to file for Chapter 7 while doing nothing to make Chapter 13, once the savior of homeowners, useful in this sort of mortgage crisis.

Under a sensible bankruptcy system, households in severe financial distress ought to be able to discharge their debts if they are willing to do two simple things: turn over all assets and make payments out of future income, to the extent that either exceeds a low and nationally uniform threshold. If debtors wanted to keep assets against which they have borrowed, they should have to pay the fair value of the assets, but nothing more.

Continue reading "Bankruptcy System Too Difficult and Expensive To Be Effective?" »

Can I File Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is intended to provide relief for people who have a lot of unsecured debt and don't have sufficient income or assets to make good on that debt.
Unlike Chapter 13 bankruptcy, Chapter 7 bankruptcy isn't designed to help debtors catch up on past-due accounts - it's meant to discharge (eliminate) debt.

Who Files Chapter 7 Bankruptcy?

Most people who file for Chapter 7 bankruptcy have primarily unsecured debts: debt like credit card debt, medical bills, past due utility bills, unsecured personal loans and similar debts.
People who have outstanding debt on big-ticket items like homes and cars and want to keep that property usually opt to file for Chapter 13 bankruptcy, which allows for repayment of debts over a 3-5 year period and allows the debtor to keep his property.

New Bankruptcy Law

- The new bankruptcy law that took effect in October of 2005 sought to make sure that people who could pay some or all of their debts did so.

- The law now makes anyone who wants to file Chapter 7 bankruptcy take the Chapter 7 means test.

- The means test attempts to screen debtors to find out whether or not they have the means available to pay some or all of their debts.

The First Step in Filing Chapter 7 Bankruptcy: The first step of the means test is to compare the debtor's income to the state median income where he resides. The test ends right there for most Chapter 7 debtors--if the debtor's income is below the median for his state, he can file under Chapter 7. However, if a debtor's income is higher than his state's median, it doesn't necessarily mean that he can't file under Chapter 7: it just means that the debtor must move on to the next step of the means test and provide additional information to determine how much disposable income he has available to pay debts. The short answer is that nearly everyone who would have filed for Chapter 7 bankruptcy before the law change can still do so.

Talk to a Chapter 7 Bankruptcy Lawyer for More Information

For specific information about your eligibility for Chapter 7 bankruptcy and to find out whether filing bankruptcy would provide the relief and protection you need, talk to a bankruptcy attorney. The decision to file for bankruptcy is difficult. There are many nuances in bankruptcy law that determine how filing for Chapter 7 bankruptcy will impact your life. An experienced bankruptcy attorney should be able to help you understand the different options available to you and advise you about the best course of action for your circumstances.

Continue reading "Chapter 7 Bankruptcy - It's Meant to Discharge (Eliminate) Debt" »

The passage of the tough new bankruptcy laws in 2005 was supposed to benefit consumers in the form of reducing losses to lenders by making it harder to file bankruptcy. But two new reports released this week show that the new laws not only cost consumers more in terms of credit card debt, but may actually be encouraging greater losses to banks due to increased foreclosures.

According to new research, after the 2005 bankruptcy reform went into effect, both personal bankruptcy filings and credit card company losses sharply declined.

At the same time, while upfront annual fees on credit cards have been all but eliminated, fees have been climbing and becoming less transparent over the years, and there is no evidence that the 2005 bankruptcy reform reversed this trend...over-limit fees and late fees have been climbing since well before bankruptcy reform, and that this trend continued after the 2005 bankruptcy reform.

Industry consolidation in the credit card market enabled the top card issuers to avoid losses from "price wars" by reducing rates to attract new customers.

The credit card industry might also be able to avoid price competition because of complex, multi-tiered pricing that can make it difficult for customers to comparison shop. These fees and interest rates--complex in their own right--are presented in a form that is difficult to understand. Customers faced with such complex pricing systematically miscalculate and underestimate the cost of credit card debt.

