Consumer Bankruptcy

A person who files for bankruptcy is called a debtor. If the debtor is an individual he or she may file Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy is also known as a liquidation bankruptcy. It gets rid of ALL of the debts of the debtor that are dischargeable. The debtor should also be cautioned that Chapter 7 liquidates ALL of his or her assets that are NOT eligible for exemption. The Chapter 7 Debtor could contact our New York Bankruptcy firm for a consultation. Persons who have assets should consult a competent bankruptcy lawyer before filing for Chapter 7 Bankruptcy.

Before filing Chapter 7 bankruptcy the debtor should also ensure that he or she is eligible to file for a Chapter 7 bankruptcy discharge. NOT everyone may be eligible for a Chapter 7 Bankruptcy.

Who May File Chapter 7 Bankruptcy

The current bankruptcy law determines who could file Chapter 7 Bankruptcy. Eligibility to file Chapter 7 Bankruptcy is based largely on the income of the debtor and the size of the debtor’s family. The income and family size threshold is determined by the State the debtor resides and is filing for Chapter 7 Bankruptcy discharge. So before filing for Chapter 7 bankruptcy the debtor should ensure that he or she falls within the guidelines for eligibility in his or her state.

However, if the bankruptcy filer’s income is above the state’s median income requirement he or she may still be able to file for Chapter 7 Bankruptcy discharge but must first do a means test to establish that he or she falls within an exception to the guidelines. The means test is a requirement that is intended to prevent debtors who have the ability to repay their creditors from obtaining Chapter 7 Bankruptcy discharge. The debtor’s ability to repay creditors is based on an assessment of his or her income for the six months immediately before the bankruptcy filing.
The means test along with the schedules of the debtor’s income and expenses also establish whether the debtor has sufficient income leftover after paying ALL of his or expenses to at least make some payment to creditors under a Chapter 13 Bankruptcy, which is more of a payment plan for a period of three to five years. Therefore, even if the debtor falls within the income and household size guidelines for his or her state he or she may still be forced to convert to Chapter 13 Bankruptcy reorganization if there is sufficient leftover income often referred to as disposable income.

Because Chapter 7 Bankruptcy also liquidates the debtor’s assets, even where a potential bankruptcy filer is qualified for Chapter 7 Bankruptcy he or she should consult a competent bankruptcy attorney to ensure that his or her assets will NOT be taken away and sold by the trustee or at least the assets the debtor would like to keep and considers valuable would be protected.

What Makes A Debtor Ineligible to File Chapter 7 Bankruptcy

There a number of reasons why a debtor may be ineligible to file for Chapter 7 Bankruptcy. You should consult a competent bankruptcy attorney to review your particular circumstances to determine whether you are ineligible for Chapter 7 Bankruptcy. Below are some factors that may make a debtor ineligible to file Chapter 7 Bankruptcy:

  • A previous debt was discharged within the past eight years under Chapter 7;
  • A previous debt was discharged within the past six years under Chapter 13;
  • Their income, expenses and debt would allow for a Chapter 13 filing;
  • The debtor attempted to defraud creditors or the bankruptcy court; or
  • The debtor failed to attend credit counseling.

An Overview of Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also referred to as the reorganization bankruptcy chapter. It allows a debtor to repay his or her debts over a period of three-five years at a rate that the debtor could afford. In Chapter 13 Bankruptcy, the debtor may also be able to avoid paying ALL of his or debts. The debtor may however, be required to repay a 100% of some categories of debts.
In Chapter 13 bankruptcy the debtor gets to keep his or her assets such as a house and or other valuable personal property. You may also be able to keep your assets in a Chapter 7 Bankruptcy, however, the debtor should note that Chapter 7 Bankruptcy is a liquidation chapter and could lead to the loss of assets. Similarly a debtor with assets should NOT conclude that because he or she has assets a Chapter 13 Bankruptcy petition must be filed instead of a Chapter 7 Bankruptcy petition.
The decision of what bankruptcy chapter to file under requires careful analysis. It is strongly recommended that consult a competent bankruptcy attorney before filing bankruptcy.

Who is Eligible to File Chapter 13 Bankruptcy

Chapter 13 bankruptcy has eligibility requirements. If a debtor does NOT satisfy the eligibility requirements the Chapter 13 bankruptcy petition may be dismissed by the court or the bankruptcy court may force the debtor to convert the Chapter 13 Bankruptcy case to a Chapter 7 Bankruptcy case if the debtor satisfies the requirements for Chapter 7 Bankruptcy.
An important consideration for Chapter 13 Bankruptcy is the disposable income of the debtor. Disposable income is a term used in bankruptcy law to refer to a situation where a debtor has excess income after paying ALL of his or bills and living expenses. It is this disposable income that is used to make payments to creditors in the Chapter 13 Bankruptcy Plan. In other words, if you do NOT have any money leftover after paying your basic living expenses, the bankruptcy court would find that there is no sense in approving you for Chapter 13 Bankruptcy because you don’t have the money to pay the creditors anyway.

Many people file bankruptcy then either have their bankruptcy case dismissed by the court or they voluntarily ask the court to dismiss their bankruptcy case. This usually happens because the debtor did NOT carefully analyze his or her situation before filing bankruptcy. It is therefore, recommended that you consult a competent bankruptcy attorney before filing bankruptcy.

The Automatic Stay

The automatic stay is one of the benefits a debtor gets from filing Chapter 7 Bankruptcy. It is an injunction that prevents creditors from taking any steps to collect the debt owed by the debtor. It is called an automatic stay because it goes into effect as soon as the debtor files the bankruptcy petition with the bankruptcy court.
The automatic stay protects a debtor and property of the estate from creditors. It means that ALL harassing telephone calls, law suits, wage garnishment, repossession of vehicles, or similar debt collection activities must stop.

After you file your chapter 7 bankruptcy petition you will be required to appear before the chapter 7 bankruptcy trustee at a meeting called the 341 meeting of creditors.