Chapter 7 Bankruptcy Filings-Episode 22
Chapter 7 Bankruptcy Filing
Hello and welcome to another Making Law Easy Show. Today we’re gonna navigate Chapter seven bankruptcies. Given the current state of the economy with the stock market and sub prime mess it’s something that is becoming more topical and I have with me a 1-2-3 Law Group attorney who works with 1-2-3 Law Group on these types of projects. Warner thanks for joining us on the show and why don’t we jump right in.
Why don’t we tell everyone what is a Chapter Seven bankruptcy filing?
Well basically bankruptcy overall is federal law that provides both individuals and businesses with an ability to either liquidate or reorganize their debts. And basically a common term that you hear regarding bankruptcies is getting a fresh start in getting out from and underneath your financial problems. As to a Chapter Seven, Chapter Seven is a chapter of the bankruptcy code which permits either an individual or a business to discharge or basically eliminate debt. It provides that those secured debt and unsecured debt can basically wiped clean from a debtor.
Well how do you decide if you qualify for a chapter seven bankruptcy filing?
Well it’s easy and yet again it really isn’t. In a chapter seven usually you can get a chapter seven bankruptcy if your debts are more than your assets. For example, if you make 5000 dollars month, and your debts are 6000 dollars a month that’s basically the first analysis that I look at as to whether or not you are going to be able to qualify for a chapter seven. The amount of money that goes out of your house or pocket monthly has to be more than what you are bringing in monthly. After that analysis is done need, you need to see whether your monthly median income is greater than that for the average family in Pennsylvania or is actually less than that in Pennsylvania. For example, if there’s only one earner, one person per a household, the earner can not make more than $43,166 dollars per year. This is according to the United States Department of Justice. And these, they have just released as a matter of fact effective today, February 1st, 2008, new figures. For one earner it is basically $43,166. If there are two persons in the house, then they cannot earn more than $50,628. If there are three persons in the house, they are limited to making $63,491. And for four persons it’s some $76,182. Usually if you make less than those figures per year, then you’re going to be able to qualify for a chapter seven. The way you are going to determine that is also to look at what your average income has been in the last six months and if you project that out to 12 months you see if you fall in under those figures that I just mentioned. Now the other thing is that consumer debts, basically for non consumer debts, could be making a million dollars a year but still be able to qualify for a chapter seven bankruptcy. Under the bankruptcy code, Congress wanted to limit what is dischargable and what is not dischargeable if you make a certain amount of money. BUt one thing that still remains true even under the new bankruptcy law that became effective in 2005 is that Congress wanted to still have the free market and capitalism in mind in making this new law. They still wanted to promote risk taking and starting businesses and not penalized those individuals and businesses who have that entrepreneurial spirit. This means that if your debts are primarily non consumer, then the means testing doesn’t apply to you. Likewise, the old laws which compared your income and the different schedules of the bankruptcy code also does not apply. So your income really doesn’t matter, you could have a million dollars a year income and again and you’d be able to qualify. If you are an individual or business, in that particular case, a sole proprietor who takes chances and tries to start a business can be able to qualify under a Chapter seven.
When do you know, sort of from the gut that you’re a candidate for filing a chapter seven bankruptcy?
Well when the phone’s ringing off the hook from collection agencies and basically you get a sick feeling in your stomach every time you hear the phone ringing. What I’ve been noticing lately with my clients is that collection agencies or getting much more aggressive. And credit card companies are getting much more aggressive. And they are being a lot quicker in filing lawsuits. And what’s happening, is the sherrif comes knocking at the door to serve a law suit from a credit card company and a hearing is scheduled two or three months down line. And people are starting to have reality smack them in the face and they start calling. The problem is that you’re not wise, it’s not wise to do that. You need to call a bankruptcy attorney and get bankruptcy advice as soon as you can’t make minimum payments on your credit card bills. As soon as you start missing payments because bankruptcy can be a long process, especially under the new bankruptcy law that was enacted in 2005 where your bankruptcy attorney and you need to come up with documentation regarding your income. And you need to under go consumer credit counseling before you file and there’s a lot of work and preparation that goes into filing a bankruptcy petition and you can’t you can’t just say “oh my god, what’s going on now”. You have to, basically, don’t wait for the lawsuit before you file is the bottom line.
Well, do you lose everything when file a chapter seven?
No there are certain exemptions that are available to you when you file under the bankruptcy code. And those exemptions can be used by a knowledgeable bankruptcy attorney to protect your assets. And you know under the bankruptcy code there are for example, you’re allowed to protect as much as $9,850 dollars of household goods and furnishings. If you have a life insurance policy with a loan policy for example, you are also allowed to protect up to $9,850. Jewelry, approximately $12,000. If you have equity in a motor vehicle or own a motor vehicle outright, you have an exemption of $3,200 dollars approximately. There’s also wild card exemptions that may be applicable. For example if you don’t use all of your homestead exemption, you can apply that money to other property as well. People do not lose property generally when they file for chapter seven because the exemptions that are available to them are more than enough to cover that property and there is not going to be yard sale. You know that bankruptcy court is not going to come in and make you sell your property at a yard sale. Believe me, we have ways to protect assets.
How do you pay for a bankruptcy filing if you’ve got overwhelming debts?
Well hopefully you can find an understanding bankruptcy attorney. A bankruptcy filing fee is going to cost you $299 dollars. That goes straight into federal court. The consumer credit counseling courses average about $50 Dollars. After you file, you need to get a certificate that you completed the financial management course. That also runs about $50. And hopefully you can find an attorney that will give you a payment plan and will be understanding as to your financial situation. And you know, a bankruptcy attorney that will work with you and with your budget.
What’s the order creditors get repaid, I mean does everyone get repaid something?
Well in chapter seven, the unsecured creditors such as credit cards or hospitals or doctors Who provided medical services. They are considered unsecured. Their loan is not guaranteed by anything Such as you know, if you have a mortgage on a house, the mortgage loan repayment is guaranteed by the house and if you don’t make those mortgage payments