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Thursday, November 8, 2007

 Questions and Answers
Please feel free to contact us with questions about personal and business bankruptcy.  If there are other questions you have that fall within our areas of expertise, don't hesitate to ask us.  We will be happy to meet you for a free initial consultation.
11:21 am est 
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What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, also known as "liquidation," is a legal process by which most unsecured debts can be discharged, or wiped out. Chapter 7 bankruptcy is known as liquidation because any non-exempt assets the debtor has may be liquidated by the trustee, that is, sold for the benefit of creditors. Many Chapter 7 bankruptcy debtors have no non-exempt assets, and so there is no liquidation, and unsecured debts are simply discharged. There are, however, certain unsecured debts that are not dischargeable in Chapter 7 bankruptcy.


Can I File Chapter 7 Bankruptcy?

To file for Chapter 7 bankruptcy, you must qualify under the Chapter 7 means test. The means test first compares your income to the median income in your state. If your income is lower than the median income in your state, you can file for Chapter 7 bankruptcy. However, if your income is greater than the median income in your state, other calculations regarding your income and allowable expenses are required to determine whether or not you can file for Chapter 7 bankruptcy.


What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a full or partial repayment plan administered by the bankruptcy court. The debtor submits a plan for approval and, when a plan is approved, makes monthly payments to the bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period may be from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dischargeable debt may be discharged.


Who Can File Chapter 13 Bankruptcy?

In one sense, it's easier to qualify for Chapter 13 bankruptcy than for Chapter 7 bankruptcy. There's no means test for Chapter 13, and some debtors who cannot qualify for Chapter 7 opt to file under Chapter 13 instead. However, Chapter 13 bankruptcy requires a regular income that will allow you to create a budget and make predictable and reliable payments to the trustee.


Is Chapter 7 or Chapter 13 Bankruptcy Better?

The answer to this question depends on your specific circumstances. Generally speaking, Chapter 7 bankruptcy is better for people who have a lot of unsecured debts, like credit card debt and medical bills. If you don't have much property, your income is low, and most of your debts are unsecured, you might want to consider Chapter 7 bankruptcy. Chapter 13 bankruptcy, on the other hand, tends to be a better option for those who have regular income and non-exempt property they'd like to keep. A local bankruptcy attorney can review your specific financial circumstances and advise you as to which type of bankruptcy protection might be best for you.

How Can Chapter 7 Bankruptcy Help Me? 

Chapter 7 bankruptcy is often referred to as liquidation because a bankruptcy trustee can liquidate (convert to cash) your non-exempt assets to pay part of your outstanding bills. The term liquidation is rather misleading, though, since most people who file for Chapter 7 bankruptcy do not have any non-exempt assets, and thus there is no actual liquidation.

Chapter 7 Bankruptcy Timeline: How Long Do Chapter 7 Bankruptcy Cases Take?
 

Chapter 7 bankruptcy cases move relatively quickly, and you may receive your discharge in just a few months. A discharge will eliminate unsecured debts like credit card debt, medical bills, most personal loans, judgments resulting from car accidents, deficiencies on repossessed vehicles, some older tax debts, payday loans, and garnishments. Certain debts are classified "non-dischargeable debts" and cannot be discharged, or can only be discharged under very specific circumstances. These include child support, most student loans, and many tax debts.

What is the Chapter 7 Bankruptcy Means Test?


Before filing for Chapter 7 bankruptcy, you will have to qualify through a Chapter 7 means test. Although there was a lot of media hype about the Chapter 7 bankruptcy means test disqualifying people from filing for Chapter 7 bankruptcy when it was introduced in 2005, the truth is that more than 96% of potential Chapter 7 petitioners still qualify. In the unlikely event that you are one of those few who do not, you may still be able to file under Chapter 13 bankruptcy.

The Chapter 7 means test is a two-step process which begins with a median income comparison. Explaining this first step of the Chapter 7 bankruptcy means test in more detail, your monthly income is compared to the median income in your state for a family that is the same size as yours. If your income is at or below the median income, you qualify for Chapter 7 bankruptcy. If your income is higher than the median income, it doesn’t mean that you can’t file for Chapter 7 bankruptcy, but rather triggers the second step of the Chapter 7 bankruptcy means test.

Calculating disposable income and unsecured debts is the second step of the Chapter 7 means test. If your disposable income over the next five years is less than $6,000 ($100/month), you "pass" the Chapter 7 bankruptcy means test and can thus file for Chapter 7. A local bankrupcy attorney can further explain how disposable income is calculated. If your disposable income during that five year period is greater than $6,000 but less than $10,000, you may still be able to file for Chapter 7 bankruptcy protection, depending upon your allowed expenses.

