Chapter 7 Bankruptcy Overview
Also known as “Fresh Start” bankruptcy, chapter 7 allows a person to eliminate most or all of his debt while being allowed to keep whatever property he may have. Allows unsecured debt such as medical bills, personal loans and most credit card charges to be easily eliminated. In many cases, a person may keep their home or car (secured debt), provided that they continue to make current payments and are up to date on the loan. Chapter 7 does not eliminate: Student loans, except extreme hardship cases Debts for most taxes Debts for alimony, maintenance or support Debts for fines, penalties or criminal restitution Debts for personal injuries caused by driving intoxicated to receive a discharge in Chapter 7 bankruptcy, a person must file a bankruptcy petition with the clerk; appear at a meeting of creditors and be examined under oath with regard to assets and liabilities. A meeting date is usually schedule four to six weeks after the petition is filed.
Chicago Bankruptcy Lawyers’ Chapter 7 Checklist
- Find the right attorney. You might think that finding the right attorney to handle your bankruptcy case would be simple. After all, there are literally hundreds of bankruptcy attorneys around the country who claim to be able to handle Chapter 7 bankruptcy cases. What you might find is that there are very few qualified bankruptcy attorneys in your local area. Because there are so many holding themselves out as capable and so few that are, it makes it very difficult for you as the consumer or the debtor to find the right attorney. I suggest you start with the American Bankruptcy Institute website. That Institute is a national organization that encompasses not only attorneys but judges, creditors, and any other facet associated with bankruptcy.Once you realize that you have an attorney that you would like to interview, visit their office and find out what they are all about. You will know relatively quickly after meeting with an attorney whether or not that is the right attorney to handle your case. For example, does the attorney answer all of your questions sufficiently? Does that attorney have information regarding bankruptcy either written, published, videos or referrals? Does the lawyer’s office appear to be in good order? Does it appear to be efficient? Is the staff friendly and courteous and knowledgeable as well as the attorney? Once you have found the attorney, it is now time to proceed to checklist item number two.
- Prepare for filing bankruptcy. Now again, this might sound very simple. What are you going to do, bring your information to the attorney and he’s going to prepare your case and everything is going to work out just fine, right? Wrong. To prepare for filing, you have together a series of documents. First, you need to gather all of the information concerning your debts. Don’t rely exclusively on a credit report. Make sure that you provide any other additional bills that you might have received over the recent years. Keep in mind that not everybody that you owe money to is going to be on your credit report. There are many creditors who simply do not report to the bureaus, thus, make sure you do a little bit of work on your part to gather and compile a listing of all the people you owe money to. Second, you are going to want to gather your recent paycheck stubs. If you don’t have paycheck stubs, you’re going to want to gather whatever proof of income that you do have. It might be Social Security, it might be unemployment, it might be Worker’s Comp., it might be rental income; whatever the source might be you are to provide that to your attorney. You also want to provide your most recent federal tax returns for filing Chapter 7. Once you have all of this information handy, make an appointment with the attorney, sit down, do an interview and let the attorney ask you the necessary questions to prepare your case.In addition to preparing to file, you are going to want to submit to a credit counseling session. The credit counseling session is anywhere from one hour to an hour and a half. The price is approximately $10-$40. And it must be done before a case can be filed. Those are some of the items that you need to do to prepare for filing.
- You must appear before a Chapter 7 Bankruptcy Trustee to be examined under oath regarding these schedules and statement of financial affairs that were filed on your behalf. If you failed to appear, your case will be dismissed. At your appearance, you want to be truthful, yet you do not want to expound upon answers if they can be simply answered with a yes or a no. The trustee’s job is to determine whether or not there are any nonexempt assets that could be administered for the benefit of creditors. In 99% of Chapter 7 bankruptcy cases, there are no assets available for the unsecured creditors. You must appear however and be examined under oath. You must bring your photo ID and your Social Security card and be on time.
- After your meeting of creditors but before your case is coming to a conclusion, you want to make a decision with regard to reaffirming, redeeming or surrendering secured property. Secured property is property that is not yet paid for and there’s an item that the creditor or lender can take back if you don’t pay. The typical example is a house or a car. When it comes to a house, you can continue to make voluntary payments to that creditor and still keep the item. The bankruptcy code does not mandate that a secured creditor in terms of real estate, whether that creditor has to be real firm, redeemed or surrendered. The debtor can simply make voluntary payments.With regard to vehicles, however, the bankruptcy code is very clear, that the debtor must either redeem, reaffirm or surrender. Thus, there is no more ride through whereby the debtor discontinues making current payments without having to reaffirm. Many vehicle creditors will repossess vehicles after the bankruptcy case is filed, even if the debtor is current, if the debtor has not reaffirmed. So very important checklist item number four, you must reaffirm, redeem or surrender secured property.