A 2006 report from the Government Accountability Office (GAO) that found not only that bank fees and penalties are continuing to rise for card holders, but that credit card disclosures and explanations of fees are deliberately written in manners that make them hard to understand. The GAO also recommended in a separate report that credit card issuers use existing technology to customize card disclosures to individual cardholders, particularly those with high balances or frequent late payments.

The fact that after bankruptcy reform, interest rates and fees continued to rise and grace periods continued to fall, even though credit card companies reaped tremendous gains from declining bankruptcy losses demonstrates that the credit card market is not price-competitive. This lack of price competition explains why the benefits of bankruptcy reform accrued exclusively to credit card lenders and were not shared with the average American family, and why...bankruptcy reform was a failure.

Negative Impact

Another effect of the bankruptcy laws is the increase in foreclosures and defaults by mortgage holders who can't afford to make payments on their homes. The more stringent bankruptcy code, by restricting financial relief available under the bankruptcy code and by increased the costs of filing bankruptcy, appears to have increased the number of individuals walking away from their homes, their mortgages, and their other financial obligations without seeking the protection of the bankruptcy court.

Under the new law, most individual filers would not qualify for Chapter 7 bankruptcy, which allows for the liquidation and erasure of most debt. Instead, they would be forced to file under Chapter 13, which requires regular payments of at least some of their debt to creditors.

The more stringent requirements of the new laws may be causing homeowners to "walk away" and let their homes go into foreclosure rather than attempt to file for bankruptcy. The restrictions on bankruptcy filings and subsequent increase in foreclosures puts downward price pressures on neighborhoods where many homes are in default or foreclosed upon.

One of the great lessons and ironies associated with [the new bankruptcy law] is that the new law by increasing the dollar value of assets susceptible to default has weakened many of the financial companies that sought the more stringent bankruptcy code.

Continue reading "New Bankruptcy Laws Actually Encourage Greater Losses Due to Increased Foreclosures" »

There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the United States Code:
Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available
Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts
Chapter 11: rehabilitation or reorganization, used primarily by business debtors, but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganization which typically allows companies to continue to function while they follow debt repayment plans
Chapter 12: rehabilitation for family farmers and fishermen;
Chapter 13: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy
Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors to clear debts.
The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases. Corporations and other business forms file under Chapters 7 or 11.

In Chapter 7, a debtor surrenders his or her non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor's unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt; however, the debtor will not be granted a discharge if he or she is guilty of certain types of inappropriate behavior (e.g. concealing records relating to financial condition) and certain debts (e.g. spousal and child support, student loans, some taxes) will not be discharged even though the debtor is generally discharged from his or her debt. Many individuals in financial distress own only exempt property (e.g. clothes, household goods, an older car) and will not have to surrender any property to the trustee. The amount of property that a debtor may exempt varies from state to state. Chapter 7 relief is available only once in any eight year period. Generally, the rights of secured creditors to their collateral continues even though their debt is discharged. For example, absent some arrangement by a debtor to surrender a car or "reaffirm" a debt, the creditor with a security interest in the debtor's car may repossess the car even if the debt to the creditor is discharged.

The 2005 amendments to the Bankruptcy Code introduced the "means test" for eligibility for chapter 7. An individual who fails the means test will have his or her chapter 7 case dismissed or may have to convert his or her case to a case under chapter 13.

Generally, a trustee will sell most of the debtor's assets to pay off creditors. However, certain assets of the debtor are protected to some extent. For example, Social Security payments, unemployment compensation, and limited values of your equity in a home, car, or truck, household goods and appliances, trade tools, and books are protected. However, these exemptions vary from state to state. Therefore, it is advisable to consult an experienced bankruptcy attorney.

In Chapter 13, the debtor retains ownership and possession of all of his or her assets, but must devote some portion of his or her future income to repaying creditors, generally over a period of three to five years. The amount of payment and the period of the repayment plan depend upon a variety of factors, including the value of the debtor's property and the amount of a debtor's income and expenses. Secured creditors may be entitled to greater payment than unsecured creditors.

