Chapter 7 Bankruptcy

What is the difference between Chapter 7 and Chapter 13?

In Chapter 7 you are asking the court to eliminate, or discharge the debts allowed by Chapter 7 regulations. You may also lose certain assets, depending on your situation. In Chapter 13, you are reorganizing your debts, and paying a portion. The choice depends on the kinds of debts you owe, your income, and the value of your assets. You should consult with an attorney to decide which is best for your situation. You rarely involuntarily lose any assets in a Chapter 13.

Chapter 7 is known as "liquidation bankruptcy." In a Chapter 7 case, you file several forms with the bankruptcy court listing income and expenses, assets, debts and property transactions for the past year. A court-appointed individual, the bankruptcy trustee, is assigned to oversee your case. About a month after filing, you must attend a First Meeting of Creditors where the trustee reviews your forms and asks questions. Despite the name, creditors rarely attend. If you have any non-exempt property, the trustee will ask that you turn it over to him or her. The meeting normally lasts only a few minutes. If there are no challenges from creditors, approximately three months later, you receive a discharge order, which is a notice from the court that "all debts that qualified for discharge were discharged." Then your case is over.

Chapter 13 is also called "reorganization bankruptcy." You file most of the same forms as you file in chapter 7, plus a proposed repayment plan, in which you describe how you intend to repay your debts over the next three to five years. Some debts must be repaid in full; others you pay only a percentage; others aren't paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. A bankruptcy trustee is assigned to oversee the case and handle your payments.

You will attend the First Meeting of Creditors about 6-7 weeks after you file. If the trustee is satisfied with your payment plan, he or she will recommend its approval by the judge. Approximately five months after the First Meeting of Creditors, the judge normally confirms (approves) your plan if no creditor opposes it and the trustee has recommended it.

When a creditor or the trustee objects to a plan, the judge usually holds a hearing at the Confirmation Hearing to determine whether your plan should be approved over the objection. It is also possible for you to resolve the objection before the judge's hearing by amending the plan to satisfy the objection. If your plan is confirmed, and you make all the payments called for under your plan, you will receive a discharge of any balance owed on all dischargeable debts at the end of your case.

You should consult with an attorney to decide which type of bankruptcy makes sense for you.

Who can file Chapter 7 bankruptcy?

You must have a place of residence, a place of business, or property in the U.S.in order to file. You can file a Chapter 7 bankruptcy petition whether or not you are employed.

In addition, you must not have:

• completed a Chapter 7 bankruptcy within the last eight years,
• completed a Chapter 13 plan which paid your unsecured creditors less than 70 cents on the dollar within the last six years, or
• had a bankruptcy filing dismissed for cause within the last 180 days
• Have a household income, which is more than the median income in the state of Indiana for a household of your size.

What are reasons to file Chapter 7 bankruptcy?

The most common reasons for consumer bankruptcy are often beyond the control of the individual debtor. They include unemployment, large medical expenses, marital problems, family crisis, overextended credit, failure of a business due to economic conditions, and unexpected expenses.

When is the best time to file a Chapter 7 bankruptcy?

The answer depends on the how far you are behind in payment of your debts, whether you are dealing with liens, foreclosures, lawsuits or repossessions; and the actions taken or threatened to be taken by your creditors. Your attorney can help you decide when to file.

Here are some Chapter 7 dos and don’ts:

• Do not file under Chapter 7 until all anticipated debts have been incurred, because it will be another eight years before you are again eligible for a Chapter 7 discharge. For example, a debtor who has incurred substantial medical expenses should not file under Chapter 7 until the illness or injury has either been cured or covered by insurance, as it will do little good to discharge, say, $50,000 of medical debts now and then incur another $50,000 in medical debts in the next few months. An exception to this rule can be obtained by filing a Chapter 13.
• Do not file under Chapter 7 until you have received all nonexempt assets to which you may be entitled. If you are entitled to receive an income tax refund or a similar nonexempt asset in the near future, do not file under Chapter 7 until after the refund or asset has been received. Otherwise, the refund or asset may become the property of the trustee. Often, however, if the amount of asset to be received is known, it can be exempted, allowing immediate filing.
• Do not file under Chapter 7 if you expect to acquire property through inheritance, life insurance or divorce in the next 180 days, because the property will have to be turned over to the trustee unless it is exempt.
• If a lawsuit threatens your exempt assets or future income, do file the case immediately to take advantage of the automatic stay that accompanies the filing of a Chapter 7 case.
• If a creditor has threatened to attach or garnish your wages or bank account, do file immediately in order to protect your interest in the property.

