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Chapter 7 of the Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws of the United States. (In contrast, Chapters 11 and 13 govern the process of reorganization of a debtor in bankruptcy.) Chapter 7 is the most common form of bankruptcy in the United States.

For individuals:

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 contrasts 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. Also, new credit extended post-petition is not covered by the discharge, so creditors may offer new credit to the newly-bankrupt.

Continue reading "Chapter Seven Bankruptcy Protection Governs Liquidation and Discharge Of Payment Obligations" »

Chapter 13 is a type of bankruptcy called a plan of reorganization or repayment. The debtor must pay all or part of their debts. The debtor must first submit a plan for repayment in bankruptcy court so that it can be approved. This means that the debtor will pay his debts with the protection of the court. Within that period, the debtor must pay his debts to a Chapter 13 trustee. The trustee will distribute the money paid by debtors to creditors says Peck law Grouip Bankruptcy Attorney Steven C. Peck.

The only time that the debtor is relieved of its debts is when the repayment is completed. When you file personal bankruptcy, Chapter 13 is necessary to know its drawbacks, this can help make your decision. The main disadvantage of this failure is that the duration of the state of bankruptcy will last for some years. This state of bankruptcy, leaving a big red mark on your credit report and this affects the chances of getting a new loan. Bankruptcy can also affect the future employment of individuals. It will be difficult for employers to hire someone for a management position that has a history of failure. Also make sure you have a stable income for the period of repayment, not being able to pay the amount indicated in the repayment plan, the bankruptcy court can dismiss your Chapter 13 type of bankruptcy. This allows you to convert your Chapter 7 bankruptcy of a type of failure.

Continue reading "Chapter 13 Bankruptcy Is A Plan Of Reorganization and Repayment" »

Types of Bankruptcy:

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code. The cases are traditionally given the names of the chapters that describe them.

Chapter 7:

Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor' s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor' s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor' s assets. These cases are called " no-asset cases." A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. Amendments to the Bankruptcy Code enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a " means test" to determine whether individual consumer debtors qualify for relief under chapter 7. If a debtor' s income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Chapter 13:

Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a " plan" to repay creditors over time - usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor' s repayment plan, depending on whether it meets the Bankruptcy Code' s requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor' s anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

Chapter 11:

Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan. The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and rescale its operations in order to return to profitability. Under chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.

Chapter 12:

Chapter 12, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income. The process under chapter 12 is very similar to that of chapter 13, under which the debtor proposes a plan to repay debts over a period of time - no more than three years unless the court approves a longer period, not exceeding five years. There is also a trustee in every chapter 12 case whose duties are very similar to those of a chapter 13 trustee. The chapter 12 trustee' s disbursement of payments to creditors under a confirmed plan parallels the procedure under chapter 13. Chapter 12 allows a family farmer or fisherman to continue to operate the business while the plan is being carried out.

Chapter 9:

Chapter 9, entitled Adjustment of Debts of a Municipality, provides essentially for reorganization, much like a reorganization under chapter 11. Only a " municipality" may file under chapter 9, which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts.

Continue reading "What Are The Different Bankruptcy Chapters?" »

Rehabilitation, or reorganization, of debt is an option that courts usually favor because it provides creditors with a better opportunity to recoup what is owed to them. Rehabilitative bankruptcies are governed most often by chapter 11 or chapter 13 of the Bankruptcy Code. Chapter 11 bankruptcy typically applies to individuals with excessive or complex debts, or to large commercial entities such as corporations.

Unlike liquidation, as done with a chapter 7 bankruptcy, rehabilitation provides the debtor with an opportunity to retain nonexempt assets. In return, the debtor must agree to pay debts in strict accordance with a reorganization plan approved by the bankruptcy court. During this repayment period, creditors are unable to pursue debts beyond the provisions of the reorganization plan. This gives the debtor the chance to restructure affairs in the effort to meet financial obligations.

To be eligible for rehabilitative bankruptcy, the debtor must have sufficient income to make a reorganization plan feasible. If the debtor fails to comply with the reorganization plan, the bankruptcy court may order liquidation. A debtor who successfully completes the reorganization plan is entitled to a discharge of remaining debts. In keeping with the general preference for bankruptcy rehabilitation rather than liquidation, the goal of this policy is to reward the conscientious debtor who works to help creditors by resolving his or her debts.

