Can I Keep My Vehicle After Chapter 7 Bankruptcy?

Chapter 7 is an erase-your-debts-start-fresh bankruptcy.  A debtor in Chapter 7 is unable to pay his creditors over time, so he offers to liquidate his assets. The basic idea is that all of the debtor’s property is taken and sold to pay creditors.  Any debt that cannot be paid from the debtor’s property is legally discharged.  The debtor has paid all he can.

However, it’s not practical to take everything a person owns.  Consequently the federal bankruptcy laws balance the rights of the creditors to receive payment against the need of the debtor to remain able to provide food, clothing, and shelter for his family.  The bankruptcy laws allow the debtor to keep reasonable and modest amounts of furniture, clothing, jewelry, and, in most cases, a home and car. 

Keeping a vehicle after filing Chapter 7 depends on three questions.  First, “Is the vehicle worth more than you owe?”  Vehicle equity must be protected with exemptions.  The bankruptcy laws allow a Chapter 7 debtor to keep a modest amount of equity in a vehicle, and other exemptions may be available to protect larger amounts of equity.  In basic terms, if you have a new Cadillac, and it is paid for (meaning a large amount of equity), the car will be taken and sold to pay creditors. 

Second, “Is the vehicle worth less than you owe?”  In some cases the debtor’s vehicle loan is a great deal more than the vehicle is worth.  In those cases the bankruptcy laws allow the debtor to pay the amount the vehicle is worth and discharge the difference.  This process is called “redemption” and the fair market value of the vehicle must be paid to the creditor in one lump sum.  Additional financing is often required to obtain the lump sum payment, although the money can come from any source. 

Since a loan secured by a vehicle must be paid or the vehicle returned, the final question is, “Are you able to continue making payments?”  If you are unable or unwilling to make the monthly payment, the vehicle may be surrendered back to the creditor, and you owe nothing.  If you want to continue making payments on the auto loan, you should discuss a reaffirmation agreement with your attorney.  Generally, a reaffirmation agreement is filed with the bankruptcy court and continues the loan obligations of the lender and borrower. 

If you are interested in keeping your vehicle after a Chapter 7 bankruptcy case, speak to your bankruptcy attorney and discuss your options of surrender, reaffirmation, or redemption.  Your attorney can explain the benefits of each process and map out a plan to keep your vehicle before you ever file your case.

Are You Too Broke to File Bankruptcy?

“If I had that kind of money, I wouldn’t have to file bankruptcy!” 

All bankruptcy attorneys hear that frustrated statement from time to time.  Some individuals wait until they are dead broke before contacting a bankruptcy attorney for help.  By that time there is little or no money to pay bills, let alone court fees, credit counseling fees, and attorney fees.  The article today is about helpful advice on how to get the money for your attorney without creating more difficulty for yourself. 

One popular choice for many debtors is a loan from a family member.  If you borrow money from a relative to pay the bankruptcy fees, you must identify that relative as a creditor on your bankruptcy schedules.  In most cases this debt will be discharged along with other unsecured creditors.  Despite the bankruptcy discharge, you are not prohibited from repaying the debt if you feel a moral obligation to do so. 

On the other hand, if your relative gives you the money as a gift, it does not need to be disclosed.  However, the money must be included as income on the Means Test.  In only a small number of cases would this situation cause problem with the Means Test. 

Selling property is another option to pay the bankruptcy fees.  There is nothing wrong with selling property for fair market value prior to a bankruptcy.  Selling a non-exempt asset (one that you may lose to the trustee) makes good financial sense.  You must disclose the sale in your bankruptcy schedules and account for the proceeds. 

Some debtors cash out investments or take money from a retirement account.  These choices may carry tax consequences and are also normally counted as income on the Means Test.  Other debtors use income tax refund money.  It makes sense to use non exempt cash money to pay bankruptcy fees rather than see it lost to the bankruptcy trustee. 

