BANKRUPTCY LAW FAQ
What Is Bankruptcy?
Simply put, bankruptcy is petitioning the court to force creditors to reorganize or even "wipe out" (i.e., discharge) debt. Basically, you are asking the court to stand between you and your creditors to work out something fair. Many times creditors use heavy-handed tactics to collect money. Bankruptcy is a way to stop collection calls to your workplace, reduce interest rates, or even wipe out debt totally. It allows you to start fresh.
The irony is that when a person becomes unable to pay even the minimum payments on credit cards, for example, those credit card companies begin to charge late fees and "default rates" in excess of 30 percent. This just increases the burden which was already too large to bear, making bankruptcy almost inevitable.
Bankruptcy comes in two main flavors, Chapter 7 and Chapter 13. See below for more info about both.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a reorganization. This means that not all debt is wiped out. Depending on your situation, your interest rates will be reduced, the principal balances may be reduced, and reasonable payments will be made over time to a trustee. Essentially, your debt is reorganized by the court into something manageable to be paid over a three- to five-year period.
The uscourts.gov website calls Chapter 13 an "Individual Debt Adjustment," which is a great way to describe it. Your balances and interest rates are "adjusted" to something more affordable.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is considered a liquidation bankruptcy. In short, Chapter 7 liquidates the filer's nonexempt property, but Chapter 7 also wipes out most debts. In short, there is no repayment plan. Once discharged, a Chapter 7 bankruptcy is over.
To qualify for chapter 7, a filer must pass the so-called means test. The means test determines if your income is low enough to file Chapter 7. First, if your income is lower than the median income in Georgia, then you pass. If your income is above the median, you may still qualify, but calculations become more complex. For example, we must determine your disposable income. Your disposable income can be different depending on the size of your household.
How Do I Qualify For Chapter 7?
Again, to qualify you must pass the means test. How does that work? Well, there are two steps.
1. Does your household make less than the median income for your state? If the answer is yes, then you're done. You qualify. Here is the median income figures for Georgia:
Median Income for Georgia Residents
Filing Date One Earner Two Earners Three Earners Four Earners Before Nov 15 2013 $41,214 $51,954 $56,189 $67,214 After Nov 15 2013 $40,613 $52,610 $55,829 $68,085
2. If you make more than the median for your household, you may still be able to qualify, but here the calculations become very complex. In fact, the calculation will be different depending on the county you live in.
There are several means test calculators online, but it's always best to use the services of a professional who has daily experience with the test.
If I File Bankruptcy, Can I Keep My Car And House?
Under a Chapter 13, you are repaying a portion or all of your debts, so you will get to keep the property secured by that debt. If you have property that is owned free and clear, then you will have to compensate your creditors for the amount it is worth. So, if you own a $20,000 piece of real estate, you'll have to compensate your creditors for that over the time of your bankruptcy (e.g., three- to five-years).
Under chapter 7, you are asking the court to discharge all the debts you owe. In return, the bankruptcy trustee can take any property that is not exempt from collection, sell it, and give the money to your creditors. Property that is exempt from collection are the following:
- Some equity in your car and home
- Retirement funds like 401(k)s and IRAs
- Most household goods and clothing
What Do I Get To Keep In A Bankruptcy?
Common perception is that if you file bankruptcy, you are left with nothing. This is not true. The courts allow you to keep some property. This property is "exempt from collection."
First, bear in mind that if you file a joint bankruptcy with your spouse, you may be able to double your exemptions. Some restrictions apply, such as you may not use your vehicle exemption on your spouse's vehicle unless you are joint owners.
Here are some common bankruptcy collection exemptions:
- Homestead Exemption - $21,500 or $43,000 if you're married. This is a real or personal property exemption because up to $5,000 of this can be used for personal property. So, up to $43,000 of equity in a home can be protected.
- Automobiles - Here you only get to keep $3,500, but if you have more equity than this, you could use the unused portion of your homestead and your "wild card" exemption to cover more than the initial $3,500.
- Support - Alimony and child support are exempt from collection altogether.
- Retirement and Pensions - 401(k)s, IRAs and pensions are almost always exempt from collection except in extreme cases.
- Life Insurance Proceeds - Life insurance proceeds cannot be collected.
What Debts Cannot Be Discharged, Cleared Or Wiped Out?
First, "discharged" means wiped out. So, that discharged $5,000 credit card bill you included in the bankruptcy filing is gone. That is, you don't have to pay it anymore.
