Chapter 7 and Chapter 13 Bankruptcy

Why File Bankruptcy? – To Get a Fresh Start

Bad things happen to good people. If you are having problems paying your bills and it has you stressed, worried, or uncertain; then we can help you get a fresh start. At Wilson & Haubert, PLLC, we have helped clients deal with debt problems. We can help save homes from foreclosure and automobiles from repossession.

Arkansas Bankruptcy

Information about Chapter 7 Bankruptcy

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What is Chapter 7 Bankruptcy?

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? If you make below the amounts below you are not subject to the means test and you can file for Chapter 7 bankruptcy.

(Arkansas Median Income for Family Size as of November 1, 2017)

1 Person Family     $41,164.00
2 Person Family     $50,594.00
3 Person Family     $57,426.00
4 Person Family     $69,807.00
5 Person Family     $78,207.00
6 Person Family     $86,607.00
7 Person Family     $95,007.00
8 Person Family     $103,407.00
9 Person Family     $111,807.00
10 Person Family   $120,207.00

If your household income is above the number above, you can still file Chapter 7 bankruptcy, 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.

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Information about Chapter 13 Bankruptcy

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What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is also called a wage earner’s plan. It 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:

  1. 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:
    1. Surrender the property back to the creditor and not pay anything;
    2.  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.
    3. With a house payment, there are three options:
      1.  If the payments are current, continue to pay it yourself and don’t pay it through the Chapter 13 plan; or
      2. 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
      3.  Pay the balance in full within the plan.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
    1. Remember, any unpaid amount plus interest and any collection fees will be due after you get out of Bankruptcy.  You have two options:
      1.  Ignore the student loan and pay nothing through the plan; or
      2.   Pay your normal monthly payment and catch up what you are behind.
  6. 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:
    1. Reject the lease and let the creditor have the property back and pay them nothing;
    2. Accept the lease contract as written, and continue to pay them directly, not through the plan, if your payments are current; and
    3. 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.
  7. What debts do you owe jointly with other people who are not filing bankruptcy? You have two options:
    1.  Pay nothing towards the obligation and let the responsibility fall on the co-debtor or person who jointly owes the debt.
    2. Pay the debt in full inside the plan so your co-debtor does not have to pay.
  8. 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. 
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Why Should I file Chapter 13 if I qualify for Chapter 7

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Why should I file Chapter 13 bankruptcy (with a payment) if I qualify for Chapter 7 bankruptcy (without a payment)?

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.

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Common Questions in an Arkansas Bankruptcy:

What are some reasons to file bankruptcy?

Avoid Forclosure

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The attorneys here are Wilson & Haubert all have families and small children, so we understand the importance a stable home has for a family.

Don’t let your concerns about bankruptcy prevent you from keeping your home.

Many attorneys don’t understand the ins and outs of the bankruptcy code, but we do. If you are behind on payments on your mortgage, or even if you are already in the foreclosure process, filing for Chapter 13 Bankruptcy can help you get caught up on your behind payments, or even stop the foreclosure process altogether. When you file a bankruptcy petition, all of your debtors must stop efforts at collecting on your debts. If they continue to harass you after filing, they can be sanctioned and fined. Don’t let frequent calls from the bank and other creditors ruin your peace of mind. There’s something you can do about it: give us a call.

In a Chapter 13 Bankruptcy, the bankruptcy court will determine what your monthly payment obligations are for necessary living expenses, and use leftover income for monthly payments to the bank on your past due mortgage payments, as well as your other creditors. So, in that way, bankruptcy can help you get caught up on your mortgage, in addition to any other creditor payments you’re behind on. Since the single monthly payment you’ll have under your bankruptcy is based on your disposable income, the payments are usually fairly small, and spread out over three to five years. Once you reach the end of the payment period, most people are caught up on their past due payments, and can resume paying their monthly payments as they were before the bankruptcy filing.

Have questions? Check out our other blogs on bankruptcy, or give us a call today. (link to other blogs). You’re not alone, and there is hope for a fresh start. Let us help.