Is bankruptcy right for you?

Call Avery Law Firm at 208.524.3020. We'll help you schedule a free consultation with an Avery Law Firm local Chapter 7 bankruptcy attorney who may assess your financial situation, discuss your legal rights and further explain why Chapter 7 bankruptcy may be the right option if you:

  • Have no income or low income
  • Have little or no money left after paying your necessary living expenses each month
  • Rent or have little equity in your home
  • Have few assets (or no assets) outside your furniture, clothing and other necessities.

Call our office for a free Bankruptcy Analysis.

Before Filing your Chapter 7 Bankruptcy Case, You Must Receive a Briefing from a Credit Counseling Agency

The law requires that you receive a Credit Counseling Briefing from a certified credit counseling agency before you may file a Chapter 7 bankruptcy petition. The agency will explain financial management and how to do a budget analysis, and will also discuss alternatives to bankruptcy. While there are some hardship exceptions to this rule, most debtors will have to get this briefing, and failing to do so before filing may result in your case being DISMISSED. Your Chapter 7 bankruptcy lawyer may refer you to the appropriate agency.

Get Protection from Your Creditors when You File for Bankruptcy

A fresh financial start may be in sight following these steps. You will first have to complete your credit counseling session and then provide all of the necessary information to your attorney, who will review your situation and prepare a bankruptcy petition. You will have to list personal information, including all of your income, assets, expenses and debts, on your bankruptcy petition and any related forms and schedules. You will also have to include any applicable exemptions to which you're entitled.

How important is it to disclose all of your debts when seeking to file for Chapter 7 bankruptcy? Whether or not failing to list certain debts is an honest mistake or a deliberate action, bankruptcy fraud is a serious offense that can be prosecuted.

From here, your attorney files the petition in local bankrupcy court, which will appoint a bankruptcy trustee to your case. In most cases, an "Automatic Stay" is entered to prevent creditors from taking any further action against you outside of bankruptcy court.

You Have to Do Your Part to Get Your Bankruptcy Discharge

Be sure to follow your attorney's advice and do not attempt to conceal your property, destroy any financial records, violate any court order or make enormous, last-minute charges on your credit cards. Please note that you may only file for Chapter 7 bankruptcy once in eight years. Understanding the Chapter 7 Bankruptcy timeline is critical to making good decisions for your financial future.

Chapter 7 Bankruptcy Exemptions Protect Your Property from Creditors

Exemptions protect certain property from liquidation in bankruptcy. The specifics vary from state to state. Exemptions typically include your primary residence, tools, work equipment, vehicle, certain items of personal property and numerous other categories of property.

In most cases, exemptions will protect all of your property. If not, your court-appointed bankruptcy trustee can liquidate your non-exempt assets to pay your creditors. However, a trustee will only liquidate in most cases if he or she can obtain enough money from a sale to make a significant payment to your creditors.

Keep Your Car - and Other Assets - by Reaffirming Secured Debts

While Chapter 7 bankruptcy may help eliminate unsecured debts, secured debts are generally not separated from the assets that secure them. That means that if you want your car loan discharged, you'll have to give back the car.

However, if you want to keep your car (or another asset that serves as security for a debt) you may be able to negotiate a reaffirmation agreement with your creditors in Chapter 7 bankruptcy. By reaffirming a debt, you agree to continue making payments in exchange for the right to keep your property.

The Final Step

Before getting your bankruptcy discharge, you must complete an approved Debtor Education Course: a personal financial management course required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Your attorney may refer you to an approved financial management class, or you can purchase an approved Debtor Education Course online at www.StartFreshToday.com.

Chapter 7 Bankruptcy Fees: What are the Typical Costs of Filing for Chapter 7 Bankruptcy?


If you’re interested in filing for Chapter 7 bankruptcy, you will likely wonder about how much it will cost to do so if you qualify through the Chapter 7 bankruptcy means test. View current Chapter 7 bankruptcy fees right here. (Note that Chapter 7 bankruptcy fees are subject to changes that will be listed on the website of the U.S. Bankruptcy Court.)

Chapter 7 Bankruptcy May Provide the Fresh Start You Need

Filing for Chapter 7 bankruptcy is a tough decision that shouldn't be undertaken lightly. However, if you're in a difficult financial situation that just keeps getting worse, it may be the opportunity you need to seek broad protection against creditors, regain control of your financial life, and rebuild your credit after bankruptcy with the help of friendly lenders.

Don't live another day in financial torment. Take action and control today by talking with an Avery Law Firm attorney! Our number again is 208.524.3020. John Avery will review your situation and contact you for a free, no-obligation consultation.

