Most people file bankruptcy due to circumstances that are mostly beyond their control. Medical bills are a good example. Hospital, surgical, and other medical debt accounts for about two-thirds of bankruptcy filings. Lifestyle decisions sometimes contribute to injury or illness. But no one asks for these things to happen.
Bankruptcy is ideal for people who feel like their financial lives are spiraling. No other debt protection law offers the same one-two-three punch as bankruptcy. This combination is outlined below. So, instead of waiting and hoping for things to get better, you can take control of your own financial future.
A Utah bankruptcy lawyer helps you before, during, and after the case. Attorneys give you solid advice about your debt relief options. Bankruptcy and non-bankruptcy alternatives are usually available. During the case, an attorney handles the complex paperwork and represents you at bankruptcy hearings. After the case, a lawyer can work with you on the quickest and most effective way to raise your credit score.
Utah Bankruptcy Law
Regardless of the state, bankruptcies are always a combination of federal and state laws. Utah’s bankruptcy laws are a good example. Federal law, mostly the Bankruptcy Code, controls most aspects of a bankruptcy case. State law, such as the Utah Exemptions Act, controls property exclusions and a few other items.
General Bankruptcy Principles
The fresh start is the overarching principle in bankruptcy cases. The Supreme Court has consistently held that bankruptcy “relieve[s] the honest debtor from the weight of oppressive indebtedness, and permit[s] him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” Section 362 of the Bankruptcy Code is an essential part of this fresh start. The automatic stay immediately stops creditor adverse actions, like:
• Lien placement
• Wage garnishment
• Bank account levy
The automatic stay can prevent these things from happening. However, these actions are difficult to undo, whether you file bankruptcy or not. So, prompt action is essential. Typically, the automatic stay remains in full effect as long as the case is pending. That could be up to five years. So, if you need time to catch up on mortgage payments or erase other secured debt delinquency, bankruptcy gives you the chance to do so. Creditors cannot harass you during the protected repayment period, as long as you make monthly payments. When the bankruptcy ends, the judge discharges most unsecured debts, such as medical bills and credit cards. This debt discharge, or debt forgiveness, usually frees up hundreds of dollars a month.
Types of Consumer Bankruptcy
Essentially, there are two kinds of consumer debt. So, there are basically two kinds of bankruptcy. Some other bankruptcy options are available in some jurisdictions. Families with large medical bills and other unsecured debt often choose Chapter 7 bankruptcy. In as little as six months, Chapter 7 eliminates most unsecured debts. The full force of the automatic stay usually applies in these cases. In other words, when you file Chapter 7, creditors leave you alone and you quickly get a fresh start. If mortgage delinquency and other secured debts are a problem, Chapter 13 is usually a good alternative. In a Chapter 7, the bankruptcy trustee does little more than verify your identity at a 341 meeting. A Chapter 13 trustee does much more. The trustee basically puts you on an allowance for either three or five years. After you pay monthly bills, most disposable income goes to pay down secured debt delinquency. Unsecured debt discharge, which happens after secured debt delinquency is erased, completes a Chapter 13 fresh start.
Furthermore, not everyone in Utah is eligible for a fresh start. You must have lived in the state for at least two years to file bankruptcy here. Moreover, you cannot hide income, misclassify your debts, or otherwise commit bankruptcy fraud. There are some chapter-specific qualifications as well.
Qualifying for Chapter 7
The means test often determines your eligibility to file Chapter 7. Your annual household income must be below the state average. This figure, which is usually about $95,000 for a family of four, changes every few months. Some regional variations apply. For example, the cost of living is higher in the Ogden/Salt Lake City/Provo region than it is in other areas. Some other qualifications apply as well. Sometimes, these rules are unwritten. For example, if you file for Chapter 7 despite earning more income than you owe in necessary expenses each month, expect the trustee to ask questions about where the money is going.
Qualifying for Chapter 13
There are no debt ceilings in a Chapter 7. But, there are debt ceilings in a Chapter 13. You cannot have more than $1.4 million in secured debt and $400,000 in unsecured debt. These totals include current and past-due obligations. So, if your name is Batman and you live in Wayne Manor, you might not be eligible for Chapter 13 bankruptcy. The income/expense balance sometimes comes into play as well. But Chapter 13 has the opposite unwritten rule of Chapter 7. Chapter 13 debtors must have enough disposable income to make a monthly debt consolidation payment. The amount depends on the amount of debt and some other factors. It’s usually roughly the size of a mortgage or rent payment.
Utah Bankruptcy Exemptions
Outside bankruptcy, your hard-earned assets are at the mercy of creditors. In many cases, creditors do not need court orders to take your house, car, or other property. Bankruptcy protects (exempts) these assets. Luxury items, like vacation homes and boats, are usually nonexempt (not protected). But that’s not always the case. Normally, items like camping trailers are nonexempt. An obscure bankruptcy law provision, the best interests of creditors rule, forbids such seizures and sales.
Some states allow debtors to choose between federal exemptions or state bankruptcy exemptions. That choice is unavailable in Utah. But that usually does not matter, because Utah’s exemptions are so broad. They include:
• Home equity: If you have less than $42,700 of equity in your house, mobile home, or other residence, the trustee cannot touch it. You may also exempt up to $5, 1000 in other real estate or property equity that is not your primary residence.
• Motor vehicle: The law protects up to $3,000 of vehicle equity. Typically, new cars, like new houses, have almost no equity. Since these loans are amortized, for about the first half of the loan, almost all payments go to interest instead of principal. Used cars have almost no value, especially if they have any significant wear and tear.
