The following is an overview of some of the issues relating to consumer or small business Chapter 7 and Chapter 13 bankruptcies. It is solely for the purpose of giving the reader generalized information as to what most consumer bankruptcies are like and what is required of each individual filing bankruptcy.
If you are making an appointment for an initial consultation, please either complete or at least review the questionnaire which we use in our office to draft a debtor’s bankruptcy. While it is not necessary that it be completed before you come in, the more you complete the better our office can advise you regarding your personal financial situation. While I can readily provide you with answers to your questions about bankruptcy in general, specific questions about your individual situation cannot be answered without the information about you contained in the questionnaire. Complete our online questionnaire for a case evaluation, or you may pick up a copy of our questionnaire at the office or one can be mailed to you.
Chapter 7 vs Chapter 13
The purpose of a Chapter 7 bankruptcy is to eliminate or discharge debt which you owed prior to filing. Some debts are not discharged in a bankruptcy and you still owe them even after filing bankruptcy and receiving a discharge. Secured debts, such as mortgages or car payments, have to be paid even after the filing of a Chapter 7 if you intend to keep the property which secures the debt. Student loans are not discharged in bankruptcy unless a difficult hardship standard is satisfied and must be paid after the case is closed. (review Student Loan Information). Not every consumer qualifies for Chapter 7 bankruptcy. A Chapter 13 bankruptcy is essentially a supervised repayment plan; you make payments to a trustee who forwards them to your creditors in amounts specified in your Chapter 13 plan. A Chapter 13 plan requires you to pay your creditors all or a portion of their claims within 36 to 60 months under court supervision. Once the plan is completed, dischargeable debts are eliminated, even if you did not pay all your creditors in full. Chapter 13 bankruptcies are often filed instead of a Chapter 7 when you are behind on home loans or car payments, when you need to pay non-dischargeable debts such as taxes, child support or other domestic support obligations, or when you have a temporary debt problem and you need time for your income to improve or to sell assets to pay your debts. With the 2005 changes to the bankruptcy law, some debtors no longer qualify for Chapter 7 and must file a Chapter 13. Every situation is different and it can change over time, so please see an attorney before deciding whether to file a Chapter 7 or a Chapter 13. Chapter 7 bankruptcy may not be available if your debts are primarily consumer debts and the court finds that granting relief would be an abuse of the bankruptcy laws. The US Trustee’s office monitors bankruptcy cases where high income and excessive budgeted expenses suggest that a debtor could make substantial payments to the creditors through a Chapter 13 plan. In such a case, the US Trustee will file a motion to dismiss the bankruptcy and will usually give the Debtor an option to convert to a Chapter 13 proceeding.
In the great majority of the consumer bankruptcies, all or most of your property is protected by exemptions under state or federal law. In bankruptcy, you are allowed to keep exempt property. Exemptions in Oregon are governed, to a substantial degree, by state law. However, some federal laws protect assets or even exclude them from the bankruptcy estate. However, to use Oregon exemptions, you must have lived in the state for two years before the bankruptcy is filed. Under a Chapter 13 bankruptcy, you may be allowed to retain assets that are not exempt, such as equity in your home in excess of the $40,000 homestead exemption for an individual or $50,000 exemption for a married couple. Other important exemptions are an automobile to the value of $3,000 (for each debtor if a joint filing), child and spousal support, criminal restitution, personal injury settlements to the amount of $10,000, social security benefits, disability benefits, unemployment compensation, tools of the debtor’s trade to the value of $5,000, and qualified retirement plans. You can see a more detailed exemption list here.
For any type of bankruptcy you must file truthful and complete schedules of assets and liabilities, current income and expenses and a statement of financial affairs. There are no exceptions to this requirement. If you intentionally leave any requested information out of your documents you file with the court, you may lose your discharge of a specific debt or even be denied a discharge of any of your debts. Worse yet, you are subject to felony criminal prosecution. There is simply no valid reason to leave out any debt.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added some additional requirements for individual debtors. Before filing a petition in bankruptcy, an individual debtor must have completed an approved credit counseling briefing. It must have been completed within six months prior to the date of filing and a certificate of completion must be filed with the court. In order to get a discharge in a bankruptcy proceeding, it is also necessary for an individual to complete an approved financial management course. Again, a certificate proving completion must be file or the case could be closed without the entry of a discharge order.
The debtor in bankruptcy has new disclosure requirements and must make many types of financial information, including personal income tax returns, available to the trustee and any creditors who have properly requested a copy.
Types Of Debt
Certain types of debts are not dischargeable in bankruptcy. Recently due or ‘trust fund’ taxes, domestic support obligations (alimony, child support), and virtually all student loans are not dischargeable. These debts pass through the bankruptcy as if it had not occurred. People considering bankruptcy as an option should not make any attempt to determine for themselves which debts are dischargeable as even many taxes and other supposedly non-dischargeable debts are dischargeable under certain circumstances.