Relief under Chapter 13 is available only to individuals with regular income whose debts do not exceed prescribed limits. If you're an individual or a sole proprietor, you are allowed to file for a Chapter 13 bankruptcy to repay all or part of your debts. Under this chapter, you can propose a repayment plan in which to pay your creditors over three to five years. If your monthly income is less than the state's median income, your plan will be for three years unless the court finds "just cause" to extend the plan for a longer period. If your monthly income is greater than your state's median income, the plan must generally be for five years. A plan cannot exceed the five-year limitation.

In contrast to Chapter 7, the debtor in Chapter 13 may keep all of his or her property, whether or not exempt. If the plan appears feasible and if the debtor complies with all the other requirements, the bankruptcy court will typically confirm the plan and the debtor and creditors will be bound by its terms. Creditors have no say in the formulation of the plan other than to object to the plan, if appropriate, on the grounds that it does not comply with one of the Code's statutory requirements. Generally, the payments are made to a trustee who in turn disburses the funds in accordance with the terms of the confirmed plan.

When the debtor completes payments pursuant to the terms of the plan, the court will formally grant the debtor a discharge of the debts provided for in the plan. However, if the debtor fails to make the agreed upon payments or fails to seek or gain court approval of a modified plan, a bankruptcy court will often dismiss the case on the motion of the trustee. Pursuant to the dismissal, creditors will typically resume pursuit of state law remedies to the extent a debt remains unpaid.

In Chapter 11, the debtor retains ownership and control of its assets and is re-termed a debtor in possession ("DIP"). The debtor in possession runs the day to day operations of the business while creditors and the debtor work with the Bankruptcy Court in order to negotiate and complete a plan. Upon meeting certain requirements (e.g. fairness among creditors, priority of certain creditors) creditors are permitted to vote on the proposed plan. If a plan is confirmed the debtor will continue to operate and pay its debts under the terms of the confirmed plan. If a specified majority of creditors do not vote to confirm a plan, additional requirements may be imposed by the court in order to confirm the plan.

Chapter 7 and Chapter 13 are the efficient bankruptcy chapters often used by most individuals. The chapters which almost always apply to consumer debtors are chapter 7, known as a "straight bankruptcy", and chapter 13, which involves an affordable plan of repayment. An important feature applicable to all types of bankruptcy filings is the automatic stay. The automatic stay means that the mere request for bankruptcy protection automatically stops and brings to a grinding halt most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection harassment.

Continue reading "There Are Six Types of Bankruptcy Under the United States Code" »

11 U.S.C. § 522(d)(11)(D) reads as follows:

§ 522. Exemptions
(d) The following property may be exempted under subsection (b)(2) of this section:
(11) The debtor's right to receive, or property that is traceable to --
(D) a payment, not to exceed $20,200, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; . . .
Federal Rule of Bankruptcy Procedure 4003(c) provides as follows:
Rule 4003. Exemptions
(c) Burden of Proof. In any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed. After hearing on notice, the court shall determine the issues presented by the objections.
House Report 95-595 provides, "this provision in subparagraph (D)(11) is designed to cover payments in compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant cost that accompany such loss, such as medical payment, pain and suffering, or loss of earnings. Those items are handled separately by the bill." H.R. 95-595 at 362, U.S. Code Cong. and Admin. News 1978, pp. 5787, 6318.

To say that the exemption provided by Section 522(d)(11) and the attendant legislative history is a bit ambiguous would be an understatement. Cases discussing the ambiguity of this section and the little guidance provided by the legislative history are legend and need not be cited herein. For resolution of this Opinion, the Trustee's sole position is that the personal bodily injury referred to in the exemption section must be permanent. For their part, the Debtors assert the injury does not need to be permanent and they have no quarrel with the Trustee's Amended Objection that the exemption cannot extend to pain and suffering or compensation for actual pecuniary loss but only advance that part of the Objection based upon its timeliness.

