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Blog - Learn about Bankruptcy and Debt Related Topics
Chapter 7 Bankruptcy Basics
Chapter 7 Bankruptcy is primarily filed to discharge unsecured debt such as credit card debt, medical bills, and personal loans. However, the personal liability on secured debt may also be eliminated. This is an advantage when you surrender the collateral which secures a lien or mortgage, such as real estate or vehicles, because then you would not owe the difference between the loan and the proceeds from the auction of the collateral.
In addition, Bankruptcy provides a powerful defense called the "AUTOMATIC STAY" against creditor collection actions. Once you file your Bankruptcy petition, creditors are not permitted to call you or send you collection letters anymore. In addition, creditors must halt their collection efforts including garnishments, levies, repossessions, foreclosures, and collection lawsuits. It may be advantageous to file Chapter 7 Bankruptcy before the debt collectors start calling and the courts grant judgments against you on behalf of your creditors.
You will not be left destitute when filing Chapter 7 Bankruptcy because most individuals are permitted to keep all of their personal and household goods, along with their retirement accounts. In almost every case, individuals keep their cars and houses even though they filed for Chapter 7.
In order to qualify for Chapter 7 Bankruptcy individuals must pass the "Means Test" from an income standpoint. The Means Test is a two-part test in which individuals can automatically qualify in Part One if their income level is below the threshold dollar amount for their household size. If individuals are above the threshold level, then they must take Part Two of the Means Test. Part Two takes into account payroll deductions and secured debt payments among many other expense categories. The good news is that it is possible to fail Part One of the Means Test, but still qualify by passing the second part of the Means Test.
Chapter 13 Bankruptcy Basics
In a nutshell, Chapter 13 Bankruptcy is basically a court ordered debt repayment plan. An individual will only make one consolidated payment per month to the Bankruptcy Trustee assigned to your case. In turn, the bankruptcy trustee will then make payments to your individual creditors. Your monthly plan payment is based on your income and expenses. This means that many filers may have a low monthly payment. The policy behind a Chapter 13 Plan is to allow an individual to pay what they can. After your completion of the payment plan any remaining qualifying debts are discharged. In other words, your creditors may only receive pennies on the dollar while any remaining unpaid balances are discharged upon the successful completion of your payment plan.
Chapter 13 Debt Limits was Temporarily Increased
On June 21, 2022, the debt ceiling (in order to qualify for Chapter 13 Bankruptcy) increased to a combined total of $2,750,000. Previously bankruptcy filers were limited to no more than $465,275 in unsecured debts, and secured debts of no more than $1,395,875. Bankruptcy filers are no longer are required to limit debts in specific categories as secured and unsecured.
The change will sunset in two years, and the eligibility limits of Chapter 13 under 11 USC §109(e) will revert to the prior amounts, if the statutory change is not extended or modified. With high inflation, interest rates, skyrocketing home values, this change will allow home owners and those with higher debts stemming from many circumstances such as small business closure to successfully reorganize their finances.
Intersection of Eviction & Bankruptcy
There are several bankruptcy options for tenants who are facing eviction. These options sometimes depend upon which type of bankruptcy you file. The most common type of bankruptcy is Chapter 7 which discharges most unsecured creditors, and generally last 4 1/2 months. The other type of Bankruptcy is Chapter 13, which is a payment plan bankruptcy which typical last 5 years.
Landlord has not obtained an eviction judgment yet:
If a landlord has not obtained an eviction judgment prior to your bankruptcy, then the automatic stay prevents the landlord from moving forward with an eviction lawsuit. The stay can last until your Chapter 7 Bankruptcy case is closed in 4 to 6 months from filing.
Landlord has been awarded an eviction judgment:
If the landlord has already obtained a judgment for possession in an eviction lawsuit, then the only way to prevent an eviction is to deposit the total arrears with the bankruptcy clerk. In other words, depositing your back owed rent in an . . .
Landlord has not obtained an eviction judgment yet:
If a landlord has not obtained an eviction judgment prior to your bankruptcy, then the automatic stay prevents the landlord from moving forward with an eviction lawsuit. The stay can last until your Chapter 7 Bankruptcy case is closed in 4 to 6 months from filing.
Landlord has been awarded an eviction judgment:
If the landlord has already obtained a judgment for possession in an eviction lawsuit, then the only way to prevent an eviction is to deposit the total arrears with the bankruptcy clerk. In other words, depositing your back owed rent in an . . .
Should you Sign-up with a Debt Consolidation Company?
The assistance that a Debt Consolidation (or Debt Relief) companies offer generally comes in two flavors. The first flavor is Debt Management, and the second is Debt Settlement. Before signing-up with a Debt Consolidation Company, I recommend reviewing your bankruptcy options with us first.
Debt Management Plans:
In a Debt Management plan, the Debt Relief company offers to help you manage your payments to creditors. You make one monthly payment to the Debt Relief Company, and they in turn make payments to your creditors. The Debt Relief company will attempt to decrease interest rates, reduce minimum payments, and waive penalties.
Here are several reasons why Debt Management Plans may not be successful. There is no legal obligation for your creditors to work with the Debt Relief companies. Many creditors will voluntarily work with the consolidator, but many creditors will not. Therefore, you may not be able to consolidate all of your debts in the Debt . . .