Bankruptcy Information
Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to a “means test” designed to determine whether the case should be permitted to proceed under chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, the United States trustee (or bankruptcy administrator), the trustee, or creditors have the right to file a motion requesting that the court dismiss your case under § 707(b) of the Code. It is up to the court to decide whether the case should be dismissed.
Under chapter 7, you may claim
certain of your property as exempt under governing
law. A trustee may
have the right to take possession of and sell the
remaining property that is not exempt and use the
sale proceeds to pay your creditors. Certain
items are normally exempt, such as retirement accounts.
In a chapter 7, you can enter into reaffirmation agreements with any secured creditors if you wish to keep the piece of property. For example, if you have a mortgage or car loan, you can enter into reaffirmation agreements with those creditors that allows you to keep the property. Reaffirmation agreements are voluntary and the lender may or may not change any terms of the loan. There is nothing to force the creditor to enter into this agreement, but generally it is in their best interest to do so to avoid repossession or foreclosure.
Even if you qualify under the means test for chapter 7, it may not be the best option if you have assets or other property that you worry may be repossessed or sold. If so, you should think about a chapter 13 filing or sometimes called a wage earner's repayment plan.
Chapter 13
Chapter 13 is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. You are only eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.
Under chapter 13, you must file with
the court a plan to repay your creditors all or part
of the money that you owe them, using your future
earnings. The period allowed by the court to repay
your debts may be three years or five years,
depending upon your income and other factors. The
court must approve your plan before it can take
effect. After completing the payments under
your plan, your debts are generally discharged
except for domestic support obligations; most
student loans; certain taxes; most criminal fines
and restitution obligations; certain debts which are
not properly listed in your bankruptcy papers;
certain debts for acts that caused death or personal
injury; and certain long term secured obligations
Chapter 11
Chapter 11 is designed for the reorganization of a business but is also available to consumer debtors. Its provisions are quite complicated, and any decision by an individual to file a chapter 11 petition should be reviewed with an attorney.
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