Bankruptcy FAQ | Carl C. Silver Law
230 S. Third Ave.
Alpena, MI 49707
- Should I file bankruptcy and get a Fresh Start?
- Creditors/collection agencies are harassing you or your relatives
- Wages were garnished or your bank account frozen
- Lawsuits have been filed against you by creditors or creditors are threatening to sue
- Your lender threatens or has started a foreclosure action against your home
- You have lost all or part of your income
- You have been divorced or separated and receive less money as a result
- Your lender is about to repossess or has repossessed your vehicle
- Two or more bills are 30 days or more behind
- You are unable to pay medical bills
- You are making payments and your debt is staying the same
- You would not be able to repay most of your debt in the next 5 years
- What is a Chapter 7?
Chapter 7 is designed for debtors with financial difficulties who do not have the ability to pay their bills. The simplest definition of bankruptcy is that one has inability to pay his or her bills as they become due.
Under Chapter 7, depending on how much property a person has, you are entitled to exempt (or keep) a certain amount of property. In fact, most of the time debtors will keep all of their property and lose nothing. However, there are times when a bankruptcy estate has a lot of debt and many assets. In this case, the Chapter 7 Trustee will take possession of property, sell it and distribute the proceeds from the sale of that property to the debtor's creditors. However, even in these cases, the debtor will be able to use his or her exemptions to keep certain basic items that they need for a fresh start.
As indicated, in most cases debtors do not lose anything. If it appears that the debtor is going to lose property that they do not want to lose then a Chapter 13, as explained later, will be carefully explored.
The purpose of filing a Chapter 7 is to obtain a discharge of existing debts. In rare circumstances, a person may be found to have committed certain kinds of conduct such as fraud, embezzlement, or liability as the result of operating a vehicle while legally impaired or drunk by the use of alcohol or drugs. In those rare occasions the debtor will find that a certain debt is not discharged or the debtor is denied a discharge entirely.
Even if one receives a discharge, some debts are never dischargeable in a Chapter 7 or 13. Therefore, you may still be responsible for certain debts such as: taxes less than three years old, student loans, alimony and child support, criminal restitution and fines.
- What is a Chapter 13?
Chapter 13 is designed for individuals who have a regular income who are temporarily unable to pay their bills and would like to pay them in installments over a period of time. Only individuals and/or persons conducting business under an assumed name are eligible to file for a Chapter 13. Corporations are not allowed to file Chapter 13. Also, you may not be eligible to file a Chapter 13 if your total unsecured debts exceed $360,475 and/or secured debts exceed 1,081,400. (These dollar amounts are adjusted by Congress from time to time).
In a Chapter 13 you, working with your attorney, prepare and file a plan with the court to repay your creditors either all or part of the money that you owe using your future earnings or income. Income includes essentially any money that comes into the household including: child support, unemployment, social security income, pension income, disability pay, etc. The minimum period allowed by the court to repay your debts is three years and the maximum period is five years. Your plan must be approved by the court before it can take affect. In most consumer cases, the approval of the plan takes place automatically if there are no objections. If there are objections, those objections are usually satisfied prior to the date the debtor's case is scheduled to be approved or confirmed by the court.
The fundamental of Chapter 13's is that you keep all of your property whether exempt or non-exempt. However, sometimes you want to surrender or return property to a secured creditor (such as a vehicle) so you do not have to pay for that property anymore.
After completion of all payments under your plan, all of your debts are discharged except any alimony and child support, student loans, debts and criminal fines and restitutions, and debts for death or personal injury caused by driving while intoxicated from alcohol or drugs.
- What Is A Chapter 12?
A Chapter 12 is exclusively for farmers. It gives a farmer a lot of leeway in reorganizing his debts. It will enable a farmer to write the amount owed on his farm real estate down to the value rather than what he actually owes on it. Also, the farmer might have a lot of machinery that is financed but it is not worth as much as he owes. Again the farmer can propose a plan where he pays what the machinery is worth rather than what he owes on it.
- What Debts Are Not Dischargeable in Bankruptcy?
