| What is Bankruptcy? Individuals who are having difficulty paying their bills as they become due or who are threatened by a creditor with a lawsuit, garnishment or a seizure of property often consider bankruptcy as a solution to their problem. The bankruptcy law is a federal law which is available to individuals throughout the United States in Bankruptcy Courts that are federal courts. Return to list of questions How do I obtain relief from my creditors? For certain people, filing for bankruptcy will achieve the relief from debt that they are seeking because a bankruptcy generally results in the grant of a discharge of individual debts. A discharge is the forgiveness of personal liability for debts that have been incurred prior to the filing of the bankruptcy case. With few exceptions, creditors are prohibited from suing a debtor, obtaining a judgement, or collecting for debts that have been discharged and will have no claim on the future income or assets of the individual who has filed for bankruptcy relief. As a general rule, bankruptcy, while it may relieve a personal obligation to repay a debt, does not eliminate most mortgages or liens on real or personal property. Therefore, in order to keep a car or a house that has been pledged as collateral for a loan after a bankruptcy filing, a debtor will ordinarily have to repay the creditor the full amount of the debt over time or redeem the property by paying the full value of the collateral in cash to the creditor. On the other hand, in certain situations (occurs mostly when the collateral is furniture or appliances), a creditor may agree to reduce its claim to the fair market value of its collateral in order to induce a debtor to reaffirm the debt after a bankruptcy filing. Return to list of questions What is a discharge and how do I get one? In exchange for a discharge, a debtor must turn over all of his or her non-exempt property to a trustee who is appointed by the Bankruptcy Court. The trustee is required to sell the debtor's non-exempt property and distribute the proceeds to creditors according to the priorities established by the Bankruptcy Code. In most cases, due to exemptions debtors can claim, creditors receive no distribution from a bankruptcy case. In some cases, a debtor is denied a discharge and continues to be obligated on all the debts that were the subject of the bankruptcy. Reasons for the denial of a discharge include court determinations that the debtor has concealed assets, has fraudulently transferred assets to avoid payment to creditors, or has made a false statement under oath. Such acts may also be the subject of criminal proceedings against the debtor that may result in fines, imprisonment, or both. In those cases where a debtor receives a discharge, certain debts may nonetheless be excepted from discharge. These include obligations for alimony or child support, certain taxes and student loans, and debts incurred by false statements, fraud, or misrepresentations. Individuals may choose several different types of bankruptcy. The choice of a particular bankruptcy chapter will depend on the financial circumstances of the debtor, the amount and nature of the debts to be dealt with in the bankruptcy, the exemptions available and the types of assets owned by the debtor and the debtor's equity in such assets. Return to list of questions What is a Chapter 7 Bankruptcy? Chapter 7 is what most people refer to as "straight bankruptcy." In a Chapter 7, the debtor turns over all of his or her non-exempt assets to a Chapter 7 trustee. The Chapter 7 trustee liquidates the assets and distributes the proceeds to the debtor's creditors. By order of the Bankruptcy Court, the person is then discharged from all of his or her debts. Return to list of questions Will all my debts be discharged? A debtor cannot discharge certain debts, including most taxes, student loans, alimony and child support, debts incurred through fraud or theft, and certain other types of non-dischargeable debts. Return to list of questions Will I be able to retain any of my property? In Ohio, debtors can retain: 1. $5,000 in real estate equity for your principal residence if you are a single debtor and $10,000 in equity for real estate owned by joint debtors (equity equals the amount of property value in excess of liens on such property); 2. Social Security benefits, unemployment compensation, veteran benefits, certain disability benefits, and alimony; 3.$1,000 in equity in one (1) motor vehicle per debtor; 4. $200 in each of various items of household furnishings and wearing apparel, up to a total value of $3,500; 5. $500 in jewelry 6. $500 in professional implements, books and tools of the trade; and 7. $400, plus the unused portion of the principal residence exception as a wildcard exemption ($800.00 if filing jointly). There are other less common exemption rights. In addition, if the creditor holding a lien on a particular item of property consents, you can retain additional property by reaffirming the debt to the creditor and paying the creditor's claim pursuant to the terms that you had previously agreed. Return to list of questions How often can I file a Chapter 7 Bankruptcy Case? A debtor can file a Chapter 7 Bankruptcy and receive a discharge from his and her debts only once every eight years. Return to list of questions How do I benefit from a Chapter 7 Bankruptcy Case? By filing a Chapter 7, your creditors are prohibited from continuing suits against you or from attempting to collect their claims against you and your property. Rather, creditors must look solely to the Bankruptcy Court and the assets within its control for payment of their claims. By filing the Chapter 7 case and obtaining a discharge, you receive a total forgiveness of the discharged debts and a "fresh start" to a new economic life, free from debt. Return to list of questions What are the differences between Chapter 7 and Chapter 13? Chapter 7 of the Bankruptcy Code is entitled "Liquidation" and as the name implies, generally requires the sale or foreclosure of all non-exempt property. In most instances, the Chapter 7 debtor is promptly discharged from all or most pre-bankruptcy debts and receives a fresh start on a new economic life. This new economic life frequently begins only with exempt assets. Chapter 13 is entitled "Adjustment of Debts of Individuals with Regular Income". It is often called a "wage earner" bankruptcy or just "Chapter 13 ." Chapter 13 debtors pay all or part of their debts through future income rather than through liquidation or foreclosure of present assets. Chapter 13 is available only to those individuals with regular income whose