Tackling Bankruptcy in Arkansas
Declaring bankruptcy sounds like a scary concept, but it’s an excellent solution if you’re suffering from severe debt.
Filing for bankruptcy often happens after a person suffers serious debt from life events such as illness, divorce, foreclosure, job loss, repossession, garnishment, or a lawsuit.
The issue is that debt can pile on quickly, and unfortunately, it’s often quicker than people can afford to pay in times of crisis. This leaves people in a vulnerable position where they fear making monthly payments and wonder how they’ll ever be financially secure again. Severe cases of debt can result in repossession and foreclosure.
In a situation like this, a person might start considering solutions to get out of debt, like bankruptcy. It’s often the most viable option, and we want to eliminate any negative perceptions you may have with this valuable debt management tool.
What Is Bankruptcy?
Bankruptcy is when you owe more than you can pay. It’s important to note that not everybody who is in debt is bankrupt: there has to be a significant difference in what you’re paying and what you owe.
The concept of bankruptcy is not as awful as it may sound. Although it’s not something to be taken lightly, it is a solution that allows people to get out of debt while also treating creditors fairly. It can help solve many problems if you are suffering from immense amounts of debt.
Should I File For Bankruptcy?
Living in debt is something most people experience, but there’s a line between making monthly payments and drowning from those payments. If you’re fearful of how much debt you owe and are considering filing voluntarily, start by asking these questions:
- Do you only make minimum payments?
- Are bill collectors frequently calling you?
- Do you use credit cards to pay for necessities?
- Have you lost track of how much you owe?
If you answered “yes” to these questions, then it’s time to reevaluate your financial situation. It might also be time to consult with a lawyer who can help you navigate through declaring bankruptcy.
Bankruptcy can be filed in one of two ways: you can voluntarily file, or creditors will ask the court to order you as bankrupt. It’s always best to come forward and acknowledge the situation you’re in, and to do so you need to understand the four types of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation or straight bankruptcy, is one of the most common forms because it offers a fresh start.
Liquidation bankruptcy is a popular option for personal debt because it helps wipe out debts like credit cards, medical bills, and personal loans, but without a repayment plan. Typically, this method lasts from four to six months.
This is how it works: in exchange for wiping out your existing debt, you must agree that a trustee — such as your lawyer — can take and sell some of your assets to help pay back the debt. It is essentially a form of collateral so you can prove to creditors that you’re working on paying them back as much as possible.
The good news is that you can keep necessary assets so you can continue working and maintain your home, such as household furniture, clothing, and your vehicle. Of course, the specifics vary from case to case, but this is what you can typically expect.
However, liquidation bankruptcy won’t discharge debt like child or spousal support, income taxes, injury or wrongful death lawsuits, or student loan debt.
A chapter 7 bankruptcy case does not involve having to repay all of your debts. Instead, the bankruptcy trustee gathers and sells your nonexempt assets and uses the money from those assets to pay people you owe money to. In addition, the Bankruptcy Code and Arkansas Law will allow you to keep certain “exempt” property. However, the trustee will liquidate any nonexempt property you have.
Who is eligible for Chapter 7 Bankruptcy in Arkansas? The answer is simple: Regardless of if you live in North Little Rock, Conway, Cabot, Bryant, or even Fayetteville, you are not subject to the means test (and can file for Chapter 7 Bankruptcy) if you make less than the amounts below.
(Arkansas Median Income for Family Size as of November 1, 2017)
$43,2301 Person Family
$53,9462 Person Family
$58,2583 Person Family
$74,0864 Person Family
$83,0865 Person Family
$92,0866 Person Family
$101,0867 Person Family
$110,0868 Person Family
$119,0869 Person Family
$128,08610 Person Family
If your household income is above the number above, you can still file Chapter 7 bankruptcy here in Arkansas, if you pass the means test.
An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or if the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may file for bankruptcy under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no liability for discharged debts. That simply means that once the bankruptcy court has granted a discharge of your debts, you are no longer responsible for paying them. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as reorganization or wage-earner bankruptcy, is another common form that is ideal for those who have property they want to keep. This method helps reorganize debt for those earning an income. Most people use this method to catch up on past-due house and car payments to avoid repossession or foreclosure.
Here’s how it works: when filing for Chapter 13 bankruptcy, you can keep all your property, but you must pay creditors the value of any nonexempt assets as part of a three- to five-year payment plan. To qualify, you must have a reliable source of income to repay some portion of the debt.
Bottom line, Chapter 13 Bankruptcy helps people with regular income to create a plan to repay all or part of their debts. If you are reaffirming debt in a Chapter 7, then your payment in a Chapter 13 may not be more than a Chapter 7, in fact it may be less.
