Bankruptcy

Are you or your spouse considering filing Bankruptcy in Nevada or Arizona?

Are you trying to decide what is the difference between Chapter 7 and Chapter 13?

Let the Law Office of Joshua. L Harmon help you answer these tough questions with professional and experienced answers.  There are many things you will need to know before you file bankruptcy. Most of these questions are answered in our FAQ BK section of our website. You can see the answers to some of the most common bankruptcy questions. By scheduling a consultation with The Law Office of Joshua Harmon, you will be provided with the information needed to make an informed decision. Additionally, we have provided some information and links to other various resources to help you learn more about bankruptcy.

What is a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, sometimes called a straight bankruptcy or fresth start, is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within 3-4 months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick “fresh start”. While there are many items that may qualify as exemptions, there are cases where some liabilities/assets can be retained if you select to “reaffirm” the debt. To reaffirm the debt means to maintain the asset as well as an attached obligation of repayment. The ability to reaffirm is an election that you can make, however if the trustee finds that the obligation would exceed your ability to repay, the trustee may make the final decision in your surrender of the property anyhow.

One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts/obligations.

What is a Chapter 13 Bankruptcy?

Many people often times call this a reorganiational bankruptcy. However, the US Federal court actually labels this as an Individual Debt Adjustmentent of a person with regular income. A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law forbids creditors from starting or continuing collection efforts.

What is the difference between Chapter 7 & Chapter 13 Bankruptcy?

Discharge of Debt – Debt Elimination:  Under Chapter 7 any debts being eliminated/discharged are completely discharged when your are done with your Bankruptcy(90-120days). Under Chapter 13, you will enter a repayment plan where any excess income on a monthly basis is paid directly to your trustee, and he in turn repays your creditors(3-5years).   

Length of Time Until Discharge:  If a person can qualify after they have completed a Means Test, it is highly advisable that they file for a Chapter 7. The discharge happens within 90-120 days vs a Chapter 13 being discharged generally between 3-5 years.

Costs – Attorney Fees:  A Chapter 7 will generally have less costs associated with it because of the limited time frame of the work and case responsibility. A Chapter 13 will generally have more hours invested and a continued involvement by attorney until the discharge is completed 100%. While these are both generalizations and costs can vary, these is a statement confined to what our office experiences on an ongong basis.

Difficulty to Discharge:  Many people underestimate their financial positions going into a Chapter 13. As a result, the repayment plan during the 3-5 years of a Chapter 13 can often times be very tough for people to satisfy. Any financial difficulty encountered during the repayment plan can have extremely negative consequences of your bankruptcy discharge being dismissed if any late or incomplete payments are made. There are some situations where financial difficulty can result in someone converting from the Chapter 13 down to a Chapter 7.

The Process

Article I, Section 8, of the United States Constitution authorizes Congress to enact “uniform Laws on the subject of Bankruptcies.” Under this grant of authority, Congress enacted the “Bankruptcy Code” in 1978. The Bankruptcy Code, which is codified as title 11 of the United States Code, has been amended several times since its enactment. It is the uniform federal law that governs all bankruptcy cases.

The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy Procedure (often called the “Bankruptcy Rules”) and local rules of each bankruptcy court. The Bankruptcy Rules contain a set of official forms for use in bankruptcy cases. The Bankruptcy Code and Bankruptcy Rules (and local rules) set forth the formal legal procedures for dealing with the debt problems of individuals and businesses.

There is a bankruptcy court for each judicial district in the country. Each state has one or more districts. There are 90 bankruptcy districts across the country. The bankruptcy courts generally have their own clerk’s offices.

The court official with decision-making power over federal bankruptcy cases is the United States bankruptcy judge, a judicial officer of the United States district court. The bankruptcy judge may decide any matter connected with a bankruptcy case, such as eligibility to file or whether a debtor should receive a discharge of debts. Much of the bankruptcy process is administrative, however, and is conducted away from the courthouse. In cases under chapters 7, 12, or 13, and sometimes in chapter 11 cases, this administrative process is carried out by a trustee who is appointed to oversee the case.

A debtor’s involvement with the bankruptcy judge is usually very limited. A typical chapter 7 debtor will not appear in court and will not see the bankruptcy judge unless an objection is raised in the case. A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U.S. trustee. This meeting is informally called a “341 meeting” because section 341 of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial “fresh start” from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts. This publication describes the bankruptcy discharge in a question and answer format, discussing the timing of the discharge, the scope of the discharge (what debts are discharged and what debts are not discharged), objections to discharge, and revocation of the discharge. It also describes what a debtor can do if a creditor attempts to collect a discharged debt after the bankruptcy case is concluded.

Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, each of which is discussed in this publication. The cases are traditionally given the names of the chapters that describe them.

Chapter 7, entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. Amendments to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a “means test” to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor’s income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Chapter 13, entitled Adjustment of Debts of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a “plan” to repay creditors over time – usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor’s repayment plan, depending on whether it meets the Bankruptcy Code’s requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor’s anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.

Source: http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html