The filing of an objection to an exemption creates a dispute which is a contested matter under the Federal Rules of Bankruptcy Procedure. See the Advisory Committee Note to Rule 9014 (Contested Matters). Federal Rule of Bankruptcy Procedure 4003 (Exemptions) at subparagraph (b)(1) provides the following:

Rule 4003. Exemptions
(b) Objecting to a Claim of Exemptions.
(1) Except as provided in paragraphs (2) and (3), a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later. The court may, for cause, extend the time for filing objections if, before the time to object expires, a party in interest files a request for an extension.
There is no question that the Trustee's initial Objection to the exemptions was timely under the applicable Rule. Furthermore, under Rule 9014(c), "the court may at any stage in a particular matter direct that one or more of the other rules in part VII (Adversary Proceedings) shall apply." Federal Rule of Bankruptcy Procedure 7015 (Amended and Supplemental Proceedings) at subparagraph (a)(2) provides as follows:

(a) AMENDMENTS BEFORE TRIAL.
(2) Other Amendments. In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.
The Court notes that the prayer of the original Objection requests that the claimed exemption of $40,400.00 under 11 U.S.C. § 522(d)(11)(D) be dismissed and denied. The Court finds that the Debtors were put under adequate notice by the prayer of the original Objection that the exemption was being attacked by the Trustee under the entirety of 11 U.S.C. § 522(d)(11)(D). It appears, perhaps out of an abundance of caution, that the Trustee felt it necessary to amend the Objection to specifically call attention to that portion of subparagraph (d)(11)(D) referencing that the exemption could not include pain or suffering or compensation for actual, pecuniary loss. Regardless of the Trustee's motivation, the Court finds that the Debtors were not prejudiced in any manner by the filing of the Amendment and that their due process rights to defend the Objection were not compromised by the filing of the Amendment to the Objection and the timing of the Amendment. It is for these reasons that the Court will overrule the Debtors' Objections to the asserted untimeliness of the Trustee's Amendment to its original Objections to the Exemptions.

Having determined to permit the Trustee to amend the objections to the underlying exemption as set forth above, I will now address whether personal bodily injury needs to be permanent and, secondarily, whether a "loss of consortium" also qualifies under this exemption. The plain reading of the exemption and the accompanying legislative history provides no definitive conclusion that the "personal bodily injury" must be of a permanent nature. Addressing the issue of defining personal bodily injury, the following is provided in the case of In re Scotti, 245 B.R. 17 (Bankr.D.N.J. 2000):

Therefore the key to understanding and applying § 522(d)(11)(D) is defining "personal bodily injury," as that term is used in the statute. The statute, unfortunately, fails to provide such a definition. Case law, however, suggests that in order for a debtor to utilize § 522(d)(11)(D) the debtor must have suffered at least "appreciable" or "cognizable" physical injury. See In re Barner, 239 B.R. 139, 142 (Bankr.W.D.Ky. 1999); In re Ciotta, 222 B.R. at 633. Damages for loss of a limb, physical disability, bone fractures and dislocations, and loss of consortium have all qualified for exempt status under the statute. See In re Lester, 141 B.R. 157, 157 (S.D.Ohio 1991); In re Territo, 36 B.R. at 669-670; In re Blizard, 81 B.R. 431 (Bankr.W.D.Ky. 1988); In re Lynn, 13 B.R. at 361.
Scotti, 245 B.R. at 20.

The permanency of injury issue was further addressed in the case of In re Lawton, 324 B.R. 20 (Bankr.D.Conn. 2005). The Court, based upon both the reading of the statute and the legislative history, concluded that personal bodily injury did not need to be permanent to be exemptible under 522(d)(11). Also, in support, the Court cited In re Barner, 239 B.R. 139, 145 (Bankr.W.D.Ky. 1999) and In re Ciotta, 222 B.R. 626 (Bankr.C.D.Cal. 1998). See further, In re Claude, 206 B.R. 374 (Bankr.W.D.Pa. 1997).