What will my payment be under a Chapter 13 bankruptcy payment plan?
This depends on several issues:
- What secured property (property they can take away if you don’t pay for it – houses and cars) do you want to keep and pay for? In the case of secured property there are two major options:
- Surrender the property back to the creditor and not pay anything;
- Keep and pay for the property, and if it was purchased recently you have to pay the balance due plus interest, but you can lower the interest rate, or if you purchased a while ago (910 days for cars and 1 year for household goods), you only have to pay what you owe or what it is worth, whichever is less.
- With a house payment, there are three options:
- If the payments are current, continue to pay it yourself and don’t pay it through the Chapter 13 plan; or
- Make the regular monthly payment through the plan, and if you are behind on the payment, catch up the payments in the plan. This way when the bankruptcy is over, you will be current and pick up and pay the normal monthly payment; or
- Pay the balance in full within the plan.
- What is your Plan Length? The length of your plan can be a minimum of 36 months (3 years) and a maximum of 60 months (5 years). If you do not pass the means test and you are not paying everyone back in full, then the plan has to be 5 years.
- The calculation of your disposable income. Under the bankruptcy code your disposable income (how much money is left after you pay all of your necessary monthly bills) will be calculated, and you will have to pay at least that amount towards bankruptcy most of the time. There are exceptions. Also, courts typically allow debtors to keep an amount of money every month for entertainment purposes. Filing Chapter 13 bankruptcy does not mean you have to live like a pauper for the next five years.
- What priority debts do you have? Priority debts are things such as taxes, wages owed to others, alimony, and child support. All priority debts, except child support, must be paid in full within the life of the plan. All priority debts will be paid through the plan except child support. You will continue to pay child support however you are directed to do so by the court.
- What non-dischargeable debt do you have to repay? Non-dischargeable debt can include student loans, punitive damages, judgements based on fraud, etc. Student loans are the most common.
- Remember, any unpaid amount plus interest and any collection fees will be due after you get out of Bankruptcy. You have two options:
- Ignore the student loan and pay nothing through the plan; or
- Pay your normal monthly payment and catch up what you are behind.
- Remember, any unpaid amount plus interest and any collection fees will be due after you get out of Bankruptcy. You have two options:
- What leased property do you want to keep and pay for? More often than not, lease-purchases are not financially wise transactions. If you have leased property, you have three (3) options:
- Reject the lease and let the creditor have the property back and pay them nothing;
- Accept the lease contract as written, and continue to pay them directly, not through the plan, if your payments are current; and
- Accept the lease contract as written, and pay it through the plan, and if you are behind on payments, catch those payments up through the plan.
- What debts do you owe jointly with other people who are not filing bankruptcy? You have two options:
- Pay nothing towards the obligation and let the responsibility fall on the co-debtor or person who jointly owes the debt.
- Pay the debt in full inside the plan so your co-debtor does not have to pay.
- What non-exempt property must you pay the value of? If you own property that is not exempt, then you will pay the value of the property to the Trustee. If you file a Chapter 7, this property would be taken as well as sold by the trustee to pay your debts.
Why should I file Chapter 13 if I qualify for Chapter 7?
If you are behind on your payments and you want to keep that property, then you need to file Chapter 13 instead of Chapter 7. Chapter 13 lets you stop foreclosures and repossessions, and lets you catch up on your payments. If your car was recently repossessed, then you can get it back.
Chapter 13 may save you money. Sometimes you can lower the amount you owe on your car if you purchased the care more than 910 days before you file bankruptcy. Also, you can lower your interest rate on your loan.
What if you don’t have the money to pay a bankruptcy lawyer? A Chapter 13 is cheaper to file. When you file a Chapter 13, you make your payment to the bankruptcy trustee and they pay your lawyer fees.
What does an Arkansas Bankruptcy Cost?
There are several parts to the price of a bankruptcy: 1) Attorney’s Fees, 2) Filing Fees, 3) Bankruptcy Courses, and 4) maybe a Credit Report. The biggest issue with filing a case is someone coming up with the filing fee ($335 for Chapter 7 and $310 for Chapter 13). We can filing an motion on your behalf to pay the filing fee in installment. This can give you up to 4 months to pay the filing fee. No attorney’s fees can be paid before your filing fee, so any money paid to the attorney will be used the pay the filing fee.