There are other types of debts which may only be discharged if the creditor to whom the debt is owed fails to commence litigation in order to determine the dischargeability of a debt. Debts incurred through fraud, embezzlement, theft or assault come under that heading. If a particular creditor holding such a claim files suit in the bankruptcy court within the time prescribed by the law, a trial will be held to determine whether or not the debt should be discharged. Student loans are never dischargeable unless a relatively extreme or ‘undue hardship’ is proven in trial by the person owing the student loan. Under Chapter 13, you may be able to discharge certain debts which would be non-dischargeable in Chapter 7. In many ways a Chapter 13 is more powerful than a Chapter 7.
A debt is ‘secured’ by property that you own if you give the creditor a right to take your property away if you do not pay that debt as agreed. Home mortgages and car loans are the most common type of secured debt. While you are personally discharged from the obligation to pay a secured debt when you successfully conclude a bankruptcy case, if you wish to retain the property (called ‘collateral’) securing the debt, you must continue to pay the debt pursuant the terms of your agreement. If you do not wish to retain the secured property, you do not need to repay the debt and should make arrangements to return the property to the creditor. You may also want to ‘reaffirm’ a debt. Signing a reaffirmation document recommits you to paying that debt even after you receive a discharge in your bankruptcy. In many situations there is no benefit to the debtor to sign the reaffirmation agreement. However
Unsecured debts include such things as credit cards, lines of credit, medical and dental bills, and personal loans. There is no property pledged to the creditor and the creditor can not take any of your property to pay the debt unless a judgment is entered against you.
Within a few days after we have filed your bankruptcy you will receive in the mail the notice of your Meeting of Creditors which is sent to you, your attorney and to all of the creditors listed in your bankruptcy. That notice sets the date and time that your meeting of creditors is held, approximately 35 days after you receive the notice (the meeting is required to be held not less than three weeks and not more than six week after filing). Your attendance is mandatory. If you filed with your spouse, both you and your spouse must attend. If you do not show up then your case will be dismissed.
After the Meeting of Creditors, in a Chapter 7 Bankruptcy there is nothing further that you need to do unless there are informational requests by the Trustee or problems with your filing. At the time this site was last updated, you will receive a discharge order in your bankruptcy just over two months from the date of the first meeting of creditors. With a Chapter 13 Bankruptcy, you have payment and reporting requirements that continue throughout the life of the plan that we proposed on your behalf.
Within 45 days after the First Meeting of Creditors, each individual debtor must undergo a program of financial management education. A failure to complete this reqirement will result in the closure of the bankruptcy case without the entry of a discharge. While it may be possible to complete this second program, request that the court re-open the case then file the certificate late, a new filing fee will be required and the request to re-open could be denied.
Creditors And Your Bankruptcy
Once you file, creditors legally cannot continue to pursue collection action against you such as foreclosure actions, garnishments or even telephone calls without court order. Unless you inform your creditors that you filed your bankruptcy, they will not know that you filed a bankruptcy until they receive the notice of Meeting of Creditors. If they call, tell them that you filed your bankruptcy, and provide them with all of the filing information that you have, such as the case number, the date that it was filed and the place where it was filed.
Some creditors may ask you to reaffirm or recommit to your debt with them so that they will get paid without regard to the discharge in your bankruptcy. This is seldom to your benefit. It is generally not wise to pay for a bankruptcy and then take on some of the old debt that you would not have had to pay under the bankruptcy.
If the creditor has security in your property, such as a car loans, then you may have to deal with the creditor if you want to keep the property. With Sears, and other creditors who took purchase money security interests in the goods that they sold to you, there is a choice of returning what you have, paying the value of the goods they sold you that you still have in your possession, or reaffirming your debt with the creditor and making payment arrangements.
With car loans, you may keep the vehicle if you make your payments on or before the due date of the loan. However, there is a special provision of the law that requires you to enter into a reaffirmation agreement within a very short time or the automatic stay will be released and you will no longer have bankruptcy protection against a repossession by your creditor. If you successfully complete your case, the creditor will not be able to pursue the collection of money from you but the vehicle itself can be lost. If the vehicle is repossessed, the lender may only accept the entire balance of the debt, including any repossession costs, before releasing the vehicle to you.
Leases are not loans and they must be either (a) be accepted or rejected in a bankruptcy or (b) they must be reaffirmed. At the end of your bankruptcy, if your lease is not reaffirmed the creditor may take the vehicle or leased property at any time.
There are other situations in which signing a reaffirmation agreement may be beneficial. If you have any questions about the advisability of signing a reaffirmation agreement, talk to an attorney.
Call 541 683-5100 in Eugene, Oregon today or complete our submission form and schedule an appointment to receive a case evaluation.