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Bankruptcy

What is a Chapter 7 Bankruptcy?

The United States Bankruptcy Code provides different options for individuals and businesses struggling to pay their debts. Many debtors, particularly those with limited income and few assets, are eligible to wipe out much (or all) of their debts.

That option is known as “debt liquidation” and is available under Chapter 7 of the Bankruptcy Code. Chapter 7 is intended to give a fresh start to people who have no realistic opportunity to pay their debts.

Lawyer

Who is eligible for a Chapter 7?

Chapter 7 Bankruptcy relief is available to both businesses and people. If you are married, you can file jointly with your spouse, or you can file individually. 

In order to determine whether you are eligible to file a Chapter 7, we are required to perform a Means Test to determine your current monthly income. 

If your current monthly income is lower than Kansas’ median income for a household of your size, you will most likely be eligible to file a Chapter 7. 

If your current monthly income exceeds Kansas’ median income, we perform additional calculations to determine whether you qualify for a Chapter 7 Bankruptcy.

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What are the benefits of a Chapter 7

Chapter 7 completely eliminates certain kinds of debt. After the bankruptcy procedures are completed, the bankruptcy court grants you a “discharge” of those debts. In other words, the debt is wiped out and you no longer have any obligation to pay those debts and the creditor no longer has the right to ask you for payment.

An immediate benefit of a Chapter 7 is the “automatic stay” that takes effect as soon as the bankruptcy petition is filed with the court.The stay stops all collection activity (including garnishments) and prevents creditors from collecting the debt while the bankruptcy is pending. 

The creditor can no longer send threatening letters to you, or make harassing telephone calls – they must contact our office instead of contacting you. 

If the debt has been referred to a collection agency, the collection agency must cease its efforts to collect the debt. The creditor cannot file a lawsuit to collect the debt and any lawsuit that has already been filed (including foreclosures and repossessions) must be put on hold until the bankruptcy court takes further action.

If you can discharge most or all of your debt, a Chapter 7 is probably best for you. Even if you have some debts that can’t be discharged, wiping out the majority of your debt with Chapter 7 will free up income that you can use to pay your nondischargeable debts. 

For eligible individuals who want to free themselves from debt problems quickly, and for those who do not want to commit themselves to a long-term debt repayment plan, Chapter 7 is usually the solution.


Papers

What debts can be discharged in a Chapter 7?

Most unsecured debts can be discharged in a Chapter 7. Unsecured debts include credit cards, medical bills, most judgments, personal loans, signature loans, payday loans, repossessions, foreclosures, past leases, past utility bills, and bad checks (though you still might have criminal liability). 

However, some unsecured debts will not be discharged in a bankruptcy. The most common of these include most taxes, alimony and child support, student loans, and government fines.

Secured debts are debts that are protected by a security interest, such as a mortgage or deed of trust on a house, a lien on a car, or some other form of pledge of collateral. Secured debts may or may not be discharged, depending on what you choose to do. 

If you want to keep the property that is secured by the debt, you must continue to make your monthly payments. Nothing really changes with your payments – generally you’ll make your payments on the same date as usual, to the same place and in the same amount. 

If you fail to make your payments the creditor will be able to foreclose upon or repossess the property. However, you also have the option of giving the property back to the creditor and then discharging any debt that may be left.

Property

What happens to property in a Chapter 7?

In a Chapter 7 property is classified as either exempt, or non-exempt. Exempt property is property the law allows you to keep. Usually this consists of your home, one vehicle per debtor, your household items, furniture, personal belongings, jewelry, tools of the trade, and any Qualified retirement. 

Some of these items may be limited as to the value of the exemption and some exemptions may not apply to you if you have recently moved to Kansas from another state. 

Non-exempt property is property the Trustee (who is an attorney appointed to look out for the creditors’ interest) could require you to turn over so that it can be sold to pay some of your creditors. 