Are there debts that are not dischargeable in Chapter 7?

Yes. Certain categories of debt may not be discharged. Your attorney can help you determine which of your debts qualify for discharge under Chapter 7.

The following categories of debts are generally not dischargeable:

• Debts or creditors not listed on the schedules filed in a case where the trustee collects non-exempt assets to pay creditors
• Most student loans, unless repayment would cause the debtor and his/her dependents undue hardship;
• Recent federal, state, and local taxes;
• Child support and spousal maintenance (alimony);
• Government-imposed restitution, fines, or penalties;
• Court fees;
• Debts resulting from driving while under the influence of alcohol or drugs;
• Debts not dischargeable in a prior bankruptcy because of the debtor's fraud;
• Debts from fraud, including certain debts for luxury goods or services incurred within sixty days before filing and certain cash advances taken within sixty days of filing;
• Debts from willful and malicious acts;
• Debts from embezzlement, larceny, or breach of fiduciary duty, and
• Debts from a divorce settlement agreement or court decree.

What is the role of the attorney for a consumer debtor in a Chapter 7 case?

Your attorney is your advocate. It is his responsibility to look at your situation, determine the best course of action, and guide you through the process until your debts are discharged.

Your attorney provides a full range of services throughout the bankruptcy process. In a Chapter 7 case, the attorney:

• Analyzes the amount and nature of the debts you owe and determines the best remedy for your financial problems.
• Advises you of the relief available under both Chapter 7 and Chapter 13 of the Bankruptcy Code, and of the advisability of proceeding under each chapter.
• Assembles the information and data necessary to prepare the Chapter 7 forms for filing.
• Prepares the petitions, schedules, statements and other Chapter 7 forms for filing with the bankruptcy court.
• Assists you in listing your assets to enable you to retain as many of the assets as possible after the Chapter 7 case.
• Files the Chapter 7 petitions, schedules, statements and other forms with the bankruptcy court, and, if necessary, notifies certain creditors of the commencement of the case.
• If necessary, assists you in reaffirming certain debts, redeeming personal property, setting aside certain liens against exempt property, and otherwise carrying out the matters set forth in the debtor's statement of intention regarding secured debts.
• Attends the First Meeting of Creditors with you and appears with you at any other hearings on motions that may be held in the case.
• If necessary, prepares and files amended schedules, statements and other documents with the bankruptcy court in order to protect your rights.

Why choose Chapter 13 over Chapter 7 bankruptcy?

Although more than half of all people who file for bankruptcy choose Chapter 7, there are a number of reasons why you might select Chapter 13. Your attorney is the best source of information for making that decision.

Some reasons for choosing Chapter 13 over Chapter 7:

• You cannot file for Chapter 7 bankruptcy if you received a Chapter 7 or Chapter 13 discharge within the previous eight years (unless you paid off at least 70% of your unsecured debts in the Chapter 13 bankruptcy). On the other hand, you can file for Chapter 13 bankruptcy at any time.
• You have IRS debts that can be repaid over 5 years without interest and penalties (if no tax lien is filed).
• You have valuable non-exempt property you do not want to lose.
• You are behind on your mortgage or car loan. In Chapter 7, you have little protection from foreclosure or repossession of your property if you are behind on payments. In Chapter 13, you can repay house arrears through your plan, and keep your home by making the future payments required under your mortgage loan contract. For a vehicle, the entire loan can be restructured and paid through your Chapter 13 plan.
• You have debts that cannot be discharged in Chapter 7.
• You have co-debtors on personal loans. In Chapter 7, the creditors will go after your co-debtors for payment. In Chapter 13, the creditors may not seek payment from your co-debtors for the duration of your case if your Chapter 13 plan provides for full payment of cosigned debts.
• Your income is sufficient to pay some of your debts and Chapter 7 might be considered unfair to your creditors. These debts may include tax debts, and the Chapter 13 will protect you from collections by tax agencies such as the IRS.
• You feel a moral obligation to repay at least a portion of your debts that you are able to.

What assets may I keep if I file bankruptcy?