Some clients are able to save money from their paychecks after they decide to file bankruptcy.  Generally, once you decide to file bankruptcy, you should stop paying credit cards and other unsecured, dischargeable debts.  Secured debts that will survive the bankruptcy should be paid along with utility bills and non-dischargeable debts. 

 Using a credit card to pay your attorney can create difficulties in your bankruptcy case.  Credit card charges within 90 days of the bankruptcy filing are presumptively nondischargeable.  Likewise payday loans taken immediately before the bankruptcy will have to be repaid. 

As you can see, an experienced bankruptcy attorney can offer many suggestions on how to raise the money to pay the bankruptcy fees.  Discuss your financial situation before you sell, borrow, or charge anything.  Good advice from a knowledgeable source can save you from headaches down the road.

Is Bankruptcy A Wise Decision?

The decision to file a personal bankruptcy can be emotionally difficult for many individuals.  Sometimes these emotions can make it difficult to accurately assess your financial picture.  If you are facing a financial dilemma, it is a good idea to consult with someone skilled in evaluating your finances and obtain advice.  The answer to a financial problem can vary from reducing spending, to increasing income, to selling assets, and finally to reorganizing or liquidating in bankruptcy.  

Filing bankruptcy should always be your last good option.  Unfortunately, good people will make bad decisions when trying to avoid this last good option.  Bankruptcy attorneys see people regularly who have made bad decisions regarding their finances in the hope of avoiding bankruptcy.  These bad decisions always make matters worse.  Some of these bad decisions include: 

* Borrowing from retirement funds

* Borrowing money from a business, family, or friends

* Misappropriating money, kiting checks, or other illegal activities

* Borrowing from payday loan companies, taking cash advances from credit

* Selling assets that may be protected from creditors

It is true that desperate people do desperate things.  When things get desperate, it is time to consult with an experienced bankruptcy attorney and discover how the bankruptcy process can help you and your family.  Bankruptcy is a legal process that is authorized by the Constitution of the United States.  Its laws are drafted by Congress and a federal bankruptcy judge oversees your case along with a trustee appointed by the Department of Justice. 

One goal of the bankruptcy process is to return the debtor to financial health by relieving the burdens of overwhelming debt.  The great majority of debtors never file bankruptcy again and rebuild their financial lives by making good decisions after the bankruptcy discharge.  For these people, bankruptcy provides a second chance. 

If you need a second chance and a fresh financial start, speak with an experienced bankruptcy attorney and discuss your options.  Make wise decisions about your personal finances.  The bankruptcy laws help over a million families get a new financial beginning each year, and it can help you too!

Are People in Need Avoiding Bankruptcy?

Although bankruptcy filings are climbing back to the all-time high of 2 million reached in 2005, there is a growing concern that many Americans in need of bankruptcy protection are not filing.  A recent article in USA Today quotes Katherine Porter, associate professor of law at the University of Iowa who says, “[T]he filing rate doesn’t even begin to count the depth of financial pain.” 

Are you hurting financially?  Bankruptcy can help ease that pain. 

Bankruptcy is a federal legal process for declaring an inability to pay your creditors.  When you file bankruptcy you get immediate relief.  The bankruptcy court imposes an “automatic stay” prohibiting creditors from taking collection action against you while the bankruptcy case is pending.  The automatic stay is very powerful and stops lawsuits, wage garnishments, and even foreclosures.  Its purpose is to give the debtor some breathing room and an opportunity to decide how to resolve an overwhelming debt problem. 

There are typically two different types of bankruptcy cases: chapter 7 and chapter 13.  In chapter 7 you eliminate debt without payment while chapter 13 is a repayment plan over three to five years.  At the end of a bankruptcy case the court enters an order discharging eligible debts and permanently prohibits creditors from taking collection action against you. 

In some cases certain debts are not discharged.  The most common types are family support obligations, student loans, and taxes.  However, bankruptcy offers significant relief by discharging other debts and freeing up money to pay the non-discharged debt.  Chapter 13 can also be helpful by allowing payment of the non-dischargeable debt under the supervision of the bankruptcy court and without fear of lawsuits, wage garnishments, or other nasty creditor action. 

