Answers to your questions on bankruptcy.

Frequently asked questions- bankruptcy-101.com.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, more commonly known as a "liquidation" bankruptcy, is a legal process that eliminates most unsecured debts, wiping them off of the borrowers obligations. Chapter 7 bankruptcy is known as liquidation because any non-exempt assets the debtor has may be liquidated by the trustee-sold for the benefit of creditors. In many cases, Chapter 7 bankruptcy debtors have no non-exempt assets, and so there is no liquidation, and unsecured debts are simply discharged. There will be, however, unsecured debts that are not dischargeable in Chapter 7 bankruptcy.

Can I File Chapter 7 Bankruptcy?

To file for Chapter 7 bankruptcy, you must qualify under the Chapter 7 means test. The means test first examines your income and compares it to the median income in your state. If your income is less than the median income in your state, you can file for Chapter 7 bankruptcy. However, if your income is greater than the median income in your state, the bankruptcy trustee will calculate your income and allowable expenses to determine whether or not you qualify for a Chapter 7 bankruptcy filing.

What is a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is different from Chapter 7 filings, in that it is a full or partial repayment plan administered by the bankruptcy court. You would submit a plan for approval and if a a plan is approved, you would make monthly payments to the bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period is usually from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dischargeable debt may be discharged.

Who Can File Chapter 13 Bankruptcy?

For most practical purposes, it's easier to qualify for a Chapter 13 bankruptcy than for a Chapter 7 bankruptcy. There's no means test for Chapter 13, and some debtors who cannot qualify for Chapter 7 opt to file under Chapter 13 instead. The largest difference is that in a Chapter 13 bankruptcy, a regular income is required to allow you to create a budget and make predictable and scheduled payments to the trustee to extinguish your debt.

Which filing program is better?

Obviously the answer depends on your personal circumstances. In general, Chapter 7 bankruptcy is better for people who have a substantial amount of unsecured debts (medical bills or credit card debt). If your assets are few, your income is low, and most of your debts are unsecured, you might want to look at a Chapter 7 bankruptcy filing as you best means of relief. A Chapter 13 bankruptcy filing, on the other hand, tends to be a better option for those who have regular income and non-exempt property they would like to keep. You should consult with competent counsel to determine which filing would best fit your circumstances.

How often can I file bankruptcy?

By law, a Chapter 7 bankruptcy filing can occur six years after the date of your last filing. A Chapter 13 bankruptcy can be filed at any time.

Should I reestablish my credit after filing bankruptcy?

Of course, and there are several opportunities available. A secured credit card will allow you to use a bank card to perform activities for which you normally would use a credit card.

Will I be allowed to keep any property after I file bankruptcy?

With a Chapter 7 filing, you can keep all the property which is exempt from the claims of creditors. While the trustee will consider the value of property when purchased, the court will seek a value for what the property is worth now. The trustee will be interested in the resale value of your property, so you should consider the value of you personal effects to be the garage sale value of your property.

The equity in your real estate is one of the most important considerations in your filing. You can count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $250,000 house with a $210,000 mortgage, you count your exemptions against the $40,000 equity you have in the home. While your exemptions allow you to keep property in a chapter 7 bankruptcy filing, these exemptions do not make any difference to the rights of your mortgage lender or car loan creditor to take the property to cover the debt if you are in default. If you are behind in these payments and can afford to make the loan payments you should consider a chapter 13 bankruptcy filing.

The distinction in a chapter 13 filing is that you can keep all of your property if your plan meets the requirements of the court. In many cases you will continue to pay the mortgages and liens as if you hadn’t filed a bankruptcy petition in the first place.
 

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