WHAT ARE THE DIFFERENT TYPES OF BANKRUPTCY?
For individuals, Chapter 7 and Chapter 13 are the main options. Chapter 7 is a basic type of case where many debts are discharged in about 3 to 4 months whereas in Chapter 13 a payment plan is set up to repay a portion of the debts over 3 to 5 years.
DISCUSS THE MEANS TEST AND HOW IT WORKS?
The 2005 changes to bankruptcy law brought on the Means Test. The Means Test is meant to be a strict test to determine how much money a person has to repay debts. Similar to filling out a tax form, the Means Test is filled out to decide if a bankruptcy case is allowed to proceed to discharge.
WHAT ARE THE INCOME LIMITS FOR DOING A CASE?
Bankruptcy laws do not have strict limits on income. Instead, a person’s income is compared to his household expenses to determine how much money is left to pay debts. If no money is left, then bankruptcies proceed smoothly. If enough money is left to pay all the debt in 20 years, trustees and creditors can object to the bankruptcy.
HOW DOES THE MEDIAN INCOME FOR HOUSEHOLDS AFFECT A CASE?
Every person filing a consumer case has to compare his or her income to the average or median income for the same size household. If the income is greater than the median, the Means Test requires that numerous expenses are determined using IRS expense standards to determine how much, if any, of the debts have to be repaid.
WHAT DETERMINES HOW BIG A HOUSEHOLD IS?
IRS standards for claiming dependents are typically used to determine who qualifies to be included in the household although some exceptions are granted.
DOES MY SPOUSE HAVE TO FILE IF I FILE?
Married couples have the option to file individually or to do a joint case. The combined income always has to be disclosed on the paperwork, but a spouse does not have to join in the case if he does not wish to.
HOW OFTEN CAN A PERSON FILE A BANKRUPTCY CASE?
The 2, 4, 6, 8 rule applies. In order to get a discharge, a Chapter 13 case has to be filed at least 2 years after the last Chapter 13 case was filed or 4 years after the last Chapter 7. A Chapter 7 case has to be filed at least 6 years after the last Chapter 13 case or 8 years after the last Chapter 7.
CAN A PERSON EVER GET A DECENT LOAN, ESPECIALLY A MORTGAGE, AFTER A BANKRUPTCY?
Even though the bankruptcy is on the credit reports for 10 years, it is just one piece of data factored in among the other data such as income, the amount of debt a person has, and the demonstrated ability to repay debt after the bankruptcy. Every lender gets to decide what loan terms to offer, but as time passes, the bankruptcy case becomes less important than the other data on the credit report. In other words, the longer one waits after a bankruptcy to get a loan, the better the loan terms will be.
DOES A HOMEOWNER LOSE THEIR HOUSE IN A CHAPTER 7?
In Chapter 7, the debtor does not automatically lose anything they own. The value of everything that is owned has to be listed and compared to how much is owed on the piece of property. If the property would not result in much money upon sale, nothing is lost.
WHAT HAPPENS WHEN REAL ESTATE IS TRANSFERRED BEFORE A BANKRUPTCY?
Generally, a property transfer has to be at least 4 years old or it can be attacked and reversed in a bankruptcy. Transfers shortly before filing a bankruptcy do not typically help and they can prevent a person from being able to do a bankruptcy.
CAN THE DEBTOR CHOOSE NOT TO INCLUDE SOME DEBTS IN A CASE?
Every debt in a person’s name is part of a bankruptcy case, whether it is listed or not. Some debt, however, can be kept and a person can continue to pay for the loan or credit card if the court thinks it is appropriate. Keeping a debt often requires a borrower to sign a reaffirmation agreement that says the bankruptcy will not discharge the debt.
WHAT IF A DEBT IS NOT REAFFIRMED IN A CHAPTER 7 CASE?
If a reaffirmation agreement is not signed, the person’s liability on the debt is discharged unless the debt is not dischargeable (child support and student loans are examples of non-dischargeable debt). The creditor may retain the right to repossess the property tied to a loan, so borrowers still have to pay for cars and houses if they are being kept.
WHAT HAPPENS TO CO-SIGNED LOANS IN BANKRUPTCY?
Unless the co-signer files his own bankruptcy, he remains liable for the debt. Bankruptcies operate based on the person who files, not the debt. If necessary, a person can choose to pay a debt in order to protect the co-signer.
WHAT HAPPENS TO PARKING TICKETS IN BANKRUPTCIES?
Parking tickets are not discharged in a Chapter 7 bankruptcy. In Chapter 13, only a portion of the tickets have to be repaid based on what the filer can afford to repay.
WHAT HAPPENS TO DRIVER’S LICENSE SUSPENSIONS?
