Filing a Chapter 7 Bankruptcy: Basic Steps
1. Analyze Your Debt
Some debts, such as child support obligations, most student loan balances, and recent tax debt, aren’t dischargeable (wiped out) in Chapter 7 bankruptcy. And if you pledged collateral for a debt (such as a house or car), the creditor can take the property if you’re not current when you file and if you don’t remain current after your case.
2. Determine Your Property Exemptions
Every state has exemption laws, which dictate what types of property (or, in some cases, how much equity in a particular type of property) you are entitled to keep if you file for Chapter 7 bankruptcy. Most people can retain household furnishings, retirement accounts, a modest car, and some equity in a home. You’ll want to be sure that you can protect everything you want to keep before filing.
3. Make Sure You Are Eligible
Most people must take and pass the means test before qualifying for a discharge in Chapter 7 bankruptcy (excluded individuals include those with primarily business debt and some military personnel). If your average gross income during the six months before you file is more than the median income for a family of your size in your state, you qualify. If not, you’ll subtract allowed expenses from your income to determine whether you’ll be allowed to use Chapter 7 bankruptcy.
4. Redeem Or Reaffirm Secured Debts
If you pledged property as collateral for a loan, you’ll need to continue to pay the creditor if you want to keep the property. When you file for bankruptcy, you’ll be asked to decide whether you want to “redeem” the property (pay the creditor the current replacement value of the property in a lump sum), “reaffirm” the debt (agree to continue paying per the contract with the creditor usually under the same terms), or “surrender” the property (let the creditor take it). Depending on where you live, there might be other options as well (some lenders let debtors keep the property as long as they remain current on the loan).
5. Fill Out The Bankruptcy Forms
You’ll complete a few dozen pages of forms, in which you tell the court about all of your property, debts, income, expenses, and prior transactions. You’ll list the names of all your creditors, property, and income, list your property exemptions, and decide what you want to do about each of your secured debts. Finally, you’ll disclose property transactions that occurred up to ten years before your case.
6. Take A Credit Counseling Course
Individuals who file for bankruptcy must complete a course before filing for bankruptcy, or, in unusual cases, shortly after that.
7. File The Forms
Filing your petition (the main bankruptcy form, schedules, and other forms) officially starts your case. Most people file all the forms at once, but if you’re pressed for time, you can opt for an emergency filing by completing a few required forms. You must file the remaining forms within 14 days.
8. Pay The Filing Fee Or Request A Fee Waiver
You’ll pay a filing fee when you file your forms. If you can’t pay it all at once, you can ask the court to split it into four payments. If you can’t pay it at all, you can apply for a fee waiver by filling out an application that you’ll file along with your bankruptcy petition. A judge will review it and, in most cases, issue the fee waiver if it appears that you meet all necessary qualifications. (Your household income must be 150% of the federal poverty guidelines or less, and you can’t have sufficient income to pay in installment payments.)
9. Submit Documents To The Bankruptcy Trustee
You’ll need to turn over documents that prove the accuracy of the information provided in your bankruptcy forms. You can expect to forward bank statements, paycheck stubs, profit and loss statements, tax returns and other documents the trustee requires.
10. Go To A Meeting
In most cases, you’ll need to go to court only once for a short meeting with the trustee (and perhaps a creditor or two, although it’s unusual for creditors to appear). The bankruptcy trustee appointed to your case will check your identification, and ask standard questions required of all debtors, as well as specific questions about the information in your forms.
11. File Objections Or Motions If Needed
If you dispute a creditor’s claim against you or you want to eliminate certain liens, you’ll need to address these matters before your bankruptcy case is closed (if you forget to handle a lien, most courts will allow you to reopen the case at a later date).
12. Wind Up Your Secured Debts
When you filed your bankruptcy forms, you’ll complete a form in which you stated how you intend to handle your secured debts. Before your case is closed, you’ll need to act on these matters. For instance, if you indicated that you’d return a car, you’ll want to be sure to make it available to the lender.
13. Complete A Debtor Education Course
After you file your paperwork, you’ll need to complete the second course, called a debtor education course, before you’ll receive a discharge (the order that wipes out your debt). If you fail to submit your certificate on time, the court will close your matter without a discharge. Fixing this problem can be expensive because you’ll likely have to file a motion and another filing fee to reopen the case.
14. Get Your Discharge
Congratulations! This is what it’s all about. At the end of a successful bankruptcy, the court will issue an order discharging your quest.
Chapter 13 Bankruptcy
Chapter 13 is a Section of the Bankruptcy Code which enables qualified individuals and small business owners to retain their assets and consolidate all or a portion of their debt under a Chapter 13 Plan payable over three to five years. The Debtors and their attorneys formulate the repayment play.
The Debtor must make a single monthly plan payment to the bankruptcy trustee throughout the duration of the plan, and the bankruptcy trustee distributes the plan payment among all of the Debtor’s Creditors in amounts and priorities specified in the plan. (Certain obligations including long-term secured liabilities such as home mortgages may or must be paid outside of the plan.)
