"[Bankruptcy] gives to the honest but unfortunate debtor...a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."--the Supreme Court in Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

 

Bankruptcy is a legal process that allows a debtor to 1) repay debts over time or 2) to discharge some or all of his or her debts when the amount owed is more than he or she can repay.  The decision to file for bankruptcy is a last resort and not one to be made lightly and without full consideration of its long-term and long-reaching effects.  Still, for many individuals and companies bankruptcy is the only option; therefore, it is wise to seek the help of qualified professionals like the attorneys at the Boatman Law Firm to guide and facilitate the bankruptcy process.

 

There are several types of bankruptcy: Chapters 7, 11, 12, and 13.  Most individuals file under Chapter 7 or Chapter 13.  The Bankruptcy Code and the Federal Rules of Bankruptcy Procedure govern who may file for bankruptcy, under which chapter the bankruptcy must be filed, which debts may be discharged, how long repayment can continue, and what type of property the debtor may keep.

 

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") made significant changes to federal bankruptcy laws.  BAPCPA created tighter restrictions on whom it allows to file under Chapter 7 (Liquidation) and who must file under Chapter 13.

 

Whether or not a debtor qualifies for Chapter 7 depends on how much money he or she earns-specifically, whether the income (again, complicated and inclusive of money from myriad sources) is at or below the median income of the state where the debtor lives.  A debtor may also be prevented from filing for Chapter 7 if he or she has filed for bankruptcy before; however, this depends on how far in the past the debtor filed for bankruptcy and under what chapter.   

 

The goal of Chapter 7 is to give the debtor a fresh start.  Generally, most debtors are able to protect (exempt) most of all of their assets, even if they file for Chapter 7.  Some assets are exempt from being sold under Chapter 7 such as clothing, some jewelry, automobiles (up to a certain value), the equity in a primary residence, and household appliances.  However, the exemption rules are complex so it is best to get help from an attorney who specializes in bankruptcy. In a Chapter 7 bankruptcy, a trustee sells the debtor's non-exempt assets and pays eligible creditors what is owed to them.  Moreover, any property or asset that the debtor chooses not keep, the debtor has the option to turn it over to the trustee.

 

In Chapter 13 bankruptcy, the trustee does not sell the debtor’s assets to pay off creditors, although, as in the Chapter 7, assets can be turned over to the trustee to sell them and use the proceeds to pay off creditors.  Instead, the bankruptcy court establishes a detailed repayment plan usually over 3 to 5 years to allow the debtor to pay his or her debts in a manageable way.  The court will determine how much you can repay based on a detailed analysis of your income and cost of living. The court will look at what debt it is owed and prioritize creditors to decide who gets paid first; for example, taxes and child support are given higher priority in repayment than unsecured debt.   If you can't make your scheduled payments the court can dismiss your bankruptcy; therefore, it is important to communicate with the court if you experience a genuine hardship with your repayment plan.

 

BAPCPA also instituted new credit counseling requirements.  At least 180 days before filing for bankruptcy a debtor must sign up for credit counseling through a federally approved non-profit credit-counseling agency.  This is to help the debtor determine whether there are other options besides bankruptcy.  There are some exceptions to this requirement including physical disability, mental incapacity, and active service in a military zone.  When you file for bankruptcy, you will have to provide the court with a copy of your certificate of completion from an approved program.  To find a federally approved credit counseling agency follow this link.

 

After filing for bankruptcy, a debtor must take a debtor education course and file the certificate of completing with the Bankruptcy Court. If the debtor fails to take the debtor education course, the Bankruptcy Court can deny a debtor a discharge of the debts included in the bankruptcy.

 

The Boatman Law Firm handles Chapter 7 and 13 bankruptcies.  Our Firm has the unique combination of experience and genuine compassion for people facing the difficult decision to file for bankruptcy.