Most people in today\u2019s economy establish some sort of consumer debt, whether it be the purchase of a home, the purchase of an automobile, or perhaps to buy necessary furniture.\u00a0 The use of credit cards has expanded over the past years, and now \u201cplastic money\u201d is often times used in place of cash and checks.\u00a0 Most financial difficulties occur over a period of time with the purchase of consumer goods or the overuse of credit cards, where the person buys more on time payments than he or she can actually afford to pay, after taking care of necessary living expenses.\u00a0 Likewise, periods of unemployment, lengthy illness, serious injuries, and divorce also may have caused financial difficulties.\u00a0 The ultimate result is that sooner or later, some creditors are not being properly paid, and eventually, legal collection remedies are threatened or pursued.\u00a0 While some persons are able to make satisfactory arrangements with their creditors for payment, others are ultimately faced with actual legal collection remedies such as garnishment of wages, repossession of property, and court proceedings.\u00a0 For these persons, the financial crisis has become very real.<\/p>\n
There are basically two types of bankruptcy actions available to individuals and families.\u00a0 The first is what is commonly known as a \u201cstraight bankruptcy\u201d or a Chapter 7.\u00a0 In a chapter 7 bankruptcy, any \u201cnonexempt\u201d property or assets will be sold by the Bankruptcy Trustee, with the money derived from the sale of property to be used to pay the creditors\u2019 claims.\u00a0 However, from a practical standpoint, most property owned by individuals is \u201cexempt property.\u201d\u00a0 This means that the property is exempt from attachment by the creditors, whether in or out of bankruptcy, and cannot be sold or utilized to pay creditor debts.\u00a0 Your residence, automobile, household goods and furnishings, wages, and personal effects are generally all exempt and cannot be taken by the creditors or by the Bankruptcy Trustee.<\/p>\n
In a Chapter 7 bankruptcy, most debts are discharged within approximately four to six months after the filing.\u00a0 The problem with a chapter 7 bankruptcy is two-fold.\u00a0 First, some debts are not dischargeable, which means these debts continue to exist after the bankruptcy is over.\u00a0 For example, certain tax obligations are ordinarily not dischargeable, nor are student loans, nor are child support obligations.\u00a0 Second, if a creditor has a security interest \u2013 a lien or a mortgage on property \u2013 this security interest generally survives the bankruptcy.\u00a0 The underlying debt is discharged, but if the property is not paid for, the creditor gets the property back.\u00a0 As a result, many people still end up owing money after the filing of a chapter 7 bankruptcy, in the form of tax obligations, student loans and payments on secured property (such as a home mortgage or a car loan).<\/p>\n
Under the Chapter 13, sometimes called a \u201cwage earner plan,\u201d the purpose is to attempt repayment of your bills, rather than simply canceling them out.\u00a0 Under present law, a debtor must have regular income from some source, and usually must pay a minimum of $85.00 per month for a period of three years to be eligible for this type of bankruptcy.\u00a0 However, since the facts of each case vary, oftentimes the payment will be considerably more.\u00a0 The reason for this is that any creditors to be paid, including secured creditors such as on car loans or other secured debts, are included in the one payment that is made to the Bankruptcy Trustee.\u00a0 The only exceptions to this are home mortgages on a person\u2019s residence, which continue to be paid directly to the mortgage holder, child support or alimony obligations, which are paid directly to the recipient, and car lease payments.<\/p>\n
Other considerations in determining the amount you must pay include the value of any secured property, and any tax obligations, and any nondischargeable debts, such as student loans.\u00a0 In order to complete a Chapter 13 and to keep secured property in your possession, you must pay at least the value of that property back to the secured creditor.\u00a0 For example, if you have a car loan balance of $10,000.00, with the car being worth $8,000.00, then the requirement under Chapter 13 is that you propose to pay at least $8,000.00 to the secured creditor in order to keep that automobile in your possession.\u00a0 This rule now applies only to vehicles purchased more than 910 days prior to filing bankruptcy (910 days is approximately 2 \u00bd years \u2013 if acquired within 910 days or less, the debt must be paid in full through the Plan).\u00a0 You have up to five years to pay your creditors under Chapter 13.\u00a0 If a creditor does not agree with the value which you place on the property, the Bankruptcy Judge decides what the property is worth, and you have to pay the value as decided by the Judge.<\/p>\n