Indiana Chapter 7 bankruptcy law provides that an individual may retain $17,600 equity in a residence and married couples may retain $35,200 equity in a residence. Your equity is the market value of your home minus the amount of the mortgage.

Also, individuals may retain $9,350 of personal property and married couples may retain $18,700 of personal property. This includes household furnishings, electronic equipment, vehicles, boats, etc. For bankruptcy purposes personal property is valued at auction or garage sale prices. Any liens on personal property such as car loans are deducted from the value before it is calculated for bankruptcy purposes.

Most funds held in retirement accounts can be kept after bankruptcy. There are other specialized exemptions that your attorney can discuss with you.

What happens if I have too many assets?

If you have more value in your assets than the law allows you to keep, the Trustee may take some of them, sell them, and pay the money to your creditors. If you want to keep the extra assets you may do so by paying the extra value to the Trustee so that he can pay the money to the creditors. This may be done through a Chapter 13 plan or, if the amount of money is not too great, through a Chapter 7.

Chapter 13 Bankruptcy

What is the difference between Chapter 7 and Chapter 13?

In Chapter 7 you are asking the court to eliminate, or discharge the debts allowed by Chapter 7 regulations. You may also lose certain assets, depending on your situation. In Chapter 13, you are reorganizing your debts, and paying a portion. The choice depends on the kinds of debts you owe, your income, and the value of your assets. You should consult with an attorney to decide which is best for your situation. You rarely involuntarily lose any assets in a Chapter 13.

Chapter 7 is known as "liquidation bankruptcy." In a Chapter 7 case, you file several forms with the bankruptcy court listing income and expenses, assets, debts and property transactions for the past year. A court-appointed individual, the bankruptcy trustee, is assigned to oversee your case. About a month after filing, you must attend a First Meeting of Creditors where the trustee reviews your forms and asks questions. Despite the name, creditors rarely attend. If you have any non-exempt property, the trustee will ask that you turn it over to him or her. The meeting normally lasts only a few minutes. If there are no challenges from creditors, approximately three months later, you receive a discharge order, which is a notice from the court that "all debts that qualified for discharge were discharged." Then your case is over.

Chapter 13 is also called "reorganization bankruptcy." You file most of the same forms as you file in chapter 7, plus a proposed repayment plan, in which you describe how you intend to repay your debts over the next three to five years. Some debts must be repaid in full; others you pay only a percentage; others aren't paid at all. Some debts you have to pay with interest; some are paid at the beginning of your plan and some at the end. A bankruptcy trustee is assigned to oversee the case and handle your payments.

You will attend the First Meeting of Creditors about 6-7 weeks after you file. If the trustee is satisfied with your payment plan, he or she will recommend its approval by the judge. Approximately five months after the First Meeting of Creditors, the judge normally confirms (approves) your plan if no creditor opposes it and the trustee has recommended it.

When a creditor or the trustee objects to a plan, the judge usually holds a hearing at the Confirmation Hearing to determine whether your plan should be approved over the objection. It is also possible for you to resolve the objection before the judge's hearing by amending the plan to satisfy the objection. If your plan is confirmed, and you make all the payments called for under your plan, you will receive a discharge of any balance owed on all dischargeable debts at the end of your case.

You should consult with an attorney to decide which type of bankruptcy makes sense for you.

What is Chapter 13 and how does it work?

Chapter 13 is also called "reorganization bankruptcy." You file the same forms as you file in Chapter 7, plus a proposed repayment plan in which you describe how you intend to repay your debts over the next three to five years. Some debts must be repaid in full, some are paid at a fractional rate, and others aren't paid at all. Some debts you have to pay with interest, some are paid at the beginning of your plan, and some at the end. A bankruptcy trustee is assigned to oversee the case and handle your payments. You should talk to your attorney to see if Chapter 13 is the right solution for you and if you quality for Chapter 13.

You will attend the First Meeting of Creditors about 6-7 weeks after you file. If the trustee is satisfied with your payment plan, he or she will recommend its approval by the judge. A few months after the First Meeting of Creditors, the judge normally confirms (approves) your plan if no creditor opposes it and the trustee has recommended it.

When a creditor or the trustee objects to a plan, the judge usually holds a hearing within a few months to determine whether your plan should be approved over the objection. It is also possible for you to resolve the objection before the judge's hearing by amending the plan to satisfy the objection. If your plan is confirmed, and you make all the payments called for under your plan, you will receive a discharge of any balance owed on all dischargeable debts at the end of your case.