Continue reading "Reorganization Is A Favored Because It Provides Creditors A Better Opportunity To Recoup What Is owed To Them" »

Mortgages certainly are a hot button issue with over 2 million homeowners left needing protection from foreclosure in 2009. So, how is your home equity line treated in a California Chapter 7 bankruptcy?

A home equity line is usually considered the same as a second or third mortgage. Mortgages are secured debts that are tied to your house, and if you don't pay them, you could be left needing protection from foreclosure. In a California Chapter 7 bankruptcy, almost any debt can be discharged unless it is tied to property that you wish to keep. You cannot discharge a home equity line in a California bankruptcy if it is connected to property you intend to keep.

Luckily, a California bankruptcy lawyer has a different way to help those intending to keep their homes. Your back payments will be put into your plan while you continue to make your payments and stay current with a California chapter 13 bankruptcy. And, in some instances, if you owe more than the home is worth, you may be able to strip the loan and discharge the debt completely. You would be well-advised to contact a California bankruptcy attorney who can help you determine the best course of action to take with your home equity line.

The many options that can be considered for a home equity line is yet another indicator that the bankruptcy code was truly designed to help the average American as much as possible. You will have an easier time getting the exact results you need from a Chapter 7 bankruptcy by finding a California bankruptcy attorney who knows all the ins and outs of the bankruptcy code. The writers of the bankruptcy code made it so that help is available in almost every scenario you can imagine. However, only an experienced Peck Law Group bankruptcy lawyer can truly help you find the perfect solution to your financial situation.

Continue reading "How Are Home Equity Lines Treated In A Chapter Seven Bankruptcy?" »

Types of bankruptcy:

One might have heard the words Chapter 7 or Chapter 11 but, what are they?

These are actually the type of bankruptcy which is named after the title chapter of the federal bankruptcy act. Below given are the three common type of bankruptcy available.

Chapter 7:

Chapter 7 is also called as liquidation bankruptcy. In the chapter 7 bankruptcy rules, all assets and the non exempt properties if they exist are turned to a trustee for converting them into cash, so they can pay it to the creditors. In return of this the debtor will receive Chapter 7 discharge which will release all the debts from his accounts. To check whether a person is eligible for filing chapter 7 or not, he has to give Chapter 7 Bankruptcy Means Test. This test is a formula which is designed to keep away the filers of higher income from filing it.

Chapter 11

This bankruptcy is normally used for business and it's not an option for individual consumer. This type of bankruptcy gives business an opportunity to reorganize the business, restructure the debts and get out from it. It's also expensive to pursue chapter 11 bankruptcy.

Chapter 13

Chapter 13 bankruptcy is also called as mini chapter 11 because it also allows few qualified individuals and small proprietary business to file it. Chapter 13 bankruptcy enables a debtor to retain his assets which would or else be liquidate by chapter 7 trustees.

According to chapter 13 bankruptcy information, one can keep his home and car under chapter 7 or chapter 13. Though there are few cases in which it would not allow to keep the rental properties, gun collections etc. but if a person files for chapter 13 bankruptcy than he can keep his luxurious items.

Continue reading "What Are The Different Types of Bankruptcy?" »

People can file either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 discharges (eliminates) debt. Chapter 13 creates a payment plan to repay debt. To file Chapter 7, filers must pass a "means test" showing they do not have enough income to repay their debt. The bankruptcy reform law tried to discourage this type of filing, but Chapter 7 filings were up by 42 percent in 2009. In July, Chapter 7 accounted for 75 percent of bankruptcy filings. Know that occasionally, student loans are discharged, but it takes a special process to prove undue hardship. The process can be expensive and difficult says California Bankruptcy Attorney Steven C. Peck.

Whatever you do, know that you are not alone. Repaying student loans can be difficult and challenging, particularly if you are among the many unemployed or underemployed Americans. Ultimately, an education can be a valuable investment, but be mindful of the impact large student loans will have on your future budget. If you are burdened with large student loans, remain positive about your opportunities and seek out as much help as you can to eliminate your student loan debt.