The bankruptcy process is very efficient.  For most chapter 7 debtors the case will last a few months and requires one meeting with the bankruptcy trustee.  The cost of bankruptcy is very reasonable compared to the relief that is given. 

If you are hurting financially, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you.  There are many options available in the law and can give you real relief from overwhelming debt.

How Much Do I Have to Pay In Chapter 13?

During a Chapter 13 bankruptcy you pay your creditors in accordance with your ability to pay.  Some creditors receive 100% of the debt, and others may receive a small sum or nothing at all.  The Bankruptcy Code establishes a priority of debt repayment. 

Administrative claims must be paid 100% and include your filing fee, the trustee’s compensation (3% to 10% of each monthly payment), and your attorney’s fees.  Other debts must be paid 100% during the debtor’s bankruptcy including alimony and child support, most tax debts, and mortgage arrears if you intend to keep you home. 

The lowest category of debt repayment is unsecured creditors.  The amount paid to unsecured creditors (e.g. medical bills, credit cards, and unsecured personal loans) is determined by several factors including (1) the amount of your nonexempt assets; (2) your disposable income; and (3) the length of your plan. 

The length of your plan and amount of your disposable income are largely determined by the Bankruptcy Means Test.  The Means Test was the subject of a recent United States Supreme Court case: Hamilton, Chapter 13 Trustee v. Lanning.  The issue in Hamilton is how a bankruptcy court calculates your ability to pay creditors during the bankruptcy case. 

The 2005 changes to the Bankruptcy Code included a requirement that Chapter 13 debtors commit all “projected disposable income” to the repayment plan.  Confusion arose over whether Congress meant to determine this amount through a mechanical approach, by averaging the debtor’s income for the past six months, or whether the determination is “forward looking” and should consider the debtor’s future ability to pay. 

Justice Samuel Alito, writing for an 8-1 majority, said the “forward looking” approach is correct.  The forward-looking approach starts with the debtor’s average monthly disposable income for the past six months multiplied by the number of months in a debtor’s plan.  This figure is ordinarily the debtor’s projected disposable income.  However, in some cases, the Court has authority to review the debtor’s actual and present monthly income in order to calculate the debtor’s ability to pay debts during the plan period. 

The Hamilton case will have great impact on Chapter 13 bankruptcy cases and places the power to determine a fair and affordable Chapter 13 payment plan in the hands of the bankruptcy court judges.  If you are in need of bankruptcy relief, but fear that you will be forced to pay a monthly sum you can’t afford, get the facts from an experienced bankruptcy attorney.  Bankruptcy is not a debtor’s prison and has helped millions get a fresh financial start.

Will Filing Chapter 7 Bankruptcy Wipe Out My Retirement Savings?

Most retirement savings accounts are considered either exempt or not part of the bankruptcy estate and, therefore, are protected from turn-over during Chapter 7 bankruptcy.  When an account is considered “not property of the bankruptcy estate” it cannot be taken by the bankruptcy trustee for distribution to creditors. 

The U.S. Supreme Court has held that an employee’s interest in an employer pension plan (that qualifies under ERISA) is not property of the bankruptcy estate.  The Bankruptcy Code also protects certain retirement funds during a Chapter 7 bankruptcy case.  Retirement accounts classified under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code are exempt from collection (up to certain amounts).   These sections cover most retirement plans and include pension plans, profit sharing plans, stock bonus plans, employee annuities, IRAs, Roth IRAs, government deferred compensation plans, plans of tax exempt organizations, and certain trusts.  The laws generally exempt these accounts up to a million dollars for each debtor. 

Other retirement accounts not otherwise exempt are protected if they are necessary for the support of the debtor and the debtor’s dependents.  Finally, bankruptcy laws protect certain retirement accounts like 457 deferred compensation plans, 403(b) tax deferred annuities, and health insurance plans regulated by state law. 

