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Bankruptcy Debts That Can Be Discharged:

- most credit card debts

- most medical bills

- most lawyer bills

- most court judgments

- most loans

Bankruptcy Debts That Are Not Discharged:

- debts you don't list in your bankruptcy forms (subject to some exceptions in a Chapter 7 case)

- back child support and alimony

- court imposed fines and restitution

- student loans (with a exception which is extremely difficult to get in most cases)

- recent back taxes

- taxes for years you did not file a return

- judgments arising out to willful or malicious conduct (personal injury or drunk driving)

- debts where a creditor files a motion in court to prove that the certain debt should not be discharged (fraudulent actions or recent credit card charges for luxuries (which are presumably fraudulent if incurred within the last 90 days))

Automatic Stay in Bankruptcy:

- When you file bankruptcy, the court automatically (you do not have to ask for it) issues an order that prevents most creditors from collect debt against you or your property (with some exceptions to this).

- if your home is being foreclosed and the sale has not taken place, bankruptcy may stop this.

- if your car is about to become repossessed, this automatic stay may stop them from taking your car

- the automatic stay does not apply filed for bankruptcy and your case was dismissed in the past year (however, your attorney may be able to help with this)

- the automatic stay lasts until: the court confirms your chapter 13 plan (if you filed Chapter 13), your case is discharged (in a chapter 7), your case is dismissed, a creditor is granted a motion for relief from the automatic stay.

What Are the Reasons To File Chapter 7 Bankruptcy/ Should I File Chapter 7 or Chapter 13 Bankruptcy? :

- fast

- effective

- easier to file

- does not require payments over time

- does no require you to be current in your tax return filings

- case typically takes 3 to 4 months to finish

- if you have secured debts, you can keep the collateral as long as you are current with your payments; but if the equity you have in your collateral is more than the exemption allowed, the trustee can sell the property, pay off the loan, ad pay you your exemption if you have any, and give the rest to the unsecured creditor

- if you are behind on your payments, the creditor can ask the bankruptcy court for relief and take back the property (repossess or foreclose)

- most debtors who file Chapter 7 do not have much to begin with and what they do have, is protected by an exemption, therefore they are able to keep all of their property. (For example: Debtor has clothing valued at $200, household goods valued at $300, a car valued at $2500, a home net valued at $15,000 (home is worth $400,000 but they owe $390,000 on the home))

What Are the Reasons To File Chapter 13 Bankruptcy/ Should I File Chapter 7 or Chapter 13 Bankruptcy:

- you have a steady, adequate income flow to pay for your plan for the 3 or 5 years and:

- your home is facing foreclosure or your car is about to get repossessed.  You pay your arrears (missed payments) over the 3 or 5 years and reaffirm the original agreement

- you have more than one mortgage and am facing foreclosure. Your home is worth less than or equal to how much you owe on your 1st mortgage. The 2nd mortgage (junior liens) can be turned into a unsecured debt. Once it is unsecured, you don't have to pay the 2nd mortgage in full; or in some cases at all. (For example: Home is worth $300,000, you have a $320,000 first mortgage, and a $80,000 second mortgage. You may be able to strip off the $80,000 second mortgage as unsecured and not have to pay that $80,000 back; thus saving you $80,000)

- you have a car that you purchased more than 2.5 years prior to filing for bankruptcy. You can kep the car and pay the replacement value of the car throughout the 3 or 5 year payment plan instead of how much you have left due and owing on the car. (For example: You have a car you still owe $30,000 for, but it is now only worth $18,000, you may be able to owe the car loan $18,000 instead, saving you $12,000.)

- you owe a debt with another person and thus have a co-debtor. The co-debtor would not be protected under Chapter 7, but would be protected under Chapter 13.

- You owe student loans, taxes, or other debts that would otherwise not be discharged in bankruptcy, but would be able to be paid for over 3 or 5 years in a Chapter 13.

- You owe debts that would not be dischargeable in a Chapter 7, but would be dischargeable in a Chapter 13.

If You Do Nothing and Do Not File For Bankruptcy:

- Creditors may sue you in court for the debt

- If you do not respond to the lawsuit within 30 days, the Creditor may obtain a default judgment (automatically winning their case with the creditor getting everything they asked for including attorneys fees and costs). Once there is a judgment against you, the creditor may attach it to property you have and will have in the future, and may garnish your wages. (A bankruptcy could stop this)

- If you do respond, you will have to spend significant amounts of time on your lawsuit, and spend money for attorneys fees and costs, while in the end, if it is proven that you owe the debt, you may have a court judgment against you for the debt and attorneys fees as well.