non-contingent, liquidated unsecured debts are less than $307,675 and whose secured debts are less than $922,975. Corporations and partnerships are not eligible to file for Chapter 13. The Chapter 13 debtor's income must be regular but can come from sources such as self-employment, pensions, social security, disability policies, welfare or alimony. Return to list of questions How does Chapter 13 work? Under Chapter 13, the debtor presents a plan for repayment of debt that is reviewed by the Chapter 13 trustee, creditors and the Bankruptcy Court. The plan must be filed in good faith, must provide for payments that are feasible in light of the debtor's projected income and expenses and must also provide for repayments over a period of time that are equal in value to the money creditors would have received if the debtor had chosen Chapter 7 instead of Chapter 13. If proper objection is made to the plan, then the plan must also provide that, for a period of three years, all of the debtor's income above reasonable living expenses will be paid into the plan. If the Chapter 13 plan is approved, all payments are made through the Chapter 13 trustee's office, and the trustee is paid a commission. Most plans must run at least three years and cannot exceed five years. Chapter 13 provides that the debtor receives a discharge from most pre-bankruptcy debt upon making the payments called for by the plan, including under certain circumstances, debts arising as a result of fraud. Return to list of questions Can I keep my property? Chapter 13 debtors often keep property they would lose in Chapter 7 because Chapter 13 provides a mechanism for paying the past due amount owed on certain loans, including home and auto loans. Keeping secured property in a Chapter 7 usually requires the creditor's consent and a signed reaffirmation agreement. Secured creditors do not have such control in a Chapter 13. Consequently, Chapter 13 debtors usually keep their cars, their house and other important property subject to security interests even if the creditor wants the property back and the debtors were delinquent in the payments due the creditors at the time of the bankruptcy filing. Property not subject to security interests can also be kept in a Chapter 13 even through its value is not exempt and would be lost in a Chapter 7. Return to list of questions How about paying taxes? Filing bankruptcy under either Chapter 7 or Chapter 13 will stop all IRS or state tax collection activities on taxes accruing prior to filing bankruptcy. But if a Chapter 7 is filed, these tax collection activities often resume shortly after filing because the tax obligation, unless they are more than three (3) years old, usually cannot be discharged in bankruptcy. Furthermore, interest and penalties continue to accrue. Under Chapter 13, on the other hand, the filing halts the accumulation of interest and penalties and taxes may be paid over the life of the plan. The filing of bankruptcy does not stop the IRS or the state from assessing or demanding payment of taxes arising after the date of the bankruptcy filing. Return to list of questions What about nondischargeable debts? Most debts can be discharged under either Chapter 7 or Chapter 13; however, some cannot be discharged under either Chapter and some can only be discharged under Chapter 13. For example, debts involving fraud and embezzlement may be dischargeable through a Chapter 13 if the plan is confirmed. Debts arising from child support, alimony, student loans, criminal fines and criminal restitution debts, on the other hand, are among those that cannot be discharged under either Chapter. However, Chapter 13 has an advantage over Chapter 7 because the assets of the Chapter 13 debtor are protected by the Bankruptcy Court while making payments under the plan. Return to list of questions Can I protect others liable on the debt? Creditors are prohibited from attempting to collect pre-bankruptcy debts from a debtor under either Chapter 7 or Chapter 13. But the filing of a Chapter 13 bankruptcy can also stop all actions against certain co-debtors, even though those co-debtors that are solvent and do not join the Chapter 13 petition. This protection may be permanent if the plan provides for payment of the co-signed debt in full and is fully performed. Return to list of questions What are the disadvantages of Chapter 13? Debtors remain under court supervision for the life of the plan, up to five years. They are not free to make new debts or sell assets without permission of the court after notice to creditors. Debtors who propose less than full payment to their unsecured creditors will be required to live on a budget for the life of the plan. The play payments may be deducted directly from the debtor's salary by order of the court. If plan payments are not made, the case may be dismissed by the court on motion by the trustee or creditors or any creditor may petition the court to have their property returned. Some courts require that you surrender recently purchased property or luxury items before they will confirm a Chapter 13 plan. Chapter 13 is a form of bankruptcy and will appear as such as on your credit record even if you pay all of your creditors in full. Return to list of questions What happens if I do not complete my plan payments in a Chapter 13? If you are unable to complete your plan payments, you or any of your creditors can ask the court to convert your case to a Chapter 7 bankruptcy case. Alternatively, if the failure of the plan was due to circumstances beyond your control and your creditors have received, through payments made, an amount equal to what they would have received under a Chapter 7 case, the court may grant you a discharge of some, but not all, of your debt. Return to list of questions If I cannot make my plan payments, can I request that the plan be changed to more lenient terms? Yes. Under certain circumstances you can request that the court change your plan so that your payments will be more in line with your ability to pay. If you then complete the payments under the modified plan, you will receive a discharge. Return to list of questions |
The materials contained in this web site are intended for informational purposes only. They are not to be construed as legal advice nor should they be considered an offer by Mr. Bardwell to represent you. Therefore, nothing contained herein should be interpreted to create an attorney-client relationship. Prior to Mr. Bardwell representing you as your attorney, it will be necessary for you to meet with him in person to review your particular financial situation. |
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