- You must complete a two hour personal financial management instruction course prior to you receiving a discharge under Chapter 7. A new rule has recently passed where you also must submit to a test or a quiz or other form of examination to prove that you have a sufficient understanding of the financial management instruction materials. It used to be you just needed to take the class or watch a DVD and you weren’t tested and you didn’t have to pass. Now, if you do not pass, that provider must make sure that you have sufficient knowledge of the material before giving you a passing grade.
- After your case is filed, and after it’s over, you must stay vigilant with regard to your credit accuracy. I recommend that you pull each of your three credit bureaus once a year to make sure that the information contained in that bureau is truthful and accurate. You want to make sure that after you’ve eliminated your debt and gone through the bankruptcy process that the information is accurate so that your score improves, you get better offers for credit and that you don’t fall into the habit of having negative items sit on your credit report. There is nothing worse than going through bankruptcy, getting a fresh start and having negative items remain on your credit. So be vigilant and stay active with regard to the accuracy of the information on your credit report.That is checklist item number six in this list of the Chicago Bankruptcy Lawyer’s Chapter 7 Checklist.
Chapter 13 Bankruptcy Overview
Chapter 13 is a form of bankruptcy protection whereby a person reorganizes his debt, by paying through a Chapter 13 Trustee all of his disposable income over a three to five year period of time. In many cases, creditors will receive less than a 100% repayment on their debt. To qualify for Chapter 13 bankruptcy, you first must be an individual. Further, you must have monthly income which exceeds your monthly expenses in order to fund a plan. The most common use of a Chapter 13 bankruptcy case is to repay mortgage arrears over time. Chapter 13 will stop a foreclosure case and allow a debtor to reorganize the arrearage, provided the foreclosure case has not yet proceeded to a Sheriff’s sale. If this were to occur, Chapter 13 will not provide a remedy to undue that sale. However, there is often a long time frame from the commencement of a foreclosure case until the time it is actually sold at auction. Another common use of Chapter 13 bankruptcy is to reorganize other secured debts such as vehicles. A financed vehicle can be reorganized through a Chapter 13 bankruptcy filing which could likely lower the monthly payment being paid by the debtor. In some cases, the vehicle finance company will receive less than what is owed on the contract. In any event, the debtor can continue to own and operate the vehicle provided that timely payments are made to the Chapter 13 trustee. Lastly, all other debt can be reorganized through the use of a Chapter 13 bankruptcy case. It will stop collection efforts, lawsuits, garnishments and foreclosures. It basically provides a means for a debtor to repay all or a portion of his debts over a three to five year period of time.
Advantages of Filing a Chapter 13 Bankruptcy
The number one reason in my opinion to file a Chapter 13 bankruptcy is to save a home that’s in foreclosure. Chapter 13 will allow you to repay the mortgage arrearage, the part that you fell behind, over the next 3 to 5 years while being allowed to make your regular mortgage payment on time once again. What happens in many situations is someone will fall behind on their home and they won’t have the ability to catch up with one lump sum payment. However, by filing Chapter 13, the homeowner can dictate to the mortgage company how the mortgage arrearages are going to be paid back over a lengthy period of time. Most lenders, without a Chapter 13 filing, are going to demand a full payment otherwise they’re going to continue with the foreclosure. So Chapter 13 provides a mechanism for the homeowner to stay in the home, repay the debt over time and make the regular mortgage payments again. The end result is after a three to five-year period, a successful debtor maintains the home, reinstates the mortgage and is back on track moving forward.
Number two, the second major advantage to filing a Chapter 13 is to save a car that is either subject to repossession or may have already been repossessed. If you are behind on your car and you can’t make your regular payment, eventually the car is going to get repossessed. You can stop the repossession or recover a vehicle that has been repossessed by filing a Chapter 13 bankruptcy. The total amount due on the car is lumped into your Chapter 13 repayment plan. Thus, if you have a financed vehicle, you are not going to make a regular payment on that vehicle once again. The vehicle is going to be paid by the Chapter 13 trustee as a result of you making monthly payments to support that plan. In many cases, the car can be paid back at less than what is owed if it was purchased more than 2 ½ years prior to filing for bankruptcy.