Chapter 7 | Zero Money Down: When you need to file a Chapter 7 bankruptcy quickly but you do not have the money, we can help. We can accomplish this by filing an motion to pay the Chapter 7 filing fee in installments and filing an emergency petition. This will stop the creditors from calling and we have 14 days to gather all the necessary information and file a complete bankruptcy petition. This works because we break our services into two parts, the emergency filing which we do not charge for, and the post-emergency filing, which we offer payment plans to help with the cost. In order to do this, you need to qualify for a payment plan or have someone provide a guarantee for your payment plan. The payments are normally between $40 and $75 a week.
Chapter 13 | Zero Money Down: If you are behind on assets you want to keep or are above median income, you may have to file a Chapter 13 bankruptcy. We can file a motion to pay your Chapter 13 filing fee in installments and filing your Chapter 13 petition. You will have four months to pay your filing fee the Court. The attorneys fee for a Chapter 13 case is typically paid by the trustee, so you make your Chapter 13 payment and from that payment the Chapter 13 Trustee pays the attorney’s fee.
If you are curious about whether you should choose Chapter 7 bankruptcy or Chapter 13 bankruptcy, you can read about the differences here.
Brandon Haubert is an experienced bankruptcy lawyer in Little Rock.
Can I get a free consultation to discuss bankruptcy?
Yes. At wh Law | We Help, we offer free bankruptcy consultations. There is no cost to you for the consultation and you don’t have to file bankruptcy. We will simply evaluate your financial situation and determine if bankruptcy is the right for you. During a consultation with our law firm, our attorneys will be able to determine which chapter is right for you. (Chapter 7, Chapter 9, Chapter 11, Chapter 12, or Chapter 13). We will also let you know what it will cost to file and how much the bankruptcy is going to cost. You can set up a free bankruptcy consultation by calling us at 501.891.6000 or you can fill out our consultation request.
What is bankruptcy?
For most people, it is a legal process designed to help those who cannot pay their bills receive a fresh financial start, either by discharging debt through Chapter 7, through which many debts are wiped clean through a process that lasts only a few months, or through the completion of a “repayment” plan under Chapter 13 of the Bankruptcy Code, which lasts between three (3) to five (5) years.
When a bankruptcy petition is filed the “automatic stay” provision of the Bankruptcy Code prohibits your creditors from contacting you to try to collect money from you – at least until your debts are sorted out according to law, which assigns different debts specific classifications of priority by which most creditors are bound. The automatic stay that stops all lawsuits, foreclosures, garnishments, and other collection activity from the moment a bankruptcy petition is filed.
Who can file for bankruptcy?
The Bankruptcy Code permits any qualified person, partnership, corporation or business trust to file a case. If the debtor (person or entity who owes the money) files a petition to start the bankruptcy, it is a “voluntary” bankruptcy. If the creditors (people or entities to whom the money is owed) file a petition against a debtor to start the bankruptcy, it is an “involuntary bankruptcy.” When an involuntary case is filed, the debtor must contest the bankruptcy case within a certain time period to oppose the bankruptcy. Only married persons can file a joint petition; unmarried persons, corporations and partnerships must file separate cases. An individual with a business may not file a joint petition, but must instead file separate cases.
What does bankruptcy cost?
Your cost to file may vary depending on the Chapter you file under for bankruptcy relief, your financial circumstances, and the complexity of your case. The Cost with consist of fees to pay and the attorney’s fees for bankruptcy.
Currently, the filing fee charged by the court to file a Chapter 7 bankruptcy case is $335, whether you are filing individually or with your spouse. For an individual, the cost of the courses and credit reports are $57 total. This is the typical cost, although different cases can have different costs.
Under Chapter 13, the initial fee to file includes $310 that is paid to the Court to open the case, plus an additional $57 for the required classes and a comprehensive copy of your credit report.
Under certain circumstances, the Court may allow you to pay the filing fees ($335 or $310) in installments if you are unable to pay them all at once. Talk to us about whether an installment plan for filing fees is a good option for you. For additional information, please visit the U.S. bankruptcy court’s website.
Attorney’s Fees: Attorney’s fees are determined based on the individual circumstances of each Chapter 7 case and may vary depending on the existence of judgments, previous garnishment efforts, whether there are secured debts that the client wishes to reaffirm, etc. At wh Law | We Help, , our bankruptcy fees start at $500.00
What are the different “chapters”?
wh Law | We Help, , services all customers:
Chapter 7 — Liquidation Bankruptcy
Chapter 7 is the liquidation chapter of the Bankruptcy Code, and cases filed under Chapter 7 are commonly referred to as liquidation cases. This is what people commonly do when all their debt is gone when they complete the bankruptcy and they do not have to make payments. Chapter 7 requires a you to give up property which exceeds certain limits (“exemptions”) so the property can be sold or liquidated by the appointed Chapter 7 Trustee to pay creditors, and to keep property and avoid liquidation to pay unsecured creditors. In other words, “liquidation” is the sale of a debtor’s property for the purpose of distributing the sales proceeds to the debtor’s creditors. Potential debtors should realize that the filing of a petition under Chapter 7 may result in the loss of property.