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Avoid Repossession

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Automobile dealers and lenders like to try and scare people into scrambling to make up behind payments by threatening to repossess a vehicle.  Don’t let yourself be fooled.

When you are behind on payments and don’t know how to make them up, filing bankruptcy can give you more time to figure out how to get caught up on your payments.  When you file for bankruptcy, the court will issue an order called the “automatic stay.”  This is a fancy way of telling your creditors that they have to stop trying to collect money you owe them while the court hears your bankruptcy petition.  If creditors continue harassing you after the automatic stay has been issued, they can be sanctioned and fined with hefty penalties.  While some creditors don’t know about the automatic stay, we’d be more than happy to write a strongly worded letter to educate them about how they’re no longer allowed to pester you.

Filing bankruptcy won’t necessarily stop all attempts at repossessing your vehicle, though.  In some cases, a lender can ask the bankruptcy court for permission to take the vehicle back.  However, most lenders don’t understand the process for doing this, and we can help you fight the process.

While bankruptcy can wipe out your responsibility to pay back your loan on a car, it doesn’t always get rid of the lender’s lien on the car (see our main bankruptcy page for more information on getting your debts discharged).  What this means is that even though you no longer have the responsibility to pay the lender, they can still take back possession of the car.  The upside is that filing for bankruptcy can buy you some time before repossession, and give you some leverage to renegotiate the terms of your loan.  Most lenders would rather get some of the money you originally owed them than go through the trouble of repossession and reselling the vehicle.  Note that to get a better deal on your original loan you have to “re-affirm” the debt, which wipes out any discharge the bankruptcy court may have issued, which means you are now personally responsible for the loan again.

Additionally, redeeming the car might be a good option for some debtors.  Oftentimes, the market value of a car is less than what people still owe on the vehicle.  If that is the case, you can “redeem” the vehicle.  That means that you can pay the market value of the car in one lump sum and wipe out your existing loan responsibility.  For example, if you still owe $20,000 on a car, but the market value of the car is currently only $10,000, if you can somehow come up with the $10,000, you can wipe out your responsibility to pay the $20,000.  Obviously, this isn’t an option for a lot of people who are in bankruptcy, but it can be an attractive option for some.

Don’t let creditors boss you around.  If you’re getting calls from creditors or threats of repossession, give us a call.  We can help.

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Wage Garnishment

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If your wages are currently being garnished, or if you are in danger of having them garnished, the attorneys at Wilson & Haubert can stop the process.  We have attorneys who specialize in bankruptcy, who will use the bankruptcy code to prevent your wages from being taken from you, once and for all.

A little known feature of the bankruptcy code, known as the “automatic stay,” can prevent your creditors from collecting any debt you owe, in addition to stopping your wages from being garnished.  The automatic stay goes into effect as soon as you file for bankruptcy.  It is a court order which stops all collection efforts against you.  Wage garnishment is a collection on a previous judgment against you, and so your creditors must stop the garnishment.  Creditors can ask the court to get rid of the stay, but it is incredibly rare for bankruptcy courts to do this.

Wage garnishment typically happens when a creditor has sued you and gotten a judgment against you for a debt you owed.  Next, the creditor has to get a second court order allowing for a wage garnishment.  Finally, the sheriff usually has to serve the garnishment order on your employer, who then withholds part of your check for your creditor. 

There are a few exceptions to the automatic stay, in which case the garnishment would continue.  The most notable, and most common, is garnishments for child support.  Because of the government’s interest in making sure children are supported, wage garnishments for child support continue, even when the automatic stay is in place.

As soon as you file for bankruptcy, you must provide a list of your creditors to the court.  The court will then send notice of your bankruptcy petition to your creditors, who must then stop all their collection efforts against you.  You can speed up this process by delivering a copy of your bankruptcy filing directly to your creditors.

Most of the time, when your bankruptcy case ends, the court will discharge your debts.  This means you’re no longer responsible for the discharged debts.  What this means, is that your creditors won’t be able to go back to garnishing your wages. 

