Recently on our legal forum a user asked, “Everyone around me seems to be doing great: new houses, new cars, new pools. I am struggling to pay my bills. Creditors call me every day and hound me for money I don’t have. I am wondering what bills I should pay first if there is no way I can pay all my bills every month.”
According to the Middle Tennessee Bankruptcy Court, which serves Nashville and the surrounding areas, there have been 6,845 bankruptcy filings since the beginning of 2011. No matter where you live or what you do, everyone may face financial failure, especially during a recession. If you have experienced hard times and have been forced into bankruptcy, what type bankruptcy should you file?
There are two types of bankruptcies most individuals can file- Chapter 7 or Chapter 13 Bankruptcy. Chapter 7 Bankruptcy, commonly called liquidation of your assets, is normally the simplest and quickest form of bankruptcy. It is available to individuals, married couples, corporations, and partnerships. Chapter 13 Bankruptcy is the second bankruptcy available to individuals and is called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts.
Chapter 13 Bankruptcy offers a number of advantages over liquidation under Chapter 7 bankruptcy including:
- To save your home from foreclosure. Filing Chapter 13 Bankruptcy can stop the foreclosure proceedings and prevent the home from being liquidated by Chapter 7 Bankruptcy. The reorganization plan can give the homeowner time to catch up on their mortgage payments and prevent foreclosure.
- To reschedule secured debts. Other than a mortgage for your primary residence, you can reschedule any other secured debts over the life of the Chapter 13 plan, possibly lowering the payments. Under Chapter 7 Bankruptcy, all liens will be satisfied.
- To provide protection for co-debtors. If you file for Chapter 7 Bankruptcy, your co-debtor will be liable for the debt and will be at the creditor’s mercy. Under a Chapter 13 Bankruptcy, the creditors cannot continue any collections from a co-debtor as long as payments are being made on time.
- To keep non-exempt property. As determined by state laws, you are allowed to keep only exempt property when filing Chapter 7 Bankruptcy. If make your payments on time, Chapter 13 Bankruptcy allows you to keep all property including non-exempt property.
- To consolidate your loans under one plan. A Chapter 13 Bankruptcy trustee is appointed to make payments to all the creditors. You will pay just one person, the trustee, for all your debts. Under Chapter 7 Bankruptcy, the trustee liquidates all non-exempt assets to pay debts.
- To extend certain tax obligations, student loans, or other such qualifying debts. In Chapter 13 Bankruptcy, you can pay these debts off three to five years, but there is no relief for these type of debts under Chapter 7 Bankruptcy.
- To qualify for bankruptcy relief. You won’t be allowed to file for Chapter 7 Bankruptcy if you cannot meet the Means Test imposed by the 2005 revisions to the bankruptcy law. If your average income over the past six months is more than the median income for a family your size in your state, or if you have discretionary income after deducting taxes and living expenses that exceeds certain limits set by law, you will not be eligible for Chapter 7 Bankruptcy. Your only relief for a bankruptcy would be to file Chapter 13 Bankruptcy.
Choosing the appropriate bankruptcy can be a complicated. If you need relief from the stress of debt and you live in or around the metropolitan area of Nashville, Tennessee, contact us at www.BankruptcyHome.com . We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.
In 2005, Congress passed the Bankruptcy Prevention Abuse and Consumer Protection Act to stop bankruptcy filers from abusing the bankruptcy system. The legislation was designed to make it harder for filers to file Chapter 7 Bankruptcy and immediately discharge debts. Instead, many debtors are forced into Chapter 13 Bankruptcy and must repay their qualifying debts using a 3 to 5 year debt repayment plan. Unfortunately, not everyone qualifies for Chapter 13 Bankruptcy.
Chapter 13 Bankruptcy, also called a wage earner’s plan, enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.
If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years.
Filers must meet four criteria to file Chapter 13 Bankruptcy:
- Filers must file as an individual and not as a business. If you own a business you can file for Chapter 13 bankruptcy but as an individual. You can include business-related debts which you are personally liable to repay. Stock and commodity brokers cannot file under Chapter 13.
- You must have sufficient discretionary income. After you have subtracted your taxes, normal living expenses, and secured debt expenses from your gross income, you must have enough remaining income to service your unsecured debts within a given time frame.
- Your debt level cannot be too high. Secured debts cannot exceed $1,010,650 and unsecured debts cannot exceed $336,900.
- You must be current on your income tax filings. To file Chapter 13 Bankruptcy, you will have to submit proof that you filed your federal and state income tax returns for the four tax years prior to your bankruptcy filing date.
Once you qualify to file, you must create a repayment plan that follows Federal bankruptcy laws. After the plan has been developed and the court has approved the plan, you will make scheduled payments to a court appointed trustee who will pay your creditors.
If your plan is not confirmed and the case is dismissed, the court may authorize the trustee to retain a specified amount of money for approved costs, but all other funds paid to the trustee are returned to you.
If the plan is approved, you will continue to make the payments for the duration of the plan. After the plan has been completed, your creditors who were part of the bankruptcy plan can no longer seek relief for the debt you owed them. If you fail to complete the bankruptcy plan, the trustee can force you into a Chapter 7 Bankruptcy or allow the creditors to continue their collection efforts.
Chapter 13 Bankruptcy is complicated and time consuming. If you are in financial trouble and considering filing a bankruptcy, you might need help from a bankruptcy lawyer. If you need relief from the stress of debt and you live in or around the metropolitan area of Columbus, Ohio, contact us at www.BankruptcyHome.com . We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.