Chapter 7:

- allows you to wipe out many debts

- you must give up any property you own that is not protected by exemption laws (the law allows you to keep certain property up to a certain amount)

Chapter 7 Bankruptcy - Who Can File?

The bankruptcy "means test" and other Chapter 7 eligibility rules.

Filing for Chapter 7 bankruptcy can be a powerful tool for dealing with overwhelming debt. But it isn't available to everyone. There are several situations in which you won't be allowed to file Chapter 7 bankruptcy.

You Have Enough Income to Repay Your Debts

Under the old bankruptcy rules, the bankruptcy judge had the power to dismiss a Chapter 7 bankruptcy case if he or she thought the debtor had sufficient disposable income to fund a Chapter 13 repayment plan. There were no hard and fast rules dictating when a judge should dismiss a case on these grounds it depended on the facts of the case and the attitude of the judge.

Now that the new bankruptcy law has gone into effect, however, there are clear criteria that dictate who will be allowed to stay in Chapter 7 bankruptcy and who will be forced to use Chapter 13 bankruptcy if they want to file. Disabled veterans whose debts were incurred during active duty and people whose debts come primarily from the operation of a business get a fast pass to Chapter 7 bankruptcy. All others must meet the requirements set out below.

How High is Your Income?

Under the new rules, the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your "current monthly income" against the median income for a family of your size in your state. Your "current monthly income" is your average income over the last six months before you file. If your income is less than or equal to the median, you can file for Chapter 7 bankruptcy.

If your income is more than the median, however, you must pass "the means test" another requirement of the new law in order to file for Chapter 7 bankruptcy.

Do You Have Enough Disposable Income to Repay Some Debts?

The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to repay at least a portion of your unsecured debts over a five-year repayment period.

The Bankruptcy Means Test: Is Your Income Low Enough for Chapter 7 Bankruptcy?


The "means test" is a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy. Only bankruptcy filers with primarily consumer debts, not business debts, need to take the means test. High income filers who fail the means test may use Chapter 13 bankruptcy to repay a portion of their debts, but may not use Chapter 7 bankruptcy to wipe out their debts altogether.

However, having to take the Chapter 7 means test doesn't mean that you must be penniless in order to use Chapter 7 bankruptcy. You can earn significant monthly income and still qualify for Chapter 7 bankruptcy if you have a lot of expenses, such as a high mortgage payment. This article shows you simple ways to determine whether you can pass the means test -- and, therefore, use Chapter 7 -- if you were to file for bankruptcy.

How Does the Chapter 7 Means Test Work?

The means test was designed to limit the use of Chapter 7 bankruptcy to those who truly can't pay their debts. It does this by deducting specific monthly expenses from your "current monthly income" (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly "disposable income." The higher your disposable income, the more likely you won’t be allowed to use Chapter 7 bankruptcy.

To take the means test, you must first determine whether your income is more or less than the median income in your state. If you earn more than the median, you must figure out whether you would have enough left over, after subtracting certain expenses, to repay some of your debt. Our bankruptcy lawyers can help you determine where or not you are able to pass the means test.

Is Your Income More Than the Median?

The first step is simple: If your current monthly income is less than the median income for a household of your size in for your state, you pass. If your income is above, you move on to the more complicated second part of the test.

Do You Have Enough Disposable Income to Repay Some Debts?

For those whose household income exceeds the state median, the means test computations get significantly more complex. You must determine whether you have enough income left over (called "disposable income"), after paying your "allowed" monthly expenses, to pay off at least a portion of your unsecured debts (such as credit card bills). If your disposable income adds up to more than a certain amount, you fail the means test and cannot file for Chapter 7 bankruptcy.

Median income levels vary by state and household size, and each county and metropolitan region has different allowed amounts for categories of expenses: basic necessities, housing, and transportation.

Our office has been able to assist even higher income clients who have failed the first part of the means test. Please call us to schedule a free initial consultation to find out what your options are.

If You Pass the Chapter 7 Means Test

Just because you qualify under the means test does not necessarily mean you should file for Chapter 7 bankruptcy -- merely that you can. Any decision to file for Chapter 7 bankruptcy should be made only after considering alternatives.There are benefits to different chapters of the bankruptcy code which you should explore before choosing the chapter to file. Contact a professional bankruptcy lawyer today.