In addition, there are other significant differences between the Chapter 13 and Chapter 7 bankruptcy.\u00a0 Under the Chapter 13, some debts can be discharged or eliminated, which might not be dischargeable in a Chapter 7.\u00a0 Likewise, you are in control of how much you choose to pay back, rather than the creditor dictating to you how much must be paid.\u00a0 The Chapter 13 saves you money in three ways, as follows:<\/p>\n
a)\u00a0\u00a0\u00a0 Interest on any unsecured claim, such as credit cards, stops running, and you simply pay back the principal due and owing to that creditor;<\/p>\n
b)\u00a0\u00a0\u00a0 Many consumer debts have a repayment cycle of one to three years, but under the Chapter 13, you may take up to five years to pay back any obligation.\u00a0 This type of extension would reduce the payment owed to any creditor.<\/p>\n
c)\u00a0\u00a0\u00a0 You can, if you choose, pay less than the total amount of the debt due and owing under certain rules established by the Bankruptcy Court, which will also reduce the amount which you must pay.<\/p>\n
However, you should be aware of the fact that some debts are not dischargeable in either a Chapter 7 or Chapter 13 bankruptcy, and under a Chapter 13, must be paid in full.\u00a0 Some tax debts and most child support obligations cannot be discharged, nor can student loans unless you can show what is known as \u201cundue hardship\u201d.\u00a0\u00a0 As to student loans, to seek discharge of the debt you have to file a separate proceeding in your bankruptcy against the student loan creditor.\u00a0 This is known as an \u201cadversary complaint.\u201d\u00a0\u00a0 Student loan discharge issues will be the subject of a future article on this blog.<\/p>\n
Finally, Congress amended the Bankruptcy Code in 2005 to add the concept known as \u201cmeans testing\u201d or \u201cneeds based bankruptcy.\u201d\u00a0 This rule attempts to force people who are above the median income to file a Chapter 13 and pay something back to their unsecured creditors over a period of five years.\u00a0 However, every case is different.\u00a0 Even people who earn above the median income can still file Chapter 7, depending on the outcome of the so-called means test.\u00a0 There are many deductions which can be taken in completing the means test, including support payments, retirement plan loan repayments, charitable gifts, and secured debt payments, which will result in no money being left over to pay creditors in a Chapter 13, and thus allow for the filing of a Chapter 7.<\/p>\n
I have not covered business bankruptcy filings in the article.\u00a0 Business bankruptcies are usually filed under Chapter 11.\u00a0 Farm bankruptcies are generally filed under Chapter 12.\u00a0 I will talk about those in the future.<\/p>\n
Paul Post<\/p>\n
My staff and I at the Law Office of Paul D. Post, P.A. in Topeka, Kansas, are ready to help answer your questions about bankruptcy in Kansas.\u00a0\u00a0 Call us at 785.273.1353\/800.347.1353 or use website contact form for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"
Most people in today\u2019s economy establish some sort of consumer debt, whether it be the purchase of a home, the purchase of an automobile, or perhaps to buy necessary furniture.\u00a0 The use of credit cards has expanded over the past years, and now \u201cplastic money\u201d is often times used in place of cash and checks.\u00a0 […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-41","post","type-post","status-publish","format-standard","hentry","category-bankruptcies"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/41","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/comments?post=41"}],"version-history":[{"count":5,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/41\/revisions"}],"predecessor-version":[{"id":43,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/41\/revisions\/43"}],"wp:attachment":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/media?parent=41"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/categories?post=41"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/tags?post=41"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}