In this case, the Debtors allege that as a result of the automobile accident, the Debtor suffered a cartilage tear of the left wrist and synovitis of the right wrist. Furthermore, the injuries caused the Debtor to experience wrist pain with radiation into his arms and fingers. Debtor alleges that he was unemployed for a period of nearly three months due to the severity of the personal injuries and continues, two years after the injury, to experience wrist pain. The Court finds that the injuries suffered by the Debtor are the type of "personal bodily injury" covered by that term as used in § 522(d)(11)(D). Addressing the female Debtor's exemption for loss of consortium, the Court has found very little case law addressing this issue. Several bankruptcy courts interpreting the exemption statute have found a loss of consortium to be exempt because it is derived from the spouse's personal bodily injury. See In re Dealey, 204 B.R. 17, 18 (Bankr.C.D.Ill. 1997).

Continue reading "Challenging Exemptions Under The United States Bankruptcy Code" »

Bankruptcy in the United States is a constitutionally (Article 1 Section 8, Clause 4 to be exact) approved way for business entities and individuals to settle big amounts of debt. Congress is in charge of making the bankruptcy laws. The most recent change was an amendment to existing laws through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. For other laws relevant to bankruptcy, turn to the United States Code.

Bankruptcy cases are filed in United States Bankruptcy Court, so federal law will govern the procedure in bankruptcy cases. But state laws are also applied when property rights are being determined. Example: rules that protect property from creditors (the people you owe money to) will come from state law.

Bankruptcy comes in a number of forms, or Chapters. Title 11 of the United States code contains nine chapters. Six of these will require you to file a petition. The remaining three have rules to govern these petitions.

Chapter Seven is the most well known form of bankruptcy. This involves a trustee who is appointed to obtain the property of the debtor that is not protected by law. Then, they sell it and distribute the proceeds to the creditors. Every state lets debtors keep essential property, so most Chapter 7 cases will let the debtor keep all of their property.

A Chapter Nine bankruptcy is available only to municipalities. It's not a form of liquidation, rather its a form or reorganization. One famous example of this was when Orange County, California's Chapter Nine bankruptcy. Bankruptcy under Chapter 11, Chapter 12, or Chapter 13 is more complex. It involves reorganization and letting the debtor keep some, or all of their property. They will utilize future earnings to pay off creditors. People usually file Chapter 7 or Chapter 13. Sometimes an individual will file for Chapter 11, but this is rare. Chapter 12 is similar to Chapter 13, but is only available to "family farmers" and "family fisherman" in some situations. Generally, chapter 12 has is more generous for debtors than a similar Chapter 13 case.

Continue reading "Bankruptcy: The Constitutional Avenue to Settle Debt" »

US BUSINESS bankruptcies rose again in last month, marking the fifth-straight February that such filings have increased, according to a bankruptcy data provider on Tuesday.

Companies from a range of industries, including video rental chain Movie Gallery Inc MVGRQ.PK , radio network Air America and luxury ski resort developer East West Resort Development V LP LLLP, were among the 6,557 businesses that filed for relief from creditors in February, according to Automated Access to Court Electronic Records (AACER), a database of US bankruptcy statistics.

'Even if the economy gets better, bankruptcy filings continue at a healthy clip for six to 18 months,' said Mike Bickford, president of AACER. 'And it's not at all clear as to whether we're really in a recovery.' On average, 345 businesses filed for bankruptcy each day, up from 336 last year, according to AACER.

Combined, business and personal bankruptcy filings jumped 13 per cent from the same period last year.

Companies and individuals filed 6,171 bankruptcies daily, on average. That is the second-highest rate since the 2005 bankruptcy reform act took effect. Only October 2009 had a higher count with some 6,352 bankruptcies filed per day.

Continue reading "U.S Bankruptcies are Still Growing" »

If your business is in the red, take steps to protect your personal assets.

