Frequently Asked Questions
Q: What will filing bankruptcy do for me?
A: Over a period of many years, bankruptcy laws have been passed to provide legal relief to individuals and businesses in a serious financial difficulty. Generally speaking, the bankruptcy process is set up to analyze a debtor’s assets and liabilities and offer an affordable payment solution wherein the debtor is allowed to retain certain real and personal property according to established bankruptcy law.
Q: What are the reasons for me to file bankruptcy?
A: There are a number of reasons, but the primary purposes are 1) to allow creditors an approved plan to help them pay creditors according to a reduced payment schedule, and 2) to give debtors a fresh start by canceling most or all of their debts through court order which is known as “discharge” of debt.
Q: What are the different types of bankruptcy available to me?
A: Bankruptcy laws have established four types of bankruptcy:
- Chapter 7 (basic liquidation of debts and assets for individual and businesses)
- Chapter 13 (an affordable “wage earner” repayment plan)
- Chapter 11 (a rehabilitation-style payment plan for farmers and fishermen)
- Chapter 12 (a more complex rehabilitation payment plan for businesses and occasionally individuals with extensive assets and debts)
The two most common types of bankruptcy for individual are chapters 7 and 13. Both allow for designated creditor payments and a “discharge” as supervised by an assigned bankruptcy trustee.
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Chapter 13 bankruptcy laws allow you to keep most of your property while committing to and following a 3-5 year repayment plan while obtaining a discharge of certain debts not paid under the plan. The payment plan is based on your income.
Chapter 7 bankruptcy includes (in theory) giving up some of your property in exchange for the discharge of many of your debts. The trustee is authorized to liquidate your non-exempt personal and real property to pay your creditors.
In both Chapters 7 and 13 most creditors must cease efforts to collect their debts when you file your case with the court clerk. This protection is called “automatic stay”. In chapter 7 bankruptcy this protection is often temporary since you still need to pay for your secured property which usually includes your home and/or a car. If you can’t pay for or towards your secured property the creditor may request the court to remove the automatic stay.
Q: What is the difference between chapter 13 & 7 bankruptcy?
A: Simply stated, the bankruptcy system is designed to help those who can no longer pay their debts to get a fresh start by liquidating their assets to pay their creditors (Chapter 7) or by establishing a more affordable repayment plan (Chapter 13).
Under chapter 13 you may keep your personal and real property if you agree to continue to pay off your debts over a 3-5 year period. Your payment is based on your income, as approved by the court. The amount you repay to your creditors under a chapter 13 varies according to your individual circumstances.
Your payments under chapter 13 are submitted to your court-appointed trustee who then distributes the money to your creditors. The total payments to your creditors in a chapter 13 must be greater than your creditors would have received had you filed a chapter 7 instead of a 13.
A chapter 13 plan lasts until you either pay off your debts in full or until the end of the 3-5 year period. The court gives you a “discharge” at the completion of your approved plan.
In contrast, chapter 7 bankruptcy laws were designed as a liquidation method. Under chapter 7 a trustee chooses which of your property to sell (liquidate) in order to pay off as much of your debt as possible to your creditors. Typically you will not be allowed to keep any assets over and above what the law allows. Thus, in most cases, in theory you don’t own any property that the trustee is not allowed to liquidate if he/she chooses.
Typically in a chapter 7 most of your debts will be discharged after about three months, which means that you will no longer be liable to pay your debts. However, some debts are not eligible for discharge such as child support, taxes, alimony, and student loans, to name a few. Additionally, any “secured debts” for which you pledged collateral such as your home, cars, furniture, jewelry, etc., will not be discharged. The bankruptcy court includes only those debts you remember to list at the time of your bankruptcy so you must provide the court with a complete list of your debts to have them discharged. You are allowed to keep the money you earn after filing a chapter 7 as well as most other property you acquire after the date of filing.
Q: Do I qualify for filing bankruptcy?
Chapter 7 Eligibility
A: Bankruptcy laws were updated on October 17, 2005, setting more restrictive limits on bankruptcy candidates. Individual with consumer debt who want to file under chapter 7 will have their finances analyzed to determine if they can afford to pay their creditors based on a formula known as a “means test.” The means test compares excess monthly income with the total amount of unsecured debt in order to determine the amount of debt you are able to repay to your creditor4s if you were in a chapter 13 bankruptcy.
Since this calculation is hypothetical it doesn't necessarily reflect your true financial condition while in reality, you really aren’t able to pay even the minimum portion of your debts. Unfortunately, the “means test” is very complicated and it is strongly advised that you seek competent professional help especially when choosing to file a chapter 7 bankruptcy.
If the court determines that you are capable of paying your debts using the “means test”, you will not be eligible for filing a chapter 7. The judge will then either dismiss your bankruptcy case or you may opt to convert your case to a chapter 13 instead.
Chapter 13 Eligibility
There are two primary requirements for eligibility in chapter 13 bankruptcy. First, you must have a regular source of income, whether from a job or elsewhere such as a benefit payment program, rental income, income from stock and bonds, etc. And secondly, the court allows debt limits of $1,010,650 in secured debt including home mortgages, auto loans, and a few other items, and a maximum of $336,900 in unsecured debt, including credit cards and other non-collateralized consumer loans. These limits are adjusted periodically. If you fall under either of these categories, you may qualify for a chapter 13 bankruptcy, but you will need to consult with a professional in order to make a final determination. Call us at (801) 998-5340 for more information.
Q: What is a bankruptcy discharge?
A: If a court dismisses or discharges your debts you are no longer obligated to pay that debt and the creditors may no longer attempt to force you to repay. Some debts have multiple debtors. Any portion of an unpaid debt which is owed by another party may still legally be collected by a creditor. Additionally, if you have a secured (collateralized) debt, the creditor may still be allowed to repossess their collateral.
Q: Will all my debts be discharged if I file bankruptcy?
A: No, some debts are not discharged by the courts. For example,
- debts you failed to list at the filing of your bankruptcy filing (called unscheduled debts)
- debts that you incurred after your filing date
- certain taxes
- alimony
- maintenance or child support payments
- court-ordered restitution or pre-petition fines
- debts for injury or death caused by the use of illegal drugs or alcohol
- debts incurred through fraud
- specific condominium or co-op fees
- most student loans
These and a few other debts not itemized here are not dischargeable by the judge. If the creditor fails to ask to the court to rule on these debts, they will be automatically discharged. You need to seek professional help for more information. Give us a call at (801) 998-5340.
Q: Can bankruptcy provide me any immediate help?
A: When you file for bankruptcy, the court automatically imposes a temporary injunction against all creditor’s collection efforts. This means that creditors must stop calling or sending you collection letters and they must immediately cease all law suits against you to collect debts. This process, as previously mentioned, is called an “automatic stay”.
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Areas of Expertise
- Bankruptcy
- Chapter 7
- Chapter 13
- Debt Relief
- Creditor Mediation
- Loan Modification
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