• Amount Of Plan Payment – The amount of the plan payment is an amount equal to all of the surplus income of the Debtor and the Debtor’s spouse. Surplus income is all income received by the Debtor and his or her spouse that is not reasonably necessary for the support of the Debtor and the Debtor’s dependents. If your current budget shows you can afford to pay more than that amount, the Trustee in your case will seek to have your payment amount increased (if you are paying less than 100% of your unsecured debts through the plan).
• Liquidation Analysis: An important bankruptcy requirement is that you must pay out at least as much in the Chapter 13 Plan as your creditors would have gotten if you filed a Chapter 7 case. Therefore, if you have a lot of non-exempt assets, you would need to account for this in your plan.
Benefits Of Filing Chapter 13 In Utah
Many interesting and valuable options are available to Debtors in Chapter 13 cases that are not optional in Chapter 7 cases.
• Stop A Foreclosure Sale And Catch Up On Your Home Mortgage – For example, if you are behind on your home mortgage, arrears can be cured within the Chapter 13 Plan over a period of 3-5 years.
• Protection From Creditors – Chapter 13 protects individuals from the collection efforts of creditors; permits individuals to keep their real estate and personal property, and provides individuals the opportunity to repay their debts through reduced plan payments.
• Catch Up On Past Due Car Payments – Car loans are frequently paid through Chapter 13 Plans including past due amounts. You may be able to prevent and/or reverse repossession. In addition, interest rates are almost always dramatically lowered.
• Modify Your Home Mortgage While In Chapter 13 – Individuals often attempt to negotiate a mortgage modification with a lender while in Chapter 13.
• Cessation Of Interest And Penalties On Tax Debt In Chapter 13 – Certain tax repayments can be made easier by virtue of elimination of interest payments. This can be a tremendous benefit that your attorney can assist you in accomplishing.
• Eliminate Second Mortgages And Other Liens Under Certain Circumstances – You may be able to get rid of junior liens on your real property including second mortgages (known as a “lien strip”). If the fair market value of your property is less than the total amount owed on the first mortgage, then you can eliminate the security interest to any junior lien holders and treat them as general unsecured creditors in your plan (thereby being able to possibly pay them less than 100%).
• Reduce The Amount To Be Paid On A Car Loan Or Other Personal Assets Through Chapter 13 – In some instances secured claims need only be fully paid to the extent of the value of the property securing the claim. This treatment is often applied to vehicles proposed to be paid through a Chapter 13 plan. If a vehicle was purchased over 2.5 years prior to the date of filing, Debtors are permitted to “cram down” the debt against the vehicle and required to pay the value of the vehicle and not the amount owed on the vehicle. For example, if Debtors own a vehicle with a fair market value of $5,000.00 on which they owe $10,000.00, if the vehicle was purchased over 2.5 years prior to the date of filing, Debtors are only required to pay $5,000.000 through the Plan to pay for the vehicle.
• Discharge Unsecured Debt such as credit cards, medical bills, payday loans, certain taxes and other debt through consolidation in a Chapter 13 Plan and repayment of 0% to 100% of the debt owed. If you have non-exempt assets and earn sufficient income, you would be required to pay a higher percentage.
• Lower Interest On Most Debts Consolidated In Chapter 13. Often, interest is lowered to Zero Percent.
• Defer Interest On Student Loans – While you are in Chapter 13, you’re not permitted to make payments on student loans unless you are paying 100% to unsecured creditors. In addition, st6udent loan creditors may not collect from you. While most of the Chapter 13 bankruptcy information on this page is relevant to any Chapter 13 case across the country, some of it is geared specifically to rules and regulations of the bankruptcy courts in the State of Utah. There are some court and trustee’s fees that get added on, but let an attorney evaluate your budget to see what you can accomplish in a Chapter 13 and compare that to your other options.
Chapter 13 Vs. Chapter 7
One purpose of a chapter 13, as opposed to a chapter 7, is to enable a debtor to retain certain assets (for example, your home or other real estate) that might otherwise be liquidated by a chapter 7 Trustee. It also provides an alternative to Chapter 7 when you have too much disposable income (your net monthly income exceeds your net monthly expenses by too much) and usually yields much lower monthly payments than you were previously paying and after 36-60 months, you are done! Your debts are gone.
It also enables you sometimes to discharge debts that would not be discharged in the Chapter 7, such as parking tickets, non-criminal fines, and debts incurred through willful and malicious injury to another. The goal of most personal bankruptcy is to discharge your existing debts by repaying all or a portion of your debts and allow you a fresh start on your finances. In other words, once your discharge is granted, you no longer need to repay the debts that were incurred before you filed your bankruptcy. Assuming you need to file a bankruptcy, the only way to determine which Chapter to file under is to first compare your options under the other available Chapters and be sure you have consulted with an experienced bankruptcy attorney to properly analyze your options.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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