Typically, a suspension has to be lifted as soon as a bankruptcy case is filed. The Secretary of State can usually lift the suspension right away if the bankruptcy papers are brought to them and a reinstatement fee is paid. In Chapter 7, however, the licenses gets suspended at the end of the case unless the tickets are paid. If a license is suspended due to a DUI or moving violations, the license stays suspended.
WHAT HAPPENS TO TOLLS AND IPASS BILLS?
Similar to tickets, the debt will generally not get discharged in a Chapter 7 but only a portion of the debt has to be repaid in Chapter 13.
WHAT HAPPENS TO A CAR LOAN IN CH.13?
Usually, the amount to be repaid can be reduced. The interest rate can be drastically reduced from what is in the contract, and if a car is owned for at least 2 and 1/2 years before the bankruptcy case is filed, just the value of the car has to be repaid if that is less than what is owed.
WHAT HAPPENS TO A CAR LOAN IN CH.7?
The borrower can continue to pay the loan and keep the car as if the Chapter 7 was never filed. The car can also be surrendered and the debt discharged. Other options exist to keep the car and pay just the value of the car, but the full value has to be repaid in one payment soon after the case is filed. Some people successfully qualify for a loan to pay the value and save lots of money on the cars if the value is less than the amount owed.
CAN TAXES OWED TO THE IRS EVER GET DISCHARGED?
Yes. If taxes have been due for at least 3 years, and the return was filed at least 2 years ago, the taxes can be discharged. Time spent in a repayment plan with the IRS, or in a previous bankruptcy, does not count toward the 3 year period.
HOW IS CHILD SUPPORT TREATED IN A CASE?
Usually, child support has to be repaid exactly as it was paid before the bankruptcy case was filed. Child support will not be discharged in bankruptcy, however, the back child support can be repaid through a Chapter 13 case.
WHAT CAN BE DONE ABOUT PAYDAY LOANS?
Most payday loans are discharged in bankruptcy, and your paychecks and bank accounts are protected once you file the bankruptcy case. If a payday loan was taken out shortly before filing the bankruptcy, you will need advice on what will happen.
HOW QUICKLY CAN BANKRUPTCY STOP A WAGE GARNISHMENT?
Robert J. Adams & Associates can get notice of your bankruptcy case to your employer on the day your case is filed. You are protected as of the filing of the case, and garnishments have to stop. In some cases, the creditor may still receive the garnishment for 1 paycheck after the case is filed, but then the garnishment has to stop. This protection does not apply to child support.
WHAT HAPPENS WHEN A CREDITOR PUTS A LIEN ON A DEBTOR’S HOUSE?
Many liens can be avoided and discharged in bankruptcy. A lien is like a mortgage on the house, and only gets paid if the house is worth enough to pay all the previous mortgages. If the house is not worth enough to pay the mortgages in full, the house can be freed from the lien.
WHAT IF THE DEBTOR IN A CHAPTER 13 PLAN FALLS BEHIND ON PAYMENTS?
People are given a chance to get caught up on the payments. If a person falls behind and can’t catch up on their own, a motion to modify the terms of the plan can be filed and usually approved by the court. If a person lost the ability to make the payments, the payments can possibly be reduced, or a hardship discharge can sometimes be granted.
WHAT HAPPENS IF A DEBTOR INCURS SOME NEW DEBT DURING A CHAPTER 13?
Most debts obtained after the Chapter 13 case is filed have to be repaid directly. Some debts, such as taxes, can be added onto the case later for repayment through the plan, but only if the debt does not cause the Chapter 13 case to run beyond 5 years from when it was originally filed.
WHAT HAPPENS TO 401(K) LOANS?
In Chapter 13, a 401(k) loan can continue to be repaid or it can be treated like other debt and discharged. In Chapter 7, the debt can be discharged, but stricter rules apply to continuing to repay the debt. Tax consequences arise if the debt is discharged so you need to discuss your situation with your attorney.
WHAT IF A CREDITOR IS NOT LISTED ON THE BANKRUPTCY PAPERS?
All debts in a person’s name are part of the bankruptcy case. Usually, the listing of debts can be updated to add a forgotten creditor as long as the debt was owed when the case was filed. A fee applies to adding the debt, but the debt can be addressed even after the case has ended.
WHAT CHANGES HAPPENED WITH THE 2005 REVISIONS TO THE BANKRUPTCY CODE?
The main changes call for much more paperwork to be filled out at the time the case is filed. Paystubs and tax returns now have to be furnished to prove income. The revisions also restrict how long a person has to wait to file a second bankruptcy after the first one completed, or reduce the protection from creditors one gets in the second bankruptcy. For someone filing his first case, however, bankruptcy remains a great means of reducing a person’s debt, and Robert J. Adams & Associates can let you know all of your options.