Pretty much all debts of any kind or amount are dischargeable in Bankruptcy except the debts listed below which are the most common debts that are not dischargeable in Bankruptcy: (1) Most tax debts and debts that were incurred to pay taxes. (2) Debts for obtaining money, property, services or credit by means of false pretenses, fraud, or a false financial statement if the creditor files a complaint in the case. (3) A credit card company can object to the discharge of purchases of luxury goods or services and/or cash advances of $750 or more made within seventy (70) days before the case was filed. However, the creditor must file a complaint requesting that those debts be excepted from discharge. (4) Debts that the debtor does not list on his bankruptcy papers. (5) Debts for fraud, embezzlement, or larceny if the creditor files a complaint in the case. (6) Debts for alimony, child support, and other divorce related debts including property settlements. (Only in a Chapter 13 are property settlements dischargeable). (7) Debts for the intentional or malicious injury to the person or property of another. (8) Debts for certain criminal fines or restitutions. (9) Student loans are not dischargeable unless a complaint is filed by the debtor requesting that the court find that not discharging the debt would impose an undue hardship on the debtor and his or her dependents. (10) Debts for personal injury or death caused by the debtor's operation of a motor vehicle while intoxicated.
- Who can File a Chapter 7?
Any individual 18 years of age or over or a corporation which resides in, or does business in the United States may file a Chapter 7, except a person who has been involved in a prior case that was dismissed within the last six months for certain reasons. Successive Chapter 7 cases can only be filed eight years after the first Chapter 7 case was filed.
- How Much Are The Filing Fees for a Chapter 7 or a Chapter 13?
The filing fee for a Chapter 7 is $306 for either a single person or a married couple. The filing fee for a single person or married couple in a Chapter 13 is $281.
- May a Husband and Wife File Jointly Under a Chapter 7 or Chapter 13?
A husband and wife may file a joint petition under Chapter 7 or Chapter 13. If the petition is filed jointly, only one set of bankruptcy forms is needed and only one filing fee is charged. Generally this is the preferred way to file bankruptcy.
- May a Husband or Wife File Separately Under Chapter 7 or Chapter 13?
A husband or wife may file individually under Chapter 7 or Chapter 13. However, this must be done with extreme caution. If any of the non-filing spouse's debts are joint with the filing spouse, then the trustee or creditor can go after joint assets of both the husband and wife. A husband or wife filing Chapter 7 or 13 separately should do so only after a very careful determination is made as to what debts and what assets are held jointly.
- How Does the Filing of a Chapter 7 or a Chapter 13 Case Affect Collection and Court Proceedings That Have Been Filed Against a Debtor In Other Courts?
The filing of a Chapter 7 or a Chapter 13 automatically stays (or stops) any and all actions or attempts to collect money or property from a debtor. Shortly after a Chapter 7 or Chapter 13 case is filed, the court mails a notice to all of the creditors informing them that they must refrain from taking any action of any kind against the debtor. Any creditor who intentionally violates the Automatic Stay may be held in contempt of court and may be liable to the debtor for damages. Also, the Automatic Stay does not protect co-signers. A creditor may continue to collect debts from co-signers of the debtor after the debtor files a Chapter 7 case.
- Are The Names of Persons Who File Bankruptcy Published?
When a person or couple files a Chapter 7 or Chapter 13 it is a public record and the name of the debtor(s) will be picked up by credit reporting agencies. However, newspapers rarely report or publish the names of consumers or small businesses who file under Chapter 7 or Chapter 13. It is only when a big company, like an automotive company or an airline company, files a bankruptcy petition that it appears in the newspaper.
= Will My Employer Know If I File a Chapter 7 or Chapter 13?
Your employers and your neighbors, etc. are not notified when you file a Chapter 7 or 13. However, in a Chapter 13 it may be necessary that your employer be informed if it is necessary to have income flow to the plan from the debtor's paycheck.
- If I File a Chapter 7 or a Chapter 13 Do I Have to Appear in Court?
