What is bankruptcy?
Bankruptcy is the most sophisticated financial planning tool available to consumers. It’s not about cheating your creditors–it’s really about being a responsible person and getting your financial act together so that you can take care of yourself and your family. The bankruptcy laws are mandated by the US Constitution for the purpose of giving people a fresh start and a second chance.
Do I have to disclose all of my assets and all of my debts?
Bankruptcy is a process of full disclosure. You are required to disclose all of your assets and all of your liabilities, as well as all of your sources of income and other benefits and your current monthly expenses. You can’t pick and choose which assets or debts
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 is the most common type of consumer bankruptcy. It is sometime referred to as “straight bankruptcy” or liquidation.
Chapter 13 is the other option for consumer debtors. Under Chapter 13, the unsecured creditors are repaid over the course of a 3 or 5 year plan.
How did the “new law” change bankruptcy law?
The new law established several new requirements for debtors. Most notably, the new law established median income levels based on family size. The median income levels establish a threshold for determining whether you can file a Chapter 7 or whether you have to file a Chapter 13. Here are the current median income levels for Saginaw County:
Household Size Median Income
5+ add $7500 per person
If you make more than the median income for your family size, you must take the means test. Depending on your situation, you can pass (or flunk) the means test and still be able to file a 7 despite your income.
In addition, the new law requires that you take a credit counseling course before you file and a financial management course before you discharge is granted. The classes can be completed online or by phone.
What is a bankruptcy exemption?
The Bankruptcy exemption allowances are the basis for your fresh start. Many peopled think that if you file bankruptcy, you lose everything. The exemptions allowances prevent you from having to live in a box under the bridge.
An exemption is a monetary (dollar amount) allowance in real and personal property that is exempt from the reach of your creditors. An exemption allowance can relate to the actual value of an asset or it can relate to accumulated equity in an asset.
Here is a list of the more common exemption allowances:
Household goods $11,525
Wild Card $1,150 of any property & up to
$10,825 Unused homestead
Tools of Trade $2,175
Life Insurance $11,525
401k, IRA $1,171,650 per person.
If you are married and you file jointly, the amounts shown below are doubled: Each spouse is entitled to a full exemption allowance for each category. When you list your property (assets), it is important to identify whether the property is held individually (by either spouse) or jointly. Property that is owned individually can only be exempted by that spouse. Jointly owned property can be exempted by either spouse.
What is the “automatic stay” and when does it go into effect?
The minute that your case is filed the “automatic stay” goes into effect. The “automatic stay” is like an injunction and it prevents your creditors from taking any action of any nature against you including phone calls or garnishments – everything stops. Any creditor that violates the automatic stay is subject to a contempt sanction by the bankruptcy court.
What does the trustee do?
When your case is filed, a Trustee is appointed to oversee your case. The Trustee stands in the shoes of your creditors and makes sure that all of your paperwork is accurate. The Trustee is entitled to seize any nonexempt assets for the benefit of your creditors.
The Trustee also presides over your “341 Hearing” or the first meeting of creditors. In most cases, this is the only hearing that you will have to attend. It is scheduled within 20 to 40 days after your case is filed. Although you are sworn under oath and your testimony is recorded, the hearing is informal. The Trustee asks you a standard list of question and it usually takes about 5 to 10 minutes.
What is a 341 hearing?
You participate in a 341 hearing for both Chapter 7 and for Chapter 13. After the 341 hearing in a Chapter 7, the Trustee issues a report no assets (beyond those that you have exempted) and your discharge is entered within the next 60 to 90 days. Most Chapter 7’s are completed in 120 days or less.
How is a Chapter 13 different from a Chapter 7?
A Chapter 13 involves several more steps. After the 341 hearing, a plan confirmation hearing is scheduled. In addition to filing a petition and scheduled and statements (just like in a Chapter 7) you have to file a Plan which tells how much you are going to pay into plan on a monthly basis. The Plan also addresses how you will catch up on a mortgage or auto loan arrearage. The Plan will last from 36 to 60 months – and a Chapter 13 can always be converted into a Chapter 7.
Why would I have to file a Chapter 13?
You may have to file a Chapter 13 if any of the following apply to you:
1. You earn more than the median income.
2. You have non-exempt assets that you want to protect.
3. You have an undersecured second mortgage and you want to strip off that second mortgage – your house value has decreased and your first mortgage balance is greater than the value – your second mortgage is undersecured and can be stripped off or discharged.
4. You have a car loan on a car that is worth less than the loan and you want to cram down the loan balance to be equal with the value of the car.
5. You are behind on your mortgage and/or real property taxes and you want to catch up on the payments.
6. You have want to discharge property settlement provisions that resulted from your divorce.
7. You have large 401k loans that you want to repay.
How often can you file for bankruptcy?
You can file a Chapter 7 every 8 years and a Chapter 13 every 6 years. You can file a Chapter 13 anytime after you file a Chapter 7 but it must be at least 4 years in order for you to qualify for a discharge.
I look forward to helping you understand how the bankruptcy laws can be used to help you get a fresh start and live the life you deserve.
Attorney Mike Shovan
5090 State Street
Saginaw MI 48603