Chapter 7
You may assume the new bankruptcy law prohibits you from filing a chapter 7 debt elimination. This is one of many bankruptcy myths and just is not true.
You can still eliminate or wipe out credit card debt, medical bills, judgments, stop garnishment and keep your personal property, home, and car as long as their values do not exceed the bankruptcy exemptions you are allowed to take.
The bankruptcy starts with the filing of a petition, schedules and statement of financial affairs with the bankruptcy court. In the bankruptcy schedules you must list all of your creditors, your property and your monthly income and expenses. The chapter 7 court filing fee is $299. Prior to filing you must complete a court approved credit counseling course over the telephone, internet or in person. These counseling services charge minimal fees of $25-$75 depending upon which one you decide to use. They all count the same so you can use the cheapest. We will point let you know which ones are the cheapest.
As soon as the case is filed it creates an automatic stay. This means your creditors are prevented from contacting you in any way, whether by telephone, letter or any other means.
The next step is that you will have to attend what is called a 341 meeting with a trustee appointed by the bankruptcy court. Attorney Burr will attend that meeting with you and advise you of what to expect.
Then you will need to take a court approved financial management course. The process is similar to the credit counseling course you will take prior to filing. The charges are the same as the first course you took.
You will then receive a discharge that will wipe out your debts. There are some exceptions which include taxes owed to the IRS or state, student loans, alimony, maintenance or support payments, secured debts unless you surrender the collateral, owi related debts, and fraud related debts.
You can only file a chapter 7 once every 8 years.
If your last 6 months month income is greater than the median income for a family of your size and you do not pass the means test included in the bankruptcy schedules then you will have to file a Chapter 13 reorganization. Please see our Chapter 13 page.
Chapter 13
If you earn too much income and cannot pass the means test and/or you are behind in you mortgages payments or car payments and wish to save your home from foreclosure or your car for repossession, then filing a chapter 13 may be your best solution to retake control of your life and finances.
The court filing fee for a chapter 13 is $274. You also have to take the same credit counseling course prior to filing. You will also have to attend a 341 meeting before the court appointed trustee with Attorney Burr. Finally, you will have to take the same financial management course.
What the chapter 13 does is reorganize your debts into one monthly payment with no interest and no late fees. The only time a creditor would receive interest is on a secured creditor's mortgage arrears or on a vehicle paid through the chapter 13 plan.
A chapter 13 is in many instances a much better option than a Credit Consolidation Service or Program. Many of these services and programs, unlike a chapter 13, charge high monthly fees. Also you will still pay interest on your debts, you are still susceptible to creditor lawsuits, all your creditors may not agree to your service or program, these programs have a very detrimental effect on your credit, and in many cases these programs last longer than does a chapter 13 and much longer than a chapter 7, in which your creditors would receive nothing.
The chapter 13 differs from the chapter 7 in that you will have to file a chapter 13 repayment plan that will last anywhere from 36 to 60 months. You will not lose any of your property, either your home, vehicle, or personal property unless you voluntarily agree to surrender it to the creditor. If you own a home you will pay your mortgage or equity loan outside the plan on time and in full each month. Also while in the chapter 13 you are on a cash basis and must provide copies of your tax returns to the trustee each year you are in the plan. If you are over the median income will not have to provide 1/2 of your tax refunds to the trustee, but if you are below the median income you will.
In order to fund a chapter 13 plan you need a stable income and a disposable income (your net monthly income less your reasonable monthly living expenses). The amount of your plan payment is dependent upon your disposable income, any secured debt paid through the plan and the outcome of the means test. The repayment plan must include your unsecured debt, any past due taxes owed, mortgage arrears, and any financed vehicle (leased vehicles are paid outside the plan). You will make your monthly plan payments to the trustee either directly or via a wage assignment. The trustee will then pay your creditors according to the terms of your confirmed plan. You may end up paying your unsecured creditors pennies on the dollar. Once the plan is completed you will receive a chapter 13 discharge. Thus if you were paying your unsecured creditors pennies on the dollar that remaining amount would be wiped out at the end of the plan.
Debt Settlement
Chapter 7 or 13 may not be for you or your best option. We will provide you with various options, which include possible debt settlement. We would use prepared bankruptcy schedules as leverage with your creditors to obtain debt settlements. Usually however you may need to settle with all your creditors which may require lump sum payments. If this is a viable option for you we are here to help.