When do you begin making payments to the Chapter 13 trustee and how do you make them?

You have to begin making payments to the Chapter 13 trustee within 30 days after your repayment plan is filed with the court. The payments must be made regularly, usually on a weekly, biweekly, or monthly basis. The payments can be made either directly by you or by your employer through a payroll deduction. In Indiana, a Pay Order from your employer is generally required.

Why choose Chapter 13 over Chapter 7 bankruptcy?

Although more than half of all people who file for bankruptcy choose Chapter 7, there are a number of reasons why you might select Chapter 13. Your attorney is the best source of information for making that decision.

Some reasons for choosing Chapter 13 over Chapter 7:

• You cannot file for Chapter 7 bankruptcy if you received a Chapter 7 or Chapter 13 discharge within the previous eight years (unless you paid off at least 70% of your unsecured debts in the Chapter 13 bankruptcy). On the other hand, you can file for Chapter 13 bankruptcy at any time.
• You have IRS debts that can be repaid over 5 years without interest and penalties (if no tax lien is filed).
• You have valuable non-exempt property you do not want to lose.
• You are behind on your mortgage or car loan. In Chapter 7, you have little protection from foreclosure or repossession of your property if you are behind on payments. In Chapter 13, you can repay house arrears through your plan, and keep your home by making the future payments required under your mortgage loan contract. For a vehicle, the entire loan can be restructured and paid through your Chapter 13 plan.
• You have debts that cannot be discharged in Chapter 7.
• You have co-debtors on personal loans. In Chapter 7, the creditors will go after your co-debtors for payment. In Chapter 13, the creditors may not seek payment from your co-debtors for the duration of your case if your Chapter 13 plan provides for full payment of cosigned debts.
• Your income is sufficient to pay some of your debts and Chapter 7 might be considered unfair to your creditors. These debts may include tax debts, and the Chapter 13 will protect you from collections by tax agencies such as the IRS.
• You feel a moral obligation to repay at least a portion of your debts that you are able to.

What is the role of the attorney in a Chapter 13 case?

Your attorney is your advocate and it is often said is absolutely necessary in the complex area of Chapter 13. It is his responsibility to look at your situation, determine the best course of action, and guide you through the process until your payment plan is approved by the court.

Here are the specific roles your attorney serves in your Chapter 13 case:

• Analyzing the amount and nature of the debts you owe and determining the best remedy for your financial problems
• Assisting you in preparing a budget
• Examining the liens or security interests of secured creditors to determine whether they are valid or avoidable and how they should be valued, and taking the legal steps necessary to protect your interest.
• Assisting you in drawing up your Chapter 13 plan so that it meets your personal needs and is acceptable to the court.
• Preparing the necessary pleadings and Chapter 13 forms.
• Filing the chapter 13 forms and pleadings with the court.
• Attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case.
• Assisting you in receiving court approval of a Chapter 13 plan.
• Checking the claims filed in the case, filing objections to improper claims, and attending court hearings on such objections.
• Modifying your plan, if necessary, to deal with changed circumstances.
• Assisting you in overcoming any legal obstacles that may arise in the case.
• Assisting you in obtaining a discharge upon the completion of the plan.

What assets may I keep if I file bankruptcy?

Indiana Chapter 7 bankruptcy law provides that an individual may retain $17,600 equity in a residence and married couples may retain $35,200 equity in a residence. Your equity is the market value of your home minus the amount of the mortgage.

Also, individuals may retain $9,350 of personal property and married couples may retain $18,700 of personal property. This includes household furnishings, electronic equipment, vehicles, boats, etc. For bankruptcy purposes personal property is valued at auction or garage sale prices. Any liens on personal property such as car loans are deducted from the value before it is calculated for bankruptcy purposes.

Most funds held in retirement accounts can be kept after bankruptcy. There are other specialized exemptions that your attorney can discuss with you.

What happens if I have too many assets?

If you have more value in your assets than the law allows you to keep, the Trustee may take some of them, sell them, and pay the money to your creditors. If you want to keep the extra assets you may do so by paying the extra value to the Trustee so that he can pay the money to the creditors. This may be done through a Chapter 13 plan or, if the amount of money is not too great, through a Chapter 7.