Bankruptcy under Chapter 7 or Chapter 13 of Title 11, U.S.C.
If your debt includes a tax-related liability, whether it be from personal income taxes, civil penalties or any other assessment, please fill out a Power of Attorney IRS Form 2848 and return it to our office. We can obtain the relevant tax transcripts with which we can advise you on which tax-related debts if any are dischargeable in which type of bankruptcy and when.
Chapter 7 bankruptcy is often referred to as liquidation because a bankruptcy trustee can liquidate (convert to cash) your non-exempt assets to pay part of your outstanding bills. The term liquidation is rather misleading, though, since most people filing bankruptcy in Chapter 7 cases do not have any non-exempt assets, and thus there is no actual liquidation.
Chapter 13 bankruptcy often provides a solution for people who have faced short-term financial setbacks like job loss, illness, or large unexpected expenses. For people who have been derailed by a crisis and fallen behind on their bills, but who have regular income and are in a position to make regular monthly payments, filing bankruptcy under a Chapter 13 plan may allow the breathing room necessary to get back on track. Many people looking to stop foreclosure or avoid repossession choose Chapter 13 bankruptcy, because it combines the automatic stay (which is in place the second you file your case and forces all of your creditors to cease collections) with the ability to catch up past due payments over a period of three to five years after filing bankruptcy while keeping current payments up to date.
Chapter 13 bankruptcy is not for everyone. In order to qualify for Chapter 13 bankruptcy, a debtor must:
Have a regular source of income from which to make pre-determined payments to the bankruptcy trustee for the benefit of creditors;
Have enough disposable income to make regular payments to the trustee after covering current necessary living expenses; and
Fall within pre-set limits for secured and unsecured debts. The limits are updated periodically, and a local bankruptcy attorney can tell you the exact current limits; the limit for secured debts as of April, 2007 is just over $1,000,000, and the limit for unsecured debts approximately $337,000.
Under the 2005 Bankruptcy Act, if your debts are primarily consumer debts, your income and expenses will be analyzed to determine if you qualify to file a Chapter 7 or if you must file Chapter 13. To apply the means test, the courts will look at your average income for the 6 months prior to filing and compare it to the median income for the state you file bankruptcy in. If your income is below the median, you may file Chapter 7. If your income exceeds the median, the balance of the means test will be applied to determine if you can file Chapter 7 or if you must file Chapter 13.
Your will likely still be able to file a Chapter 7 bankruptcy if you are unable to pay at least $6,000 over the next five years ($100 per month) to your unsecured creditors after your expenses. Unsecured creditors hold your unsecured debts which are usually credit card bills, medical bills, judgments from car accidents, deficiencies on repossessed vehicles, some older tax debts, payday loans, and personal loans. However, if you can pay at least $10,000 over five years ($166.67 per month or more) your Chapter 7 will likely be denied.
If you could afford more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether your Chapter 7 will likely be successful or not. If you could afford to pay 25% or more of your unsecured debt, then a Chapter 7 will likely be denied. If you can't afford to pay 25% of your unsecured debt, your Chapter 7 filing will likely be successful.. Note that you can still opt for Chapter 13 even if you qualify to file under Chapter 7.
Regardless of which chapter bankruptcy you file, you must pay your secured debts (ie. Mortgages on houses, loans on cars) to keep whatever collateral is being paid with that secured debt. Also, some debts are priority debts (ie. child support, income taxes due within the three year s prior to filing your bankruptcy ) and are not dischargeable in any bankruptcy. Chapter 13’s are usually filed to give you time to catch up on a secured debt that you are behind on and to pay any priority debts. |