Continue reading "Student Loans May Be Dischargeable In Bankruptcy If You Can Prove Hardship" »

No, you don't have to be a resident. If you are a non-citizen, but have a Social Security card or a Tax ID, you can file a bankruptcy. If you don't have a United States ID, but own property in the U.S., you can still file a bankruptcy.

Continue reading "Do I Need to be a Citizen of The United States of America to File a Bankruptcy?" »

Yes. There are certain debts that are NOT dischargeable in bankruptcy. Generally speaking, the following debts will not be discharged: taxes; spousal and child support; debts arising out of willful misconduct and or malicious misconduct by the debtor; liability for injury or death from driving while intoxicated; nondischargeable debts from a prior bankruptcy; student loans and criminal fines, penalties and forfeitures.

Those debts which are secured will be discharged, however, expect the creditor to take the necessary legal steps to take back the property. In most cases if the debtor's equity interest in the property is exempt, the debtor may retain the property by redemption or reaffirmation.

Continue reading "Are There Any Debts That I Can't Wipe Out in Bankruptcy?" »

Under some circumstances once the bankruptcy proceedings have started, special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted. However, here are the guidelines for removing tax liens:

You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of these five conditions are true:

1. The IRS has not recorded a tax lien against your property. (If all other conditions are met, the taxes may be discharged, but even after your bankruptcy, the lien remains against all property you own, effectively giving the IRS a way to collect.)
2. You didn't file a fraudulent return or try to evade paying taxes.
3. The liability is for a tax return (not a Substitute or Return) actually filed at least two years before you file for bankruptcy.
4. The tax return was due at least three years ago.
5. The taxes were assessed (you received a notice of assessment of federal taxes from the IRS) at least 240 days (eight months) before you file for bankruptcy. (11 U.S.C. §§ 523(a)(1) and (7).)

Continue reading "Will the Filing of A Bankruptcy Petition Remove A Tax Lien?" »

Yes. However, a home is an asset usually secured by a deed of trust. The lender is entitled to apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. You usually may have to make a deal with the lender in order to keep a home that is in foreclosure.

Continue reading "Will Bankruptcy Stop A Foreclosure?" »

Dependent upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. for real estate in your jurisdiction. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity.

As for personal property, in California, you are permitted exemptions for a variety of personal property. These include:

* automobiles,
* household furnishings and personal effects,
* jewelry,
* tools of the trade,
* retirement plans,
* unmatured life insurance,
* personal injury awards,
* earnings,
* animals and
* other miscellaneous property

The value of each exemption and which exemptions can be used are determined by the statutory exemption scheme is selected. Again, state laws vary.

Continue reading "Exemptions In Bankruptcy" »

All property of the debtor at the time of the filing (and certain other property to be received in the future) becomes the property of the bankruptcy estate once bankruptcy is filed. This means that the bankruptcy trustee will take control of this property for purposes of satisfying the creditors. HOWEVER, there is certain property which is either excluded or exempt which the debtor will be able to keep.

Property or asset exemption are determined based upon your situation, income and the laws of your state. The best way to determine which property to keep requires a detailed analysis of your situation.

Continue reading "Real and Personal Property May Be Exempt From Creditors After Filing For Bankruptcy Protection" »

Within 6 months before filing a Chapter 7 bankruptcy, you must you must get credit counseling from a government approved organization within six months before you file for bankruptcy protection. You can find a state-by-state list of government-approved credit counseling organizations at www.usdoj.gov/ust. In addition, before you can complete the Chapter 7 Bankruptcy proceedings, you must also complete a financial education. Here is the list of approved companies offering financial education for your area : http://www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm

Continue reading "Before Filing for Bankruptcy You Must Get Credit Counseling From Government Approved Organizations" »

On October 17, 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect. This legislation was the biggest reform to the bankruptcy laws since 1978. The legislation was enacted after years of lobbying efforts by banks and lending institutions and was intended to prevent abuses of the bankruptcy laws.

The changes to Chapter 7 were extensive.

Means test:

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 census median income to a 60 month disposable 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 disposable monthly income is higher than a specified floor amount or 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."[6] 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.