If your business is in distress -- you owe a lot of money but you can't pay -- your creditors will probably threaten legal action against you personally. How much they can collect will depend on how your business is organized, whether you personally guaranteed any repayments, and whether you decide to file for bankruptcy.

Payroll Taxes: You're Personally On the Hook
The IRS holds all business owners personally liable for unpaid payroll taxes, regardless of your business's structure.

Sole Proprietors and Partnerships
If you're a sole proprietor, you and your business are legally one and the same, so you're personally responsible for all debts. If there isn't enough money in the business to pay these debts, creditors can and will take your personal assets.

In a general partnership, each partner is personally liable for the entirety of the business's debts (and any partner can usually bind the entire partnership to a business deal -- a scary combination). This means that if there isn't enough money in the business to pay the debts, and your partners are broke, creditors can take your personal assets to pay all of the business's debts, not just your share.

Corporations and Limited Liability Companies
If your business is organized as a corporation or a limited liability company (LLC), your personal assets are usually protected from business creditors --unless you specifically gave up your so-called "limited liability" protection. Unfortunately, you may have done so if a bank or other creditor required a personal guarantee and/or personal security before loaning you money, leasing you space, or extending credit. It's a common practice. Such personal guarantees undo your limited liability, allowing the creditor access to your personal assets if the business can't cover the debt. A creditor can also ask a business owner to secure a business debt by pledging specific personal property, such as a house, boat, or car.

The Bankruptcy Option
If your business bank account is empty and you're in a lot of debt, you might be considering bankruptcy. Although it won't guarantee you'll get to keep your house or other property, it can at least give you some breathing room. And you'll be able to keep the basic necessities of life (clothing, furniture, and so on), as well as some or all of your equity in your house and car.

Business vs. Personal Bankruptcy
If you're a sole proprietor, you can file for either Chapter 13 or Chapter 7 bankruptcy. Either can be used for personal debts or business debts.

If you're a corporate shareholder, LLC owner, or partner in a partnership and you've signed personal guarantees or pledged collateral for business loans, putting your business through bankruptcy won't protect your personal property.

So let's assume you want to file for personal bankruptcy, either using Chapter 7 or Chapter 13. In a Chapter 7 bankruptcy, your assets (except for property that's exempt under state or federal law) can be sold to pay off your creditors. At the end, all your debts that are eligible for discharge in bankruptcy will be wiped out.

In a Chapter 13 bankruptcy, you propose a repayment plan where you repay part or all of the debt over three to five years. You don't lose any property in a Chapter 13 bankruptcy; instead, you pay off your debts using your income.

How Bankruptcy Might Help
When you file for bankruptcy, something called an automatic stay immediately stops your creditors from foreclosing on your house or any other personal property. This can buy you time, if nothing else.

Beyond this, the type of debt you have will affect how and whether bankruptcy can help you. Bankruptcy wipes out most unsecured debts (for example, credit card bills and lawsuit judgments), but secured debts are a bit different. If you pledged property -- such as your home -- as collateral for a loan, the creditor is entitled to take the property, even if you file for bankruptcy. Although you may not have to pay back what you owe on the loan, even if it's more than your home is worth, you will lose your home. You may have the right to keep some of your equity in the home, however.

Filing for Chapter 13 might be a better option if you're faced with losing property you really want to keep. In Chapter 13, you can include the debt in your repayment plan, spreading the payments out over five years. This gives you a better chance of making good on the debt, which will allow you to keep your property.