There are many types of non-exempt property, but the most common include, but aren’t limited to, extra vehicles, boats, motorcycles (if this isn’t your main form of transportation) jet skis, four-wheelers, campers, trailers, guns, and any money owed to you at the time you file the bankruptcy.

However, even though these types of property may be non-exempt, it doesn’t necessarily mean that you won’t be able to keep them. Many clients file a Chapter 7 and are able to keep non-exempt property. Your specific situation will determine how non-exempt property is handled.

Bankruptcy

What is a Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is often referred to as “debt reorganization”. If you file a Chapter 13 you will be in the bankruptcy for a minimum of three years, and a maximum of five years, depending on your specific situation.
You will be required to make a monthly payment to the Trustee to repay some, or all, of your debt. The amount of your payment will depend on your specific situation as well, and this payment is called your Plan payment. 

If you are not required to pay back a portion of your debt, that debt will be discharged at the end of your Chapter 13 Bankruptcy.

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Who is eligible for a Chapter 13?

Some people cannot file a Chapter 7 Bankruptcy because the Means Test determined their income was too high to qualify. Debtors who do not qualify for a Chapter 7 generally file under Chapter 13 if they want bankruptcy relief. 

However, not all debtors can file under Chapter 13. Since you will be required to make monthly Plan payments to the bankruptcy Trustee, you need to have a regular source of income. 

To qualify for Chapter 13, you must have enough income to pay your monthly expenses and your monthly Plan payment. If your income is not sufficient to make these payments you will not be allowed to proceed with a Chapter 13 Bankruptcy.

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What are the benefits of a Chapter 13?

A Chapter 13 Bankruptcy has significant advantages for certain debtors. These include:
  • Repayment of nondischargeable debts. Some kinds of debt (including student loans and most taxes) generally cannot be discharged in a Chapter 7 Bankruptcy. If you are not able to work out payment arrangements with these creditors, a Chapter 13 will allow you to repay those debts over a period of years.
  • Avoiding foreclosure or repossession. If you fall behind on your mortgage payments or car loan and are facing foreclosure or repossession, a Chapter 7 Bankruptcy might not help you keep your house or car. A Chapter 13 Plan can put collection efforts on hold to give you a chance to make up missing payments and keep your house or vehicle.
  • Protecting co-borrowers. If someone co-signed a loan that you discharge under Chapter 7, your co-debtor can usually be held responsible for the balance of the loan. In a Chapter 13 you can prevent the creditor from pursuing your cosigner for repayment of the loan by adding the loan payment to your monthly Plan payment.
  • Repaying debts that are important to you. Sometimes debtors don’t want to wipe out certain debts. They like to know that they have made their best effort to pay their debts, particularly if they owe money to friends, family members, or businesses with which they want to maintain a good relationship. Depending on the situation, these types of debts might be able to be added to the Plan so that provisions are made to pay back these creditors.

Medical bankruptcy

What is Medical Bankruptcy?

Although people often use the term “Medical Bankruptcy” when referring to discharging medical debt in a Bankruptcy, this is simply a made up term. There is no such term as Medical Bankruptcy within the United States Bankruptcy Code.

However, you can usually discharge medical debt in a bankruptcy. A Chapter 7 Bankruptcy generally discharges all medical debt, and a Chapter 13 Bankruptcy can discharge some, or all, medical debt. If you have significant medical debt that you can’t pay and need relief contact us to discuss your options and determine the best solution.

Bankruptcy filing

How often can I file Bankruptcy?

If you have already been granted a bankruptcy discharge, you cannot immediately file another bankruptcy and receive another discharge. How long you must wait before receiving a second bankruptcy discharge depends upon the type of discharge you received in your first case. 
If you initially filed a Chapter 7 Bankruptcy and received a discharge, you must wait 8 years from the date you filed that Chapter 7 until you can file a new Chapter 7 and receive a discharge. 

However, you could file a Chapter 13 four years from the date you filed the initial Chapter 7, and you would then be eligible to discharge all appropriate debts. 