Chapter 13 — Debt Repayment
Also known as a payment plan form of bankruptcy, Chapter 13 is the debt repayment chapter. In a Chapter 13 case, debtors may keep their property by repaying creditors over the life of a plan that may extend from 36 to 60 months. The length of the plan may be fixed by law, depending on the debtor’s income. When a debtor files Chapter 13, the debtor proposes to make monthly payments to a Chapter 13 Trustee, who in turn disburses funds to various creditors according to the Plan, once the Plan has been approved by the Court. Upon completion of the payment plan, most debts are discharged.
Chapters 9, 11, and 12
Other types of bankruptcy are set forth under Chapter 9, 11, and 12 and include:
Chapter 9 (“Municipal or Governmental Bankruptcy”) is only for municipalities and governmental units, such as schools, water districts and similar entities.
Chapter 11 (“Reorganization Bankruptcy”) this chapter generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. The plan of reorganization which must be approved by the Court. In addition to the filing fee, a quarterly fee is paid to the U.S. Trustee in all Chapter 11 cases.
Chapter 12 is designed for “family farmers” or “family fishermen” with “regular annual income.” It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period “for cause.” But unless the plan proposes to pay 100% of domestic support claims (i.e., child support and alimony) if any exist, it must be for five years and must include all of the debtor’s disposable income. In no case may a plan provide for payments over a period longer than five years.
Which chapter do I need, and do I need an attorney to file?
Although the laws offer different options that may be available to a you, the decision to file, or under which chapter to file, depends on your situation.
Those who quality for either Chapter 7 or Chapter 13 have an advantage in that they are able to choose the type of bankruptcy that makes the most sense for their particular circumstances.
If a person can choose between Chapter 7 and Chapter 13, most people who file for bankruptcy choose to use Chapter 7 because Chapter 7 does not you require you to pay back your debts. But Chapter 13 may be a more attractive alternative for those who may have missed house payments and want to safely make up those missed payments over time, instead of losing their home in foreclosure.
Considering your personal facts, comparing them to each chapter’s requirements, and deciding which chapter to select, is considered legal advice. While it is possible to file bankruptcy “pro se,” or without legal representation, the decision of whether to file a bankruptcy and under what chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all the relevant facts. Moreover, if you do file bankruptcy pro se, you must know that the Court is not permitted to give legal advice, assist with the preparation of forms, or assist you during various meetings and proceedings that may be scheduled in your case.
What can bankruptcy do for me?
It may make it possible for you to:
- Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to “reset” your credit, so to speak, in order to allow you and your family a fresh financial start.
- Allow you to catch up on missed payments on your home or manufactured home and to avoid foreclosure while you do so. Bankruptcy does not eliminate your mortgage or other lien on your property, though, unless you pay the debt owed.
- Prevent repossession of a car or other property, if you file a case in a timely manner.
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
- Restore or prevent termination of your utility services.
- Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
Will bankruptcy affect my credit?
When a case is filed, the petition, schedules and other related documents become a matter of public record. Credit reporting agencies regularly collect information from bankruptcy cases to report on their credit reporting services. Bankruptcy may appear on your credit record for ten years from the date your case was filed, pursuant to the Fair Credit Reporting Act, 6 U.S.C. § 605, as opposed to the seven years other credit information may remain on a credit report.
For those with large or a high number of delinquent accounts, the credit score may already be so low that a bankruptcy may actually help. Because it wipes out old debts, bankruptcy may free up income so that a consumer can pay current bills and obtain new lines of credit after filing bankruptcy. The decision whether to grant you credit in the future is strictly up to the creditor and varies from creditor to creditor depending on the type of credit requested.
Debts discharged should only be listed as having a balance of $0, with no remaining balance owed on the debt. Debts incorrectly reported as having a balance owed will negatively affect the credit score and ability to get credit after the case is discharged. Everyone should regularly review his or her credit report, before and after bankruptcy, to resolve any disputes in debts reported with the various credit bureaus.
The three main credit Reporting Agencies are:
P.O. Box 9558
Allen, TX 75013
Attn: Public Records Department
555 West Adams Street
Chicago, IL 60661
P.O. Box 740241
Atlanta, GA 30374