In any event, the interest rate can be significantly reduced no matter when you purchased the vehicle in many cases. So saving a financed car from repossession or recovering it after it’s been repossessed and not yet sold at auction is the second major advantage to filing Chapter 13.
The third major advantage for filing Chapter 13 is to repay unsecured creditors less than 100%. We call this a percentage plan which can be anywhere from 2% to 5% to 10%, all the way up to 100% in some cases. The great thing about Chapter 13 is that some unsecured debt is lumped together giving the debtor one place to pay to reorganize that debt. Credit cards, medical bills, personal loans, past-due utility bills and debts for other types of services are unsecured debts. And unsecured debt is a debt where there is nothing that can be taken back or repossessed from the debtor when the payment is not made. Many people file a Chapter 13 to simply pay back a percentage of their outstanding debt.
Take for example someone who has $80,000 worth of credit card debt and medical debt. That person, depending upon their income and their expenses and their assets, may have the ability to pay back as little as 10% on the dollar towards those debts. What I’m talking about here is repaying $8000 over 3 to 5 years at very little interest as opposed to paying back the full amount for the next 10 or 20 years without a bankruptcy. So Chapter 13 is a great way to pay unsecured creditors a percentage on the dollar and stop some of the excessive interest.
The fourth major advantage of filing a Chapter 13 is to repay otherwise non-dischargeable debt. If someone has student loans, recent taxes, parking tickets, child support, alimony, those debts cannot be eliminated in a Chapter 7 bankruptcy. However, those debts can be reorganized in a Chapter 13 bankruptcy and paid back over a three to five-year period. Now, even if those debts are not paid back in full, the creditors are prohibited from taking certain actions during that 3 to 5 year period. So the debtor basically buys a cushion of time whereby they are making a certain amount of payment towards that debt with the knowledge that at the end of the 36 or 60 months, they are going to owe the remaining portion. What this does as a gives a debtor breathing room. It allows the debtor to survive and be able to make other payments such as rent, mortgage, utilities, insurance, and support for children. So a great advantage to filing a Chapter 13 is to repay non-dischargeable debt over a three to five-year period.
The fith major advantage of filing a Chapter 13 is to stop the ridiculously high interest on credit cards. By filing a Chapter 13, you are agreeing to pay back either all or a percentage of the credit cards at little or no interest in many cases. Take for example the scenario earlier where someone has $80,000 worth of credit card debt at 29% interest. By filing a Chapter 13, that $80,000 with of credit card debt can be paid back as little as $8000 at no interest or very little interest depending on the case. When you talk about how long it takes to pay off the debt outside of a bankruptcy such as a credit card with a high interest rate, it makes perfect sense to not only cut the balance down in a Chapter 13 but also cut down the excessive interest. So one of the greatest advantages of Chapter 13 is to repay a portion of credit card debt with very little or no interest over a three to five-year period.
Number six reason or advantage of filing a Chapter 13 is to save your driver’s license from suspension. A driver’s license can be suspended here in Chicago for failure to pay parking tickets, failure to pay moving violations or failure to have insurance at the time of an accident. By filing a Chapter 13, you can stop the suspension from taking place because you are agreeing to repay either all or a portion of those debts over a three to five-year period. There’s only a couple ways to handle parking tickets. You can work out an installment payment plan with the city of Chicago if they are willing to do it and that will keep you off the boot list or the suspension list. The other method is to file a Chapter 13 and to reorganize that debt over a period of 3 to 5 years provided the debtor stays in the payment plan, the city of Chicago will not suspend license or report violations to the Secretary of State.
As far as an auto accident with no insurance, there’s a couple ways you can stop that. One, you can pay off the full amount but who can afford that? Two, you can make out an installment payment plan, file that plan with the Secretary of State in Springfield and continue to make timely payments. Or three, you can file a Chapter 13 bankruptcy, repay either all or a portion of the debt over the next 3 to 5 years and protect your license.
And lastly, moving violations. This is a tricky one. The state of Illinois technically should be accepting Chapter 13 payment plans and not suspending licenses. The City of Chicago can be organized and sometimes they cannot. Before the overwhelming majority of people, the suspension is due to either parking tickets or driving without insurance and Chapter 13 is a great way to reorganize those debts and to keep your license free and clear.
As you can tell, there are many advantages to filing a Chapter 13. I have illustrated some of the most beneficial ones that I know of. However, there are others, plenty of others. If you are considering filing Chapter 13, consult with an experienced bankruptcy attorney in your local area who handles 13 on a daily basis.