If you initially filed a Chapter 13 Bankruptcy and received a discharge, you must wait 2 years from the date you filed that Chapter 13 until you can file a new Chapter 13 and receive a discharge. 

Or, if you want to file a Chapter 7 Bankruptcy after you received a discharge in your initial Chapter 13, usually you must wait 6 years until you can file a Chapter 7 and receive a discharge. 

However, an exception to the 6 year waiting period for filing a Chapter 7 applies if you paid all of your unsecured creditors in full during your initial Chapter 13, or if you paid 70 percent of your debt in the initial Chapter 13 and the court concludes that you made your best effort to pay your creditors. 

If you are thinking about filing a Chapter 7 Bankruptcy after receiving a Chapter 13 discharge, you should contact us to make certain that you are filing on a date that will entitle you to a new discharge. 

If you filed a Chapter 7 or Chapter 13 Bankruptcy and it was dismissed before you were granted a discharge, you can usually refile a Chapter 7 or Chapter 13 at any time. 

However, there are certain exceptions to this rule that depend upon the reason for the dismissal, so you should contact us to discuss the specifics of your case and determine what options you may have.

If you filed a Chapter 7 or Chapter 13 Bankruptcy and the court denied a discharge, you can generally refile a Chapter 7 or Chapter 13 at any time, but you usually cannot receive a discharge of debts that you listed in the first petition. 

Again, you should contact us to discuss the specifics of your case and determine what options you may have.

Counseling

What two classes must I take for Bankruptcy?

Within 180 days prior to the date you file bankruptcy, you are required to obtain credit counseling from an approved provider. You can take the class online, over the phone, or in person. The charge for the class is $15, and it will take you about an hour. 

You will receive a Credit Counseling Certificate when you complete the course and this Certificate MUST be filed with your bankruptcy. We will provide you information on where to take this class. 

In addition to credit counseling, you are required to complete a personal financial management course. You do not need to take the course before filing bankruptcy but you must complete it within 60 days of your first meeting of creditors in a Chapter 7 Bankruptcy, or before making your last Plan payment in a Chapter 13 Bankruptcy. 

The charge for this class is also $10. You will receive a Financial Management Certificate when you complete the course and this Certificate MUST be filed in order to have your debts discharged. We will provide you information on where to take this class.

Court

Will I have to go to court?

Everyone who files a bankruptcy must attend a hearing, called the First Meeting of Creditors (your creditors are entitled to attend the meeting and to ask you questions, but that rarely happens). Your attorney will be with you at this meeting.

The meeting will take place in whichever city you filed your bankruptcy in, Wichita, Topeka, or Kansas City. This meeting is typically held about 30 days after your bankruptcy is filed, so you should have plenty of advance notice in order to make arrangements to attend the meeting. 

The meeting is conducted by a bankruptcy trustee, not a judge. The meeting takes place in a conference room, not a courtroom. This meeting is informal, and most of the time it lasts only a few minutes. 

However, there are usually several people scheduled for their meeting during the same time yours is scheduled, so you could spend some time waiting for your case to be called. If you fail to attend the meeting, your case will probably be dismissed.

Credit card

How will a Bankruptcy affect my credit score?

If you have a high credit score, filing bankruptcy may cause your score to drop shortly after the filing, but if you continue to pay your bills on time after the bankruptcy is filed your score should rebound relatively soon.
Most people that are in a position to file bankruptcy have a low credit score. If you’ve:

  • Missed payments
  • Been consistently late on payments
  • Are making only the minimum monthly payments on your credit cards
  • Have reached the maximum limit on your credit cards or home equity line of credit
  • Have been turned down for loans or credit cards

Or if your debt is high compared to the value of the assets you own your credit score has already been damaged. In the short term filing bankruptcy might make a poor credit score slightly worse, but in the long term, your improved ability to pay debts as they arise should result in an improved credit score. 

However, if you continue to struggle with debt, your credit score will never improve. The fresh start that a bankruptcy offers will help you rehabilitate your credit score, assuming that you use credit wisely and responsibly after you receive your bankruptcy discharge.