There is something you can do.  If you’re having trouble paying your bills or making ends meet because of a wage garnishment, we can help.  The first step to getting your creditors off your back, and stopping your wages from getting garnished, is giving us a call.  

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IRS Tax Collection

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If you’re thinking of filing bankruptcy because of heavy tax debts, there are some things you need to know before doing so.  The Bankruptcy Code makes it pretty difficult for you to get your tax debts discharged, because the government’s trying to get paid.  However, it is possible to get some of your tax debts wiped out.  You just have to have an attorney that knows which types can get discharged, and how to make sure that happens when you file.

Only certain types of tax debts are dischargeable (which means they get wiped out by your bankruptcy filing so you don’t have to pay them anymore.)  That means you could file bankruptcy and go through the whole process, and still owe some tax debts.

Tax debts can get discharged in bankruptcy if all the following things are true:

  • The debt is from a year where you actually filed a return (fun side note: obviously, you don’t actually have to have paid the taxes, you just need to have filed the return. However, if you didn’t file a return, you can get the taxes discharged if you file the return, don’t pay the taxes, and wait three years.  We know that’s not an option for most folks who need to get their debts sorted out in the short term.);
  • You didn’t file a fraudulent return (meaning you told the truth and filled out your taxes honestly) and you didn’t try to evade taxes in any way;
  • The tax debt is more than three years old;
  • The IRS has to have assessed the tax debt at least 240 days ago; and
  • The debt has to be for income taxes (can’t be social security, medicare, certain property taxes, etc.).

It’s also important to know that your tax debts will be affected by which type of bankruptcy you file.  See our other blog posts for the exact differences between chapter 7 and chapter 13 bankruptcy.

If you file for chapter 7, your “non-priority” tax debts will get discharged, if they meet all the requirements outlined above.  That means they’re gone. 

In chapter 13, they don’t automatically get discharged, but they are lumped in with your “non-secured” debts, like credit card bills and other debts that aren’t backed by some collateral you gave to a bank or other institution in exchange for the loan, credit, etc.  Getting lumped in with those debts just means that you’ll likely only pay a tiny portion of those debts, and then whatever’s left on them will get discharged at the end of your plan (three or five years).

Having said that, there are certain types of tax debts (“priority tax debts”) which are not dischargeable, meaning they can’t get wiped out by bankruptcy.  Here they are:

  • Tax liens. If the IRS or the state you live in got a lien put on your property because you didn’t pay taxes, bankruptcy can’t wipe those out.  What will happen is that you’ll be personally off the hook for the taxes, but if you go to sell the property, the IRS gets what they’re owed from the sale price before you get any money.  For all practical purposes, this means you’re still on the hook for the debt.
  • Property taxes that are less than a year old. These can’t get discharged in any kind of bankruptcy, and what usually happens is that when you wait more than a year, the state gets a tax lien on the property for the taxes you haven’t paid.  In that case, the section above would apply.
  • Most taxes that get taken out of your paycheck, or other taxes that get collected or withheld by a third party. This means that any tax debt you owe because of medicare or social security, or other similar taxes like excise taxes (withholdings that get used for some public purose), can’t get discharged.  This doesn’t matter for most people.
  • “Non-punitive” tax penalties. These are just the penalties that go along with not paying the taxes you can’t otherwise get out of, as outlined above.  However, you can get these discharged if they’re associated with dischargeable taxes or if the event that created the penalty happened more than three years before you file.

So, you can probably tell that things can get complicated when you deal with the IRS, and they make it very difficult for you get out of paying them.  That doesn’t mean it’s impossible, though. 

Give us a call and we’ll take a look at your debt and advise you on what your options are.  We know dealing with the federal government can be scary, but we’ve done it before, and we know how to get you out of paying, where it’s possible.  Come sit down at the office for a consultation, and we’ll show you what we can do.

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Credit Card Debt

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Medical Debt

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Creditor Harrasment

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