If You Don't Pass the Chapter 7 Means Test

If you don’t pass the means test, you may be limited to using Chapter 13 bankruptcy, which requires you to make monthly payments over a  three or five-year period according to a strict budget monitored by the court. Most people who file for bankruptcy prefer Chapter 7, which requires no repayment. However, Chapter 13 bankruptcy is still the best way to handle specific types of problems, like curing a default on a mortgage or stripping off a second mortgage.

You Previously Received a Bankruptcy Discharge

You cannot file for Chapter 7 bankruptcy if you obtained a discharge of your debts in a Chapter 7 bankruptcy case within the last eight years, or a Chapter 13 case within the last six years.

Cramdown:

- You can not cramdown under a Chapter 13 mortgages or other liens on your principal home.

- Currently, the law does not allow you to cramdown your mortgage debt

- If the amount you owe on your first mortgage is more than how much you owe on your home, and you have a second mortgage owing beyond how much you owe on your first mortgage (for example: Home is worth $300,000, you have a $320,000 first mortgage, and a $80,000 second mortgage) you can use Chapter 13 to "strip off" junior lien mortgages; once this is accomplished, this junior lien mortgage becomes a unsecured mortgage debt and does not need to be paid in full under Chapter 13

Chapter 13 Bankruptcy Overview Basics / What Is Chapter 13 Bankruptcy:

-You agree to repay all or a portion of your debts over time under the supervision of the bankruptcy court

-allows you to keep your property while using your income to repay some or all of your debts

- You can keep your property regardless of value

- you will have to repay unsecured creditors the value of the property you would lose if you filed for Chapter 7 bankruptcy

- After you complete your payment plan, your remaining debt (subject to some exceptions) are discharged (For example: You owe $250,000 in credit card debt, during the plan you paid back $50,000 of the credit card debt, once you complete your plan, the remaining $200,000 credit card debt is wiped out (aka discharged))

Chapter 13 is good for people who:

- need time to pay off certain debt

- have enough steady income to meet the requirements of Chapter 13

- if you are facing foreclosure, you can keep your home by proposing a court feasible repayment plan that includes your missed payments, as long as you are current on your mortgage payments.

- Debtors with income too high for Chapter 7 must file under Chapter 13 instead if they file for bankruptcy

Chapter 13 Repayment Plan:

- must demonstrates that you can pay your "mandatory" debts and in certain circumstances, (all or a portion) of your other debts

- 3 or 5 year repayment period

What Debts Must Be Repaid Under a Chapter 13 Bankruptcy:

- you need enough income to stay current on debts that secure collateral you want to remain current (for example if you want to keep you house, you need to stay current on the mortgage, same thing applies to a car and a car loan)

- you must pay off your back taxes, child support arrears, mortgage arrears,secured debt arrears

- total payments to your unsecured payments must be at leas equal to your non-exempt property had you filed a chapter 7 (for example: if you filed chapter 7, you would not have been able to exempt your $20,000 BMW, thus, you have to pay a total of at least $20,000 to your unsecured creditors in total during your plan.)

- you would not have to pay back all of your back child support owed during your plan if the support that you owe, is owed to a government agency rather than your ex-spouse or child

How Long is the Repayment period (payment plan) in a Chapter 13:

- 3 or 5 years (depending on your income)

- if your average monthly income in the 6 months prior to filing bankruptcy is more that the median income (determined by set government amounts), you must propose a payment plan that is for 5 years, and use standard set amounts set by the IRS to calculate your disposable income (payment plan amount)

- if your income is less than the median income, you can file Chapter 7 or 3 (subject to other requirements), but if you do file chapter 13, you may propose a 3 year payment plan and can use your actual expenses to calculate how much disposable income you will have to pay the plan.

Chapter 13 Confirmation Hearing:

- A Chapter 13 bankruptcy requires at least one court appearance before a United States Bankruptcy Judge.

- This will take place after the meeting of creditors

- The judge can confirm the plan, send you back to the drawing board to amend the plan, or dismiss the case.

- Each time the plan is amended, another confirmation hearing is to be held

- If there are any other pending motions or issues in the case, further court appearances may be required

If You Can Not Make Your Chapter 13 Plan Payment The Following May Happen:

- Convert your Chapter 13 bankruptcy to a Chapter 7

- Get a Hardship Chapter 13 bankruptcy discharge

- The case is dismissed entirely (If your case is dismissed, you will owe your creditors the balance on your debts minus your Chapter 13 plan payments, plus interest that accrued during your Chapter 13 case)