Credit score

Will I be able to get credit after a Bankruptcy?

Whether you can obtain credit after receiving a bankruptcy discharge depends upon the creditor. Every creditor has their own criteria as to who they will lend money to.

Many debtors receive multiple offers for credit cards after receiving a bankruptcy discharge because credit card companies know they are protected from another bankruptcy filing for several years.

You might also be able to get an easy car loan after your discharge, but it may be from a subprime lender whose interest rates may be higher than a bank or credit union. 

Other creditors, like your local bank, might be willing to extend credit to you on their usual terms, particularly if the loan is secured by a mortgage or a lien on property that you are using the loan to purchase.

There are minimum waiting periods for certain kinds of loans. You cannot receive an FHA-insured mortgage loan until one year after a Chapter 13 discharge or two years after a Chapter 7 discharge.

Utility

Will my utility services be affected?

The Bankruptcy Code prevents utilities from disconnecting your service or refusing to provide service just because you filed bankruptcy.

Utilities

Can Bankruptcy stop disconnection of utilities?

If you are behind on utility payments and you have received notice that your gas, electricity, or water is scheduled to be shut off, filing a bankruptcy will prevent the disconnection of your service.

You will be able to discharge any debt you owed to the utility company at the time you filed bankruptcy. However, after your bankruptcy is filed the utility company may require you to pay a new deposit in order to continue receiving service.

Signing

What is the effect of Bankruptcy on a cosigner?

Chapter 7

Filing a Chapter 7 Bankruptcy will not protect your cosigner. The automatic stay that goes into effect when you file your Chapter 7 Bankruptcy prevents your creditors from collecting debts from you, but it does not prevent a creditor from collecting a debt from your cosigner.

A discharge of a debt under Chapter 7 eliminates your obligation to pay that debt, but it does not affect the agreement that your cosigner made to pay that debt. 

If you choose to, you can voluntarily pay a debt back if you don’t want your cosigner stuck with that debt, but you can’t be forced to pay back the debt.

Chapter 13

A Chapter 13 Bankruptcy may offer more protection for your cosigner. Generally, a Chapter 13 prevents your creditors from pursuing cosigners to collect your debt. 

This gives you a chance to repay the debt through your Chapter 13 Plan. As long as you pay that debt in full by the time your Chapter 13 discharge is granted, your cosigner will continue to be protected from collection efforts. 

There are some exceptions to this protection, so contact us if you have specific questions regarding this issue.


Student loan

Can Bankruptcy erase student loan debt?

The short answer is “almost never.” The Bankruptcy Court has the authority to grant a “hardship discharge” of student loans, but that authority is rarely exercised. It is not likely, so don’t count on it.

Child support

Can Bankruptcy erase past due child support?

No. There are no circumstances in which past due child support can ever be discharged in a bankruptcy.

Bankruptcy

Can I be discriminated against for filing Bankruptcy?

People sometimes worry that businesses, government agencies, landlords, or employers will discriminate against them if they file bankruptcy. Whether that can happen depends upon the nature of the business or entity.

Government Agencies

Government agencies are prohibited from discriminating against you because you filed a bankruptcy.

You cannot be denied or evicted from public housing simply because you filed bankruptcy. Social security, public assistance benefits, veteran’s benefits, and other benefit payments from federal, state, or local governments cannot be denied or terminated because of a bankruptcy filing.

You cannot be denied licenses issued by the government because you filed bankruptcy. Bankruptcy cannot be used as a reason to exclude you from participation in government funded programs or to deny you the opportunity to bid on a government contract or to be hired for government employment.

State universities and public schools cannot deny you enrollment or withhold transcripts because of a bankruptcy.The government must treat a discharge of a debt you owe to the government as if the debt had been fully paid.

For instance, if your driver’s license was suspended because of an unpaid debt that was discharged in bankruptcy, your license must be reinstated after a discharge of that debt if full payment of the debt would entitle you to reinstatement.

