Chapter 7 & 13 Cases
Bankruptcy laws are constantly changing! In October, 2005, Congress enacted a new bankruptcy law, entitled the “Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). This new law contains many requirements. BAPCPA was intended to make it much more difficult for individuals and businesses to be eligible for bankruptcy relief. As a result, it is harder for individuals and businesses to file for bankruptcy relief. BAPCPA has also made bankruptcy cases far more time-consuming.
Some people have been led to believe that if their income exceeds the applicable “median income” guideline they are ineligible to file for Chapter 7 relief. This is not the case. Debtors must now demonstrate their eligibility by filing a so-called “Means Test”. The “Means Test” compares the debtor’s household gross income with the applicable “median income” guidelines to determine whether a Debtor has the ability to repay a portion of his income towards his credit obligations, instead of being able to “walk away” from all of his dischargeable credit obligations.
Another BAPCAP requirement is the need for individual debtors to complete a credit counseling course prior to a Chapter 7 or Chapter 13 bankruptcy filing. For more information about the Credit Counseling Course, please refer to our information section entitled, “ Credit Counseling Course ”. Individual debtors are also required to take a financial management course following the bankruptcy filing. The financial management course is needed to obtain a “Discharge Order”. Each course must be taken from an approved credit counseling agency.
As a result of the new bankruptcy laws, debtors need an experienced firm that can help them navigate this complicated bankruptcy process. We have the expertise to insure that our clients will be able to obtain Chapter 7 relief and obtain a bankruptcy discharge.
Chapter 7 Cases
A Chapter 7 case is the most common bankruptcy filing. Chapter 7 relief can be obtained by individuals or businesses. Once a Chapter 7 petition is filed, an “automatic stay” is issued. This “automatic stay” usually puts an immediate end to ALL collection activity.
A Chapter 7 case is intended for individuals, who do not have any assets that can be liquidated by the Court. These assets are referred to as “non-exempt” assets. If, for example, you have a car that is worth $15,000 and the payoff balance on your auto loan is $12,000, the “equity” in your car would be $3,000. Since you are allowed to keep up a car where you have up to $4,000 in “equity”, you would be able to eliminate your debts and keep your car. After a Chapter 7 case is filed, a bankruptcy trustee is appointed. All Chapter 7 debtors must attend a hearing, which is called a “341a Meeting” or a “Trustee Meeting”. The bankruptcy trustee is an attorney, who is responsible for the collection of any “non-exempt assets”, liquidating the “non-exempt assets”, and distributing the proceeds to creditors, who file claims with the Court. If there are not enough “non-exempt assets” to cover what the debtor owes, the creditors may not get their claims fully repaid. If the debtor is an individual, all remaining debts are fully discharged.
Most Chapter 7 cases are filed as “No Asset” cases. If the bankruptcy trustee is satisfied that the Chapter 7 case is a “No Asset” case, all of the debtor’s dischargeable obligations will be fully discharged. A discharge means that the debts no longer exist and no longer have to be paid.
If your outstanding mortgage balance is greater than the value of your home, you have no “equity” in your home. If a foreclosure sale were to occur, where you have no “equity” in your home, you will still be personally responsible for any mortgage loan deficiency. A Chapter 7 case will also allow you to eliminate any personal liability for your outstanding mortgage indebtedness.
There are certain kinds of debts that cannot be discharged. Nondischargeable debts include recent taxes, alimony, child support and damages that resulted from a debtor’s malicious behavior. These nondischargeable obligations can be dealt with in a Chapter 13 case.
There are two main types of bankruptcy for which a business can file: a Chapter 7 liquidation and a Chapter 11 reorganization. If the debtor is a business, a Chapter 7 filing will result in the issuance of an “automatic stay”. This means that the business’ creditors must stop all collection activity against the business.
A Chapter 7 case is a low-cost way for a business to close its doors in an orderly manner, and put an end to harassing creditor calls and lawsuits. After the case is filed, an attorney is appointed to serve as the bankruptcy trustee. The bankruptcy trustee handles the details of the bankruptcy case and sells any business assets to pay the creditors as much as possible. While Chapter 7 businesses are not eligible to receive “Discharge Orders”, a Chapter 7 filing will cause a business to cease to exist after the bankruptcy filing. This has the same effect as a “Discharge Order”.
Chapter 13 Cases
A Chapter 13 case is usually used to stop foreclosures. A petition filed under Chapter 13 (also known as a “wage earner plan”) immediately stops a foreclosure proceeding and all collection activity. For more information about the foreclosure process, please refer to our section entitled “Foreclosure”. A Chapter 13 filing can also be used by individuals, who do not qualify for Chapter 7 bankruptcy relief, but want to retain their assets. A Chapter 13 debtor is given up to 5 years to repay pre-petition mortgage arrears, pre-petition real estate tax arrears, and non-dischargeable income taxes. If the debtor successfully completes a Chapter 13 plan, the dischargeable debts that are dealt with under the plan are completely discharged.
There are certain other criteria that a debtor must meet in order to be eligible for Chapter 13 relief. Chapter 13 debtors must have steady income and the ability to repay some of the dischargeable debt. There is also a debt ceiling, as to how much a person can owe and still file for Chapter 13 relief.
After a Chapter 13 case is filed, a bankruptcy trustee is appointed. All Chapter 13 debtors must attend a hearing, which is called a “341a Meeting” or a “Trustee Meeting”. The bankruptcy trustee is an attorney, who must determine whether the debtor’s proposed Chapter 13 Plan adequately protects all creditors. If the bankruptcy trustee is satisfied, he will recommend that the debtor’s proposed Chapter 13 Plan be “confirmed”.
Eliminating a Second Mortgage
Where there is no equity in your home, and you have a second mortgage loan, you may be able to completely eliminate your second mortgage obligation. For more information about Chapter 13 cases, please refer to our information section entitled, “Chapter 13 cases.” To arrange for a free initial consultation, call us toll-free at (800) 363-3416, or contact us online.