- Unscheduled Debts - Any debt you fail to list in the bankruptcy will not be discharged
- Taxes - Tax liens and tax bills
- Spousal support, child support and alimony
- Court fines and ticket fees
- Attorney fees from child support and custody cases
- Student loans with a few rare exceptions
- Debts to government entities
- Debts owed to retirement accounts like IRAs and 401(k)s
Student Loans And Bankruptcy, Can I File On Them?
Unfortunately, student loans are not dischargeable debt in most cases. They could be included if the filer can prove "extreme or undue hardship." Very few filers will be able to do this.
However, that does not mean that bankruptcy won't help. Student loans will be easier to pay once other more expensive debt has been discharged.
How Often Can A Person File Bankruptcy?
In short, bankruptcy can be filed every eight years.
How Much Does It Cost To File Bankruptcy?
Well, the processing, filing costs and credit counseling classes can be quite expensive. At The Carter Firm P.C., we accept payment plans. So, we can put you in a filing for as little as $200/month for 12 months. Easy as that!
What Happens When A Debt Is Discharged?
The word "discharged" simply means canceled. That is, you don't have to pay it anymore. Basically, a discharge is a release granted to the filer from the liability to pay certain types of debts. With a discharge, a debtor has an irrevocable order which prohibits creditors from taking any steps to collect that debt, which includes phone calls to the debtor or their work place.
However, while the debtor is released, the lien is not. So, that means the creditor must stop collecting procedures, but they may seize the property securing it. In other words, you can file on a car note but you cannot keep the car. If you wish to keep the car, you must "affirm" the debt.
When a bankruptcy is discharged, the bankruptcy is completed and approved by the court. If the bankruptcy is a Chapter 7, then it's over, but if it is Chapter 13, then your payment plan begins.
Generally, the time it takes to discharge a debt varies by the type of the filing (Chapter 7 vs. Chapter 13). For a Chapter 7, a debt is discharged once the time allowed for objections has passed (i.e., after the 341 meeting of creditors). This happens about four months after your initial filing. In a Chapter 13 filing, the discharge moment occurs after all the payments have been made to the trustee. This is in about four years.
Will Bankruptcy Affect My Credit?
Actually, Chapter 7 or 13 is the first step to repairing and maintaining your credit. If you are considering filing bankruptcy, you are probably having difficulty making credit payments on time. That may be due to a major sickness, an accident, or the loss of a job. Remember that late payments and unpaid debts will remain on your credit report for up to seven years.
While the bankruptcy will remain on your credit report for 10 years, it will enable you to begin the process of rebuilding your credit. In some cases, it may be the best choice for you and your family.
Bear in mind that repairing your credit after bankruptcy can be the beginning of a free, less stressful life. It does not have to be a depressing process, and you certainly don't have to do it alone. Give The Carter Firm P.C., a call for your free legal advice.
What Is The Means Test In Georgia?
Simply put, the means test determines your qualification for Chapter 7 bankruptcy. The means test for Chapter 7 is calculated using Form 22A. For Chapter 13, you'll need to use Form 22C. This calculation is fairly complicated, and it is different depending on the county you live in. Means testing is based on data from the IRS and the Census Bureau.
The means test compares your household income to that of the state median income. If your income, after your exemptions, is below the median, you qualify for Chapter 7. If, after exemptions, your household income is above the median, then you qualify for Chapter 13. Ultimately, we at The Carter Firm P.C., will complete and file these forms for you.
What Is The Marital Adjustment For The Means Test?
In part four of the means test, you are allowed to deduct any personal expenses your non-filing spouse uses outside of household expenses. So, the amount of income that is included in your household income is only the portion he or she contributed to the household. Examples of these income deductions are:
- Gym memberships
- Student loan payments
- Business travel expenses
- Cellphone payments
- Car payments on your non-filing spouse's car
- 401(k) loan repayments
- Child support for their noncustodial children
So, marital adjustments to household income are deductions that help you qualify for Chapter 7.
What Is The Presumption Of Abuse?
The "Presumption of Abuse" was outlined in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The purpose of this legislation was to make abusing the bankruptcy system more difficult. If a presumption of abuse should arise in a case, you can either rebut the finding or convert to a Chapter 13 and repay some debt. If it does arise in a case, it is not the end of the world, but it will possibly add time to your case.
How Can I Get A Copy Of My Filing?
At The Carter Firm P.C., we will always give you a copy of your filing. But they can also be obtained online at a site called PACER.gov (Public Access to Court Electronic Records). This website is maintained by the federal court system and all of your records should be available there.
For more information from an experienced bankruptcy attorney, call The Carter Firm P.C. at 770-287-8850 or use my online contact form.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.