Private Businesses

As a general rule, no private business is required to do business with you, whether or not you filed bankruptcy. Your filing of a bankruptcy does not impose any duty on a business to accept you as a customer, and businesses can take your bankruptcy into account when they decide whether to serve you in the future.

Landlords

Private landlords often run a credit check of prospective tenants to determine whether the tenants are likely to pay their rent. Your bankruptcy will probably appear on your credit report. 

If a landlord informs you that a credit check is part of the application process, it is usually best to tell the landlord about your bankruptcy and to explain that you are able to pay your rent because you are no longer burdened by other debt.

You might also want to remind the landlord that you cannot file another bankruptcy for a period of years, so the landlord does not need to worry that delinquent rent payments will be discharged in a new bankruptcy. 

Although a private landlord could deny your rental application because you filed bankruptcy, many of our clients successfully rent apartments/houses after they have filed bankruptcy.

Employers

Whether you have government or private employment, you cannot be fired, demoted, or given a reduction in pay or responsibilities because you filed bankruptcy. 

If you are applying for a job, bankruptcy cannot be used as a reason for government employers to deny you employment. Private employers cannot use it as the sole reason to deny you employment.

Bankruptcy

Is Bankruptcy better than debt settlement?

In most cases, Yes, Bankruptcy is much better for you than debt settlement. Although you may think debt settlement is the right thing for you, and the best thing to do, it’s probably neither.
There are many reasons why most people should avoid debt settlement – here are some of the most significant: 

Debt settlement companies are not regulated or licensed – there is no person, organization, or government entity that oversees these companies and makes sure they are legitimate, ethical, and legal. Many debt settlement companies are scams. 

Consumers often report fraud and mistreatment when dealing with these companies. Some of the debt settlement companies that advertise on television and the internet are not even licensed to do business in Kansas. 

Attorneys are licensed by the state, and must be registered with the state and in good standing to practice law. Attorneys are governed by, and must comply with, laws and rules of ethics, and they are highly regulated by state agencies. 

Most debt settlement companies charge significantly more for their fees than the cost of a Bankruptcy. Unfortunately, not only will you have to pay their fees, but you will also need to repay most, if not all, of your debt, causing yourself financial hardship and added stress for several years. 

Most debt settlement plans require 5 to 7 years of monthly payments before the debt is settled. 

During this period creditors may still make negative reports to the credit bureaus, making it unlikely that you will be able to improve your credit score for several years. When a Bankruptcy is filed creditors are prohibited from reporting your negative credit, and your score can improve as soon as you receive a discharge. 

In other words, Bankruptcy can begin to fix your credit immediately after discharge, whereas it will be years before your credit is repaired with debt settlement. 

If you successfully complete a debt settlement program and you wipe out a portion of your debt, it is likely that you will be required to pay taxes on the portion of the debt you wiped out – most debt settlement companies hide this fact from you.

You will not be required to pay taxes on any debt you discharge in a Bankruptcy. Generally only credit card debt is handled by debt settlement companies. 

This means that you will still have to deal with creditors on other types of debt, you may still have to go to court, and you will still pay debts for medical bills, payday loans, signature loans, personal loans, judgments, repossessions, foreclosures, past leases, past utilities, and other types of unsecured obligations.

Your wages and bank accounts can also be garnished for these types of debts while you’re in a debt settlement program. Bankruptcy will discharge all of these types of debts. 

This means you will no longer owe these types of debts, you will no longer be required to appear in court regarding these debts, and your wages and bank accounts cannot be garnished because of these debts. 

Credit card companies are not required to agree to debt settlement. They can choose not to participate, and many make this choice. This means that although you have agreed to some type of debt settlement payment plan, some of your credit card debts may not be included in that payment plan, and you will be required to make monthly payments to those companies in addition to your payment plan. All credit card debt must be included in a Bankruptcy. Credit card companies do not have an option to avoid Bankruptcy.
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