However, every case is different.  This year one bankruptcy court in Texas found that an IRA that was inherited by a debtor in bankruptcy did not receive the same retirement account protection under the bankruptcy laws.  In that case the court found that the IRA would only receive retirement account protection in bankruptcy if the debtor was the account holder and not merely a beneficiary. 

If you are experiencing debts you cannot pay, speak to an experienced bankruptcy attorney before taking any withdrawals from your retirement account.  In many cases your debts can be discharged during bankruptcy and your retirement account fully protected from creditors.

What If I Can’t Make My Chapter 13 Plan Payments?

During a Chapter 13 bankruptcy the debtor develops a plan to repay all or part of his debts through installments.  Once the bankruptcy court confirms the plan, the debtor is obligated to make payments over three to five years.  A lot can happen during those years, and sometimes a debtor is unable to pay the plan installment payments.  Fortunately the bankruptcy laws provide the Chapter 13 debtor considerable flexibility when facing changed financial circumstances. 

If your inability to pay the plan installments is due to a temporary interruption in pay (lay off, change in employment, etc.) or an unexpected financial emergency (car repairs, medical expenses, etc.), you may be able to obtain a suspension of payments for a couple of months.  A suspension only delays your plan payments, so your plan will be extended to make these payments up in the future.  Since a Chapter 13 plan cannot extend past 60 months, suspending plan payments may only work for certain below-median income cases that are not initially scheduled as 60 month plans. 

Modifying your Chapter 13 plan is another option, especially if your financial change is not temporary and you will continue to have difficulty paying your plan installments.  When you propose to modify the terms of your Chapter 13 plan, the bankruptcy court will scrutinize your financial records to determine what you can pay and whether creditors will receive more if your case was converted to Chapter 7 (a liquidation bankruptcy). 

Since a Chapter 13 bankruptcy is a voluntary case, you can always dismiss your bankruptcy case.  If your case is dismissed prior to discharge, you will typically not be barred from re-filing and receiving a discharge in the future.  However, there are certain exceptions that may apply, and dismissal is usually a last option.  Consult with your bankruptcy attorney. 

If your change of circumstances prevents you from affording any payment to creditors, you may opt for voluntary conversion to Chapter 7.  One benefit of conversion is that any debt incurred since your Chapter 13 filing date can be included in the Chapter 7 case.  

A hardship discharge is an option if your change in circumstances was beyond your control (job loss, illness, disability, etc.) and a Chapter 13 modification is not a solution.  A hardship discharge will end the Chapter 13 case prematurely and eliminate the remaining scheduled payments.  Hardship discharges are only granted for the most extreme cases. 

If you find yourself unable to pay your Chapter 13 plan installments, speak with your bankruptcy attorney immediately.  While there are options for dealing with a financial change, delaying action will only make matters worse.  Speak with your attorney and be proactive in dealing with your finances.

Can One Spouse File Bankruptcy Alone?

While it is common for a husband and wife to file a joint bankruptcy, in some cases it may be beneficial for only one spouse to file.  When one spouse files for bankruptcy protection, the other spouse is not automatically joined into the case.  The husband and wife are treated separately and individually, although there are some consequences to the non-filing spouse, both positive and negative. 

Filing separately can have several advantages to a husband and wife who have separate property and debts.  It is especially appropriate when there is a large debt that only one spouse is liable to pay, and the parties are able to either protect their marital property through exemptions or by virtue of the non-filing spouse holding the property as non-joint property.  Property in which the debtor has no ownership interest is generally not property of the debtor’s bankruptcy estate and beyond the reach of the bankruptcy court. 

While the bankruptcy automatic stay will stop collection action against the debtor, this protection does not apply to protect a non-debtor.  In a Chapter 7 case, a creditor may still collect on a joint debt from the non-filing spouse.  In a Chapter 13 case, the bankruptcy code imposes a co-debtor stay that generally prohibits collection on joint debts during the bankruptcy.

Likewise, the discharge order at the end of the case will only apply to bankruptcy debtor.  The discharge does not prevent collection on any joint debt from the non-filing spouse.  Most joint debts are the result of a contract or the agreement of the husband and wife to pay a debt, however in some limited cases a statute or other circumstances may make both parties liable for a debt.  If you have any questions concerning whether you or your spouse is liable for a debt, consult with your attorney. 