Notably, the Code calculated income is based on the prior six months and may be higher or lower than the debtor's actual current 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."

Credit counseling:

Another major change to the law enacted by BAPCPA deals with eligibility. §109(h) provides that a debtor will no longer be eligible to file under either chapter 7 or chapter 13 unless within 180 days prior to filing the debtor received an "individual or group briefing" from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator.

The new legislation also requires that all individual debtors in either chapter 7 or chapter 13 complete an "instructional course concerning personal financial management." If a chapter 7 debtor does not complete the course, this constitutes grounds for denial of discharge pursuant to new §727(a)(11). The financial management program is experimental and the effectiveness of the program is to be studied for 18 months. Theoretically, if the educational courses prove to be ineffective, the requirement may disappear.

Applicability of exemptions:

BAPCPA attempted to eliminate the perceived "forum shopping" by changing the rules on claiming exemptions. Under BAPCPA, a debtor who has moved from one state to another within two years of filing (730 days) the bankruptcy case must use exemptions from the place of the debtor's domicile for the majority of the 180 day time period preceding the two years (730 days) before the filing [§522(b)(3)]. If the new residency requirement would render the debtor ineligible for any exemption, then the debtor can choose the federal exemptions.

BAPCPA also "capped" the amount of a homestead exemption that a debtor can claim in bankruptcy, despite state exemption statutes. Also, there is a "cap" placed upon the homestead exemption in situations where the debtor, within 1215 days (about 3 years and 4 months) preceding the bankruptcy case added value to a homestead. The provision provides that "any value in excess of $125,000" added to a homestead can not be exempted. The only exception is if the value was transferred from another homestead within the same state or if the homestead is the principal residence of a family farmer (§522(p)). This "cap" would apply in situations where a debtor has purchased a new homestead in a different state, or where the debtor has increased the value to his/her homestead (presumably through a remodeling or addition).
[edit] Lien avoidance

Some types of liens may be avoided through a chapter 7 bankruptcy case. However, BAPCPA limited the ability of debtors to avoid liens through bankruptcy. The definition of "household goods" was changed limiting "electronic equipment" to one radio, one television, one VCR, and one personal computer with related equipment. The definition now excludes works of art not created by the debtor or a relative of the debtor, jewelry worth more than $500 (except wedding rings), and motor vehicles (§521(f)(1)(B)). Prior to BAPCPA, the definition of household goods was broader so that more items could have been included, including more than one television, VCR, radio, etc...
[edit] Other changes

* Decreased the number and type of debts that could be discharged in bankruptcy. Decreased limits for discharge of debts incurred discharging luxury goods. Expanded the scope of student loans not dischargeable without "undue hardship."

* Increase the time in which a debtor may have multiple discharges from 6 to 8 years.[

* Limited the duration of the automatic stay, particularly for debtors who had filed within one year of a previous bankruptcy. Automatic stay may be extended at the discretion of the court.

* BAPCPA limited the applicability of the automatic stay in eviction proceedings. If the landlord has already obtained a judgment of possession prior to the bankruptcy case being filed, a Debtor must deposit an escrow for rent with the Bankruptcy Court, and the stay may be lifted if the Debtor does not pay the Landlord in full within 30 days thereafter, §362(b)(22). The stay also would not apply in a situation where the eviction is based on "endangerment" of the rented property or "illegal use of controlled substances" on the property, §362(b)(23).

* BAPCPA enacts a provision that protects creditors from monetary penalties for violating the stay if the debtor did not give "effective" notice pursuant to §342, [§342(g)]. The new notice provisions require the debtor to give notice of the bankruptcy to the creditor at an "address filed by the creditor with the court," or "at an address stated in two communications from the creditor to the debtor within 90 days of the filing of the bankruptcy case.

Continue reading "The Bankruptcy Abuse Prevention and Consumer Protection Act Was Intended To Prevent Bankruptcy Abuse" »

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 contrasts 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.[citation needed] 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.[ Also, new credit extended post-petition is not covered by the discharge, so creditors may offer new credit to the newly-bankrupt.