Approximately one month after your case is filed you will have to attend a hearing referred to as the "Meeting of Creditors" or "Creditor Hearing." Actually this is a rather odd name for the hearing since creditors rarely attend. At this hearing creditors are given an opportunity to ask the debtors, under oath, questions about their financial affairs and about their assets and liabilities. However, in most Chapter 7 and Chapter 13 cases creditors rarely appear. The "Meeting of Creditors" is not in front of a judge but is held in front of a trustee appointed by the United States Justice Department to oversee your case. Also, the hearing does not take place in the Bankruptcy Court Room but will take place in a conference room at another building other than the Bankruptcy Court. However, if there is a complaint objecting to your discharge or to the discharge of one of your debts or if there is any objection to the confirmation of your Chapter 13 Plan, then you may have to appear in the Bankruptcy Court itself in front of a United States Bankruptcy Judge.
- What Happens After The Creditor Hearing?
Approximately sixty to seventy days after the Creditor Hearing assuming no creditor files any objections (which is very rare), you will receive an order signed by the Bankruptcy Judge titled, "Discharge of Debtor." This is sent to yourself, all of your creditors, and your attorney informing all recipients of the discharge that all of your debts are discharged.
- How Long Does It Take To File a Chapter 7 or Chapter 13?
A Chapter 7 proceeding lasts approximately one hundred days start to finish. First the case is filed. Second, you attend a Creditor Hearing approximately thirty days after it is filed. Approximately seventy days after the Creditor Hearing you receive your discharge.
A Chapter 13, however, will last a minimum of three years but not exceed five years. In rare cases in a Chapter 13 if it is a plan to pay creditors 100%, the plan can be paid off early. However, if the plan is to pay less than 100% of all money owed to your creditors, the Chapter 13 must last the full length of your proposed plan.
- How Are Secured Creditors Dealt With in a Chapter 7 Case?
Secured creditors are creditors with valid mortgages or liens against your property; most typically your house mortgage or a car loan where the lender's name appears on the title of your vehicle. In other words if you do not pay on the loan they take the collateral away. In a Chapter 7 case if the debtor wishes to keep his home or car or other item of property usually all he has to do is keep making the payments in a timely manner.
- What Is A Reaffirmation Agreement?
Sometimes the creditor will request what is called a "Reaffirmation Agreement." A Reaffirmation Agreement quite simply re-glues the debtor back to the debt as though the bankruptcy had never occurred. On the other hand, a Chapter 7 or 13 is also an opportunity to surrender a secured piece of property that you can no longer afford to pay on such as a vehicle or other item. When this occurs, the creditor learns of your intentions through a form in your schedules called Statement of Intentions. If it is your intent to surrender a piece of property, the creditor must either request permission from the court to receive the property back or wait until after the discharge is granted and the Automatic Stay is lifted. If a debtor wants to surrender a car or other property that he does not want to pay on anymore, he would not have to be concerned about paying any loss after the lender sells the vehicle or other property.
- Can a Utility Company Refuse to Provide Service to a Debtor if The Company’s Utility Bill is Discharged Under Chapter 7 or 13?
No, it is illegal for a utility company to refuse to provide future utility service to the debtor or otherwise discriminate against the debtor if the utility bill is discharged in a Chapter 7 or 13. The utility company can, however, within twenty days after the case is filed request that the debtor furnish a reasonable deposit. (Whether or not this will occur varies from one utility company to another).
- What If I Want to Pay a Debt That Has Been Discharged?
A debtor may repay as many discharged debts as he or she desires. The only dischargeable debt that a debtor is legally obligated to repay is one for which the debtor and the creditor have signed a "Reaffirmation Agreement".
- Can Income Taxes be Discharged in Bankruptcy?
Yes and No. Income taxes can be discharged in a Chapter 7 or 13 if more than three years have passed since the tax return was due and the tax return was, in fact, filed on time.
- How Do I Know If I Should File a Chapter 7 or a Chapter 13?
