Are you looking for guidance on how to deal with oppressive debt? You may be thinking that you need a big-time law office to protect you and your assets. That may be the case in some legal situations, but when it comes to a consumer bankruptcy, you need a local bankruptcy attorney to handle your case.
If you are looking for information on the bankruptcy process you need a Northern Kentucky, Dayton, or Cincinnati bankruptcy attorney. Local attorneys will have the ability to provide more accurate legal advice regarding the nuances of bankruptcy laws and how the Bankruptcy Court in your district applies those laws. It is possible for a bankruptcy debtor to file without representation, but bankruptcy can be a difficult legal area to navigate. You should never assume that your case is an easy one.
When other avenues have failed to solve your financial problems, credit card debt continues to grow, you have creditors harassing you, wage garnishment has been ordered or you are facing foreclosure or repossession, it may be time to find out about the different types of bankruptcy. For more information visit our bankruptcy practice page.
The Bankruptcy Code allows debtors who qualify to file a bankruptcy case. Typical consumer debtors may be eligible for filing chapter 7, chapter 13, or chapter 11 in some circumstances.
Chapter 7
Chapter 7 bankruptcy is a liquidation. The trustee in the case is responsible for determining what assets the debtor has, whether there is any equity above and beyond what the debtor can protect through state or federal bankruptcy exemptions and collecting and distributing the proceeds to creditors who file a proof of claim. Most chapter 7 bankruptcies do not result in a distribution to creditors. This is usually due to a thorough investigation by debtor counsel prior in preparation of the bankruptcy case.
A chapter 7 debtor must qualify to file based on their income. The income received in the six months prior to filing is averaged to determine if the debtor is above or below the median income for their state and household size. If the debtor is above the median income there is an additional calculation called the “means test” that considers necessary expenses of the debtor. If, after the necessary expenses are deducted from the income, there is enough money left to pay a reasonable percentage to unsecured creditors, the debtor will not qualify for chapter 7.
Whether there is a distribution by the trustee or not, the chapter 7 will result in a discharge of certain debts. Credit card, medical, deficiency balances after surrender of secured collateral, some tax debts are examples of debts that may be discharged. However, there are some obligations that cannot be discharged. Domestic support obligations, property settlements through divorce, recent tax debt and student loans are types of debt that may not be discharged in chapter 7.
A chapter 7 has limited benefit if a debtor is trying to keep a home or vehicle that is in default. Depending on the circumstances a debtor will delay a foreclosure while trying to work out a loan modification with the mortgage company. In the case of a default on a car loan it may be possible to “redeem” a vehicle for the value of the vehicle rather than what is owed. However, this may require a replacement loan or lump sum of cash.
Chapter 13
A chapter 13 bankruptcy is a repayment plan, or a “wage earner’s plan”. There are many reasons a debtor will choose to file a chapter 13 instead of a chapter 7. If the debtor’s income is too high and there is disposable income left over after calculating income and necessary expenses the court will find the debtor ineligible for a chapter 7 and require a payback of a percentage of the debt over a three-to-five-year period.
If the debtor has assets, they would lose in chapter 7, and therefore a chapter 13 is an avenue to keep those assets while paying back at least the value of the non-exempt asset over the life of the plan. The debtor must pay the greater of the value of the non-exempt equity or the disposable income, whichever is higher.
There may also be benefits a debtor could take advantage of in a chapter 13 that they would not have at their disposal in a chapter 7. A debtor in default on a home loan may catch up on the arrearage over the life of the plan while paying the regular monthly payment if their income is sufficient to do so.
If a debtor intends to keep a car subject to a lien the car must be paid off during the plan. If the car was purchased more than 910 days prior to filing the debtor will pay what the car value is at time of filing rather than what they owe. In addition, the interest will be adjusted to what is called “Till” rate which is prime plus a risk factor. The benefit here for some clients could be significant if the debtor had rolled in negative equity in the car loan through a trade in or if the interest rate is high, such as those seen in title loans and buy here pay here lots.
Another benefit of chapter 13 is the dischargeability of property settlement agreements through a divorce decree. In contrast, as domestic support obligations are never dischargeable, arrearages on these obligations, as well as past due tax debt, can be paid off in full during a chapter 13 plan.
Chapter 11
A chapter 11 is what is referred to as a “reorganization’. It is typically thought of a business bankruptcy. The usefulness of the chapter 11 for a consumer debtor is when a debtor does not qualify for a chapter 7 due to high income and does not qualify for chapter 13 because the amount of the filer’s debt is higher than the limit allowed in a chapter 13.
If you are seeking legal advice on what type of bankruptcy is right for you, please contact Finney Law Firm for a free consultation with local Northern Kentucky, Dayton, and Cincinnati bankruptcy lawyer Susan Browning, (513)797-2857.