Continue reading "Individuals Who Reside, Own Property Or have A Place of Business In the United States May File for Federal Bankruptcy Protection" »

Chapter 7 of the Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws of the United States. (In contrast, Chapters 11 and 13 govern the process of reorganization of a debtor in bankruptcy.) Chapter 7 is the most common form of bankruptcy in the United States.

When a troubled business is badly in debt and unable to service that debt or pay its creditors, it may file (or be forced by its creditors to file) for bankruptcy in a federal court under Chapter 7. A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 Trustee. A Chapter 7 Trustee is appointed almost immediately, with broad powers to examine the business's financial affairs. The Trustee generally sells all the assets and distributes the proceeds to the creditors. This may or may not mean that all employees will lose their jobs. When a very large company enters Chapter 7 bankruptcy, entire divisions of the company may be sold intact to other companies during the liquidation.[citation needed]

Fully secured creditors, such as collateralized bondholders or mortgage lenders, have a legally enforceable right to the collateral securing their loans or to the equivalent value, a right which cannot be defeated by bankruptcy. A creditor is fully secured if the value of the collateral for its loan to the debtor equals or exceeds the amount of the debt. For this reason, however, fully secured creditors are not entitled to participate in any distribution of liquidated assets that the bankruptcy trustee might make.

In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge--instead, the entity is dissolved. Only an individual can receive a Chapter 7 discharge (see 11 U.S.C. § 727(a)(1)). Once all assets of the corporate or partnership debtor have been fully administered, the case is closed. The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire.

Continue reading "Business That Is Unable To Pay Debt May File Or Be Forced To File For Bankruptcy Protection" »

The changes to bankruptcy law in 2005 may be making it harder for some people to file bankruptcy. A few filers with higher incomes will no longer allowed to use Chapter 7 bankruptcy, but will instead have to repay at least some of their debt under Chapter 13. In addition, the 2005 law requires all debtors to get credit counseling before they can file a bankruptcy case -- and additional counseling on budgeting and debt management before their debts can be wiped out.

Here are some of the most important changes in the 2005 bankruptcy law.

Restricted Eligibility for Chapter 7 Bankruptcy:

Under the old rules, most filers could choose the type of bankruptcy that seemed best for them -- and most chose Chapter 7 bankruptcy (liquidation) over Chapter 13 bankruptcy (repayment). The law passed in 2005 prohibits some filers with higher incomes from using Chapter 7 bankruptcy.

How High is Your Income?

Under the rules enacted in 2005, the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your "current monthly income" against the median income for a household of your size in your state. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy. If it is more than the median, however, you must pass "the means test" -- another requirement of the new law -- in order to file for Chapter 7.

The Means Test:

The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 plan. To find out whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the income that's left over after these calculations is below a certain amount, you can file for Chapter 7.

If you're looking for an easy way to determine your eligibility under the means test, use our online means test calculator, created by the applicable income and expense standards for your state, county, and region to determine your eligibility.

Counseling Requirements:

Before you can file for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency approved by the United States Trustee's office. (To find an approved agency in your area, go to the Trustee's website, www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education".) The purpose of this counseling is to give you an idea of whether you really need to file for bankruptcy or whether an informal repayment plan would get you back on your economic feet.

Counseling is required even if it's obvious that a repayment plan isn't feasible or you are facing debts that you find unfair and don't want to pay. You are required only to participate, not to go along with any repayment plan the agency proposes. However, if the agency does come up with a repayment plan, you will have to submit it to the court, along with a certificate showing that you completed the counseling, before you can file for bankruptcy.

Toward the end of your bankruptcy case, you'll have to attend another counseling session, this time to learn personal financial management. Only after you submit proof to the court that you fulfilled this requirement can you get a bankruptcy discharge wiping out your debts. (The website above also lists approved debt counselors.)

Under the old rules, people who filed under Chapter 13 bankruptcy had to devote all of their disposable income -- what they had left after paying their actual living expenses -- to their bankruptcy repayment plan. The 2005 law added a wrinkle to this equation: Although Chapter 13 filers still have to hand over all of their disposable income, they have to calculate their disposable income using allowed expense amounts dictated by the IRS -- not their actual expenses -- if their income is higher than the median income in their state. These allowed expense amounts must be subtracted not from the filer's actual earnings each month, but from the filer's average income during the six months before filing.