Property may be protected through state or federal law exemptions, or the property may be excluded from the bankruptcy estate when the bankruptcy debtor has no ownership interest.  Property that is held jointly and cannot be protected by exemption laws may be at risk for turn-over to pay creditors in a Chapter 7 case. 

The decision to file bankruptcy for one or both spouses can require a complex analysis of the separate and joint property and debts of each spouse.  Every case is different and while some cases gain a benefit from filing jointly, other cases receive a greater benefit from a separate bankruptcy.  If you are in a situation where a separate bankruptcy filing may benefit your family, consult with an experienced bankruptcy attorney and discuss your options.  The federal bankruptcy laws offer many choices for individuals needing debt relief and your attorney can help you decide the best financial decision for your family.

Can A Discharged Debt Be Repaid?

At the conclusion of almost all consumer bankruptcy cases the debtor will receive an order from the court that discharges the debtor’s personal obligation to pay certain debts.  This discharge is a court injunction prohibiting creditors from taking collection action to collect on discharged debts.  Violation of this injunction may result in a contempt of court charge and serious penalties. 

But what if you have a debt that you want to pay even after it is discharged? 

The Bankruptcy Code provides, “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.”  11 U.S.C. § 524(f).  You are free to make voluntary payments on all or part of your discharged debts.  These payments do not invalidate the discharge order and do not create a new legal obligation.  The creditor is still prohibited from contacting you in any way and cannot take any collection action against you, including sending you a bill or even encouraging your continued payments.  In this case the term “voluntary” means free from creditor influence or inducement. 

Any payments you make on a discharged debt are the result of a moral obligation as the legal obligation to pay the debt has been discharged by the bankruptcy court.  In a Chapter 7 case, you are free to pay whomever you want.  “Debtors who file under [Chapter 7] can dispose of their post-petition earnings as they choose, including voluntary repayment of debts otherwise dischargeable in bankruptcy.”  In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985). 

If you are interested in making voluntary repayments after your discharge, discuss the matter with your bankruptcy attorney.  While there are generally few down-sides to voluntary repayment, your bankruptcy attorney can discuss the pros and cons with you and help you reach the right decision for you and your family.

How Long Will My Chapter 7 Bankruptcy Take?

The typical Chapter 7 bankruptcy case will take three to four months.  The Bankruptcy Code has established certain deadlines during a Chapter 7 case that dictate how long the case must remain open.  Additionally, delays by the debtor, the trustee, creditors, or even the bankruptcy court can prolong a case. 

Most debtors are confused as to when the bankruptcy case is finished.  There are actually two different events that happen near the end of a Chapter 7 case: the discharge and the closing of the case.  The discharge is a permanent injunction entered by the bankruptcy judge prohibiting certain creditors from collecting from the debtor personally.  The discharge injunction is ordered near the end of the case, but cannot be entered until after the last day for creditors to file objections has passed.  That day is set by the Bankruptcy Code as 60 days after the date first scheduled for your 341 Meeting of Creditors.  The date is also listed on the 341 meeting notice. 

While the bankruptcy court may enter the discharge order before the case is closed, your case is not finished until a final order is issued closing the case.  When there are no assets to distribute, the bankruptcy court will often enter the discharge order and the order closing the case on the same day.  If there are assets to distribute or objections to the discharge of a debt, your case may remain open for several months.  Statistically, only one in twenty five Chapter 7 cases have assets to distribute to creditors.  The typical Chapter 7 case is discharged and closed soon after the objection deadline passes. 

Your Chapter 7 case will likely take between three to four months from start to finish.  One of the main advantages in hiring an experienced bankruptcy attorney is the benefit of the attorney’s efficient processes that will take your case from start to finish without complication. Your attorney can identify and correct potential problems before you file your case, and avoid any delays getting you the relief you need.  If you are considering bankruptcy, consult with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you.

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