All Bankruptcies are governed by Title 11 of the United States Code. There are several different types of bankruptcies. There is Chapter 7, 9, 11, 12, and 13. Below we will deal with Chapters 7 and 13, which are the two most common types.
To obtain relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, a corporation or other business entity. Subject to the “means test” described below of individual debtors, chapter 7 may be used no matter the amount of the debts. An individual cannot file under chapter 7 or any other chapter, 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 the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
In addition, all individuals, no matter under what chapter a person is filing, are required to obtain a “Credit Counseling Certificate” within 180 days before filing from an approved credit counseling agency either in an individual or group briefing.
The “Means test” is one of the determining factors as to whether a person can file for a chapter 7 or a chapter 13. If the debtor’s “current monthly income” is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, minus certain allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor’s non-priority unsecured debt, as long as that amount is at least $7,025. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor’s consent) or will be dismissed.
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. They must still make all mortgage payments that come due during the chapter 13 case timely. Another advantage of chapter 13 is that it allows individuals to spread out payments of certain debts and extend them over the life of the chapter 13 plan. A chapter 13 plan is a minimum of 36 months and a maximum of sixty months. Doing this may lower the payments.
Finally, chapter 13 acts like a consolidation load under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.
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. In a chapter 7 and chapter 13 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 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 remove a lien on the actual property just the personal liability.
Contact Stuart M. Nachbar, Esq. today for help with your case!
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