• Personal property: Clothes, furniture, electronics, jewelry, firearms, and other personal property and household goods are exempt in Utah. Sometimes, value limits apply. Once again, however, things like used guitars and other musical instruments are practically worthless, at least financially. animals, books, and musical instruments, up to $1,000 total
• artwork depicting or produced by a family member
• bed, bedding, and carpets
• burial plot
• clothing (but not furs or jewelry)
• dining and kitchen tables and chairs, up to $1,000 total
• firearms: one shotgun, one handgun, one shoulder arm; 1,000 rounds of ammunition for each of the foregoing firearms
• food to last one year
• health aids
• heirlooms, up to $1,000 total
• personal injury and wrongful death recoveries for you or someone you depended on
• proceeds from sold, lost, or damaged exempt property
• refrigerator, freezer, microwave, stove, sewing machine, washer, and dryer
• sofas, chairs, and other furniture, up to $1,000 total
• education savings plan up to $200,000
• Retirement accounts: Defined contribution plans, like IRAs, and defined benefit plans, like pensions, are exempt. The exemption also applies to college savings plans, if they are worth less than $200,000.
• Income: 75% of your current wages are exempt. This exemption also applies to government income payments, like VA disability or Social Security payments. Insurance payments are usually exempt as well. A bankruptcy lawyer can show you how to maximize these exemptions.
• Public Benefits
• Disability, illness, medical, surgical, or hospital benefits.
• Fraternal benefit society benefits.
• Life insurance policy cash surrender value, but not payments you’ve made on policy within the year before filing.
• Life insurance proceeds if the beneficiary is the insured’s spouse or dependent and if the proceeds are needed for support.
• On the subject of homes, a quick word about bankruptcy values. There is usually a difference between an item’s fair market value and its as-is cash dollar amount. You must list an item’s as-is cash value, or its garage sale value, on Schedule A or B.
Chapter 7 bankruptcy is considered the “liquidation” form. This is a true “wipe the slate clean” type of thing a debtor filing for Chapter 7 is starting over entirely. A trustee is appointed to assist with the sale of assets – this doesn’t necessarily have to be all of a given debtor’s assets, but it’s often most of them. Once these have been liquidated, the trustee pays creditors a percentage of the proceeds. Certain other debts are forgiven, or discharged – debts which cannot be discharged generally include student loans, alimony or child support taxes. If you’ve filed for Chapter 7 bankruptcy, you won’t be eligible to file again for another seven years.
Chapter 11 bankruptcy is considered the “reorganization” format. This format again involves a trustee, but this time includes a repayment plan which is submitted to a court for approval – the court can then approves, alter or suggest a new plan. These plans can last anywhere from three to five years. Debtors do not have to liquidate assets in this format, and they’re often only repaying 30 to 50 cents on the dollar from what they actually owe. Both individuals and corporations can file for Chapter 11 bankruptcy.
Chapter 12 bankruptcy is relatively similar to Chapter 11, except that it’s specifically designed only for family farmers. It’s not meant for larger companies or corporations.
Chapter 13 is also similar to the two types above, but instead of being for family farmers, it’s for all other individuals – and again, not for corporations or larger companies. There are limits set on the amount of money which can be owed by the debtor under Chapters 12 and 13 bankruptcy.
What Is The Process To File For Bankruptcy In Utah?
Every person or couple who files for bankruptcy must go through a legal process. Once you begin this process, it will help determine the magnitude of your debt problem, whether or not you should file, and what kind of bankruptcy would benefit you most. Additionally, this process helps protect you from aggressive creditors and misunderstandings. It can be a bit detailed, but if you need to file for bankruptcy in Utah, you need to know a few things about the process.
Step One: Attend Utah Bankruptcy Counseling
Before you are allowed to file for bankruptcy, you must attend credit counseling. This is a straightforward course that teaches efficient finance- and debt-management; you will be taught how to determine whether or not you will be able to pay off any debts you may incur in a timely manner, how to avoid getting into trouble by amassing debt you cannot repay, and how to relieve yourself of your debt, among other useful things. You may be called upon to make a debt management plan for yourself; at this point, you must decide whether or not you want to go forward with your plan to file for bankruptcy. This course must be attended within six months prior to your filing date; it is best to do this as soon as you can.
Step Two: Bankruptcy Information And Determination
In order to ensure that your bankruptcy is based on accurate information, thereby avoiding legal disciplinary action, you must gather information and fill out paperwork. This paperwork is simply a summary of your financial situation, including a list of your creditors, the amounts of debt you owe, your average income, and other relevant pieces of information. Once you have gathered all of your required information, you must take the Means Test; this is a simple test that uses that information (and a bit of math) to determine whether or not you qualify for a Chapter 7. If you do qualify, you will have the option to do so; however, you are not required to file a 7 if you’d rather file a 13.
Step Three: Filing Bankruptcy Documents And Meetings
The actual act of filing is not a difficult one. You will need to appear in court and meet with your attorney, but once you have filed, you will be granted an automatic stay. This means that your creditors will not be allowed to contact you or harass you in any way. You will be able to go forward without worrying about your creditors. You will also be required to meet with your creditors to discuss your bankruptcy or negotiate with them. As long as you have been fully honest about your situation and your assets, your bankruptcy filing process should go smoothly; all you need to do is follow procedure.
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!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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