Continue reading "Take Steps to Protect Your Personal Assets When Contemplating Bankruptcy" »

Under the Federal Rules of Bankruptcy Procedure, reaffirmation agreements "shall be filed no later than 60 days after the first date set for the meeting of creditors . . . [although t]he court may, at any time and in its discretion, enlarge the time to file a reaffirmation agreement." Fed. R. Bankr. P. 4008(a). This enlargement of time is addressed by local rule as well, which allows for debtors to file a motion to delay entry of the discharge order "for not more than 30 days upon the filing of a motion by the debtor and submission of a proposed order . . . prior to the expiration of the deadline prescribed by Fed. R. Bankr. P. 4004(a) [no later than 60 days after the first date set for the meeting of creditors under § 341(a)]." E.D. Tenn. LBR 4004-1(b)(1). Additional delays may be requested for specific grounds, including "difficulty in obtaining a reaffirmation agreement with a creditor," but under all circumstances, "[t]he motion must be filed prior to the expiration of the period of delay most recently granted or if later, the Fed. R. Bankr. P. 4004(a) deadline[.]" E.D. Tenn. LBR 4004-1(b)(2). The case law concerning this subject is equally clear: if debtors wish for additional time in which to enter into a reaffirmation agreement, they must file a motion to delay discharge prior to entry of the order of discharge. Graham, 297 B.R. at 700.

Continue reading "Bankruptcy Reaffirmation Agreements Must Be Timely Filed" »

The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who have an income, as calculated by the Code, above the debtor's state's median income to an income based test. This test is referred to as the "means test." The means test provides for a finding of abuse if the debtor's income is higher than a specified portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances." Debtors whose income is below the state's median income are not subject to the means test. Under this test, any debtor with more than $182.50 in monthly disposable income, under the formula, would face a presumption of abuse indicates Los Angeles Bankruptcy Lawyer Steven C. Peck.

Notably, the Code calculated income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code's "current monthly income" as "presumed income." If the debtor's debt is not primarily consumer debt, then the means test is inapplicable. The inapplicability to non-consumer debt allows business debtors to "abuse" credit without repercussion unless the court finds "cause."

"Special circumstances" does not confer judicial discretion, rather it gives a debtor an opportunity to adjust income by documenting additional expenses or loss of income in situations caused by a medical condition or being called or order to active military service. However, the assumption of abuse is only rebutted where the additional expenses or adjustments for loss of income are significant enough to change the outcome of the means test. Otherwise, abuse is still presumed despite the "special circumstances."

Continue reading "The Federal Bankruptcy "Means Test"" »

Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 ("straight bankruptcy", or liquidation). Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.

In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold (liquidated) by the interim trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.

A chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the chapter 7 petition. This contrast with a chapter 13 bankruptcy, which stays on an individual's credit report for 7 years from the date of filing the chapter 13 petition. This may make credit less available and/or terms less favorable, although high debt can have the same effect. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness. Consumer credit and creditworthiness is a complex subject, however. Future ability to obtain credit is dependent on multiple factors and difficult to predict.

Another aspect to consider is whether the debtor can avoid a challenge by the United States Trustee to his or her Chapter 7 filing as abusive. One factor in considering whether the U.S. Trustee can prevail in a challenge to the debtor's Chapter 7 filing is whether the debtor can otherwise afford to repay some or all of his debts out of disposable income in the five year time frame provided by Chapter 13. If so, then the U.S. Trustee may succeed in preventing the debtor from receiving a discharge under Chapter 7, effectively forcing the debtor into Chapter 13.

It is widely held amongst bankruptcy practitioners that the U.S. Trustee has become much more aggressive in recent times in pursuing (what the U.S. Trustee believes to be) abusive Chapter 7 filings. Through these activities the U.S. Trustee has achieved a regulatory system that Congress and most creditor-friendly commentors have consistently espoused, i.e., a formal means test for Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has clarified this area of concern by making changes to the U.S. Bankruptcy Code that include, along with many other reforms, language imposing a means test for Chapter 7 cases.

Creditworthiness and the likelihood of receiving a Chapter 7 discharge are only a few of many issues to be considered in determining whether to file bankruptcy. The importance of the effects of bankruptcy on creditworthiness is sometimes overemphasized because by the time most debtors are ready to file for bankruptcy their credit score is already ruined.

Continue reading "Chapter Seven Individual Bankruptcy An Overview" »