This question can really only be answered by an experienced Bankruptcy attorney. The following are some of the most common examples of reasons why Chapter 13 cases are filed:
(A) Most Chapter 13s are filed to stop a bank or mortgage company from foreclosing on the debtor's home. This is probably the main reason that the Chapter 13 proceeding was provided for by Congress. Often times, due to a loss of job or overwhelming other bills, a debtor will get behind on his or her house payments. When this occurs, a mortgage foreclosure will begin. This usually takes place by a publication in the newspaper. If a debtor files a Chapter 13 prior to the sale date set forth in the newspaper he or she can save his or her home in a Chapter 13 as long as he or she has a sufficient source of income. This procedure enables the debtor to make the regular payments on his or her house and at the same time catch up on the back payments that he or she owes. However, it is imperative that the Chapter 13 proceeding be filed prior to the foreclosure sale as published in the newspaper or as set forth in a court judgment of foreclosure. After the sale takes place it is usually impossible to save a house other than paying the entire balance within the six or twelve month redemption period.
(B) The debtor(s) simply makes too much money to file a Chapter 7. In other words, they fail the MEANS TEST. In October of 2005 Congress made many changes to the Bankruptcy Act. Among the biggest changes was the creation of this Means Test. Under the Means Test, Congress set up income guidelines based on the number of family members in the home. If a debtor or debtors make more money than set forth in this means test then they are forced to file a Chapter 13. The approximate levels of a Means Test are as follows: Single person - $40,500, two family members - $50,500, three family members - $60,500, four family members - $70,500. Add $7,500 for each family member after four.
A complex computation is made of the debtor's income and the federal government computes what their living expenses are based on IRS standards.
(C) The third most common situation where a debtor finds it necessary to file a Chapter 13 is when he or she has too much equity in his or her house or other property to file a Chapter 7. Also the debtor does not want to lose any property by filing a Chapter 7 but still wants to get rid of all his debt. This occurs when the value of the debtor's property exceeds his allowable exemptions. The test that determines how much the debtor should pay into the plan is: Creditor's must receive as much money in a Chapter 13 as they would have received if the debtor had filed a Chapter 7 and the estate were liquidated. For example, let's assume a couple has a home worth $100,000 and they only owe $50,000 on the house. They also have $150,000 in credit cards and medical bills. Their exemption on their home is approximately $40,000. If we subtract the mortgage balance of $50,000 from the value of the house we get $50,000. Then we subtract the exemption of $40,000 and there is still $10,000 left over. Therefore, this couple has $10,000 too much equity to file a Chapter 7 and get rid of their bills without losing their house so they pay the extra $10,000 to creditors through a Chapter 13 plan lasting three to five years.
- What is An "Exemption?"
The word "exemption" is a legal word for property you are allowed to keep in bankruptcy. There are two kinds of exemptions. There are the federal exemptions provided for in the United States Bankruptcy Code and there are exemptions provided for by each state. In some states debtors are not allowed to use the federal bankruptcy exemptions. In Michigan, debtors can use either the federal bankruptcy exemptions or the Michigan exemptions. Since the federal bankruptcy exemptions are much more generous, the Michigan exemptions are rarely used. Determining what property is exempt and what property is not exempt can be extremely complicated and should not be attempted without the assistance of an experienced bankruptcy attorney.
- Will I Lose My Home If I File Bankruptcy?
This is probably the most frequent and important question asked. When someone calls the law office of Carl C. Silver it is usually assumed that the debtor does not want to lose their home. During the initial pre-consultation the debtors will be asked numerous questions regarding how much they owe on their home and what they think their home is worth in order to determine whether the debtors will be able to keep their house. If, however, on the other hand it appears that the debtor has too much equity in their house to file a Chapter 7, then a discussion will be had regarding proceeding under a Chapter 13.
In some rare situations, the debtor is better off letting his home go to the trustee for liquidation. For example, let us assume that we have a sixty-five year old widow who owns her own house worth $50,000. She also has $150,000 in credit card debts, medical bills and a vehicle loan deficiency. Her only income is $900 a month social security. She does not really want to live in the house any more because it is too much work. Also, she does not have enough income to support the house. Therefore, in this example the sixty-five year old widow might elect to file Chapter 7 bankruptcy and let house go to the Chapter 7 trustee to be sold and the proceeds would be divided amongst her creditors. However, she will be able to claim her homestead exemption of approximately $20,625 which she can keep together with all of the contents of the house for her fresh start in some type of rental property. This result is much more desirable than selling the house for $50,000 and paying off all of her creditors and ending up with absolutely nothing to start over with.