Why Would I Want Credit After Bankruptcy?

Many people who file for bankruptcy protection have an understandable aversion to credit when it's over. It might seem that if you stick to cash, you "can't get into trouble again," and in a sense that's a very reasonable position.

You definitely don't want to risk late payments and climbing credit card balances after bankruptcy for a number of reasons. The combination of bankruptcy and new delinquent items on your credit report will take a severe toll on your credit score. Further, you won't have the safety net of being able to discharge debts in bankruptcy again for quite some time, so your options are more limited if you do get into a financial bind.


However, having credit and having credit problems don't have to go hand in hand. Managing credit wisely is an important part of your financial recovery. Using cash for your day-to-day expenses is wise and will help keep things clear as you work out your new budget.

So Why are We Even Talking about Credit after Bankruptcy?

Good question. You already know that credit can be risky, and you've probably learned that you can expect to pay higher interest rates shortly after bankruptcy, so why would you want to apply for new credit at all?


The simple answer is that certain purchases in our society virtually require credit. It's unlikely, for example, that you will ever purchase a home with cash. Even a smaller purchase, like a new vehicle, may require financing. After bankruptcy, you may feel that that smart thing to do is avoid credit until you really need it, and to restrict your credit to the big-ticket items that really require it.

Unfortunately, lenders aren't likely to cooperate with your plan.

You Need a Credit History to Get Credit

If you're planning to go a couple of years without credit and then finance a house or a car when your finances have been stable for a while, you may be in for a surprise. The problem is, there won't be any record of your newly stable finances. If you want a loan from a reputable mortgage or auto finance company, the lender will want to see that you've demonstrated good financial management since your bankruptcy.


They'll look to your credit report, and if you haven't used credit since your bankruptcy, they won't see anything there except the bankruptcy! You might feel that you've proven yourself by living successfully on cash for two or three years, but by your lenders' standards those two or three years won't exist at all. Your credit score won't reflect anything except your bankruptcy.

In order to improve your credit score and make yourself a good candidate for a mortgage or car loan at a reasonable interest rate, you'll want to begin immediately to rebuild your credit.

You'll also need to know how to avoid common post-bankruptcy credit pitfalls.

Post-Bankruptcy Pitfalls

Bankruptcy protection is intended to provide a fresh financial start, but unfortunately that fresh start doesn't guarantee a brighter financial future. It takes work and solid information to put that fresh start to work for you, take control of your finances, and build a positive credit rating.

A 2006 University of Iowa College of Law study explored the reasons that bankruptcy's fresh start fails for some people. While the answer was complex and involved many factors, there was one consistent thread: you can't get ahead after bankruptcy if your income falls short of your expenses.

Poor Planning after Bankruptcy:

It may seem self-evident that the fresh start in bankruptcy will help only if future income is sufficient to cover future expenses, but many people don't consciously think about that. Instead, they emerge from bankruptcy expecting that, since they're out of debt, their financial problems will simply disappear. The simple fact is that failure to budget after bankruptcy and make sure that income exceeds expenses is the first and most dangerous mistake most bankruptcy petitioners make.

Falling into Old "Crisis" Patterns after Bankruptcy:

Although most bankruptcies are the result of major life events such as serious medical problems, divorce, job loss, or death in the family, those financial problems were often aggravated by desperation efforts that made the situation worse instead of better. Those may have included living on credit cards, using one source of credit to pay another, or borrowing from payday loan stores or other high-interest, high-fee sources that prey on those in difficult financial circumstances.

Rebuilding Credit with the Wrong Companies:

After bankruptcy, you will undoubtedly pay a higher interest rate than would an applicant with a high credit score. It's good to be realistic, and to accept higher rates in the beginning as the price of re-establishing your credit. You shouldn't be carrying high balances on those new credit cards, anyway, so you shouldn't be paying much (if any) interest. However, there's a difference between paying somewhat higher rates and being hit with fees, high interest rates, outrageous penalty rates and additional charges, all for the privilege of opening a credit account that will be of little use to you. Knowing what credit cards to avoid is as important as knowing that you need to re-establish your credit.

Credit Repair Scams:

If it seems too good to be true, it probably is. You've probably seen advertisements in which companies offer to "Erase Bad Credit" in one quick-fix. You may even be directly targeted by those companies now that you've filed for bankruptcy protection. There is no quick fix or overnight way to rebuild your credit. Your bankruptcy will remain on your credit report for ten years, and the way to outweigh it is by building a positive credit history post-bankruptcy. This may take a year or two, but it's the only way to go. In addition, these companies often recommend practices that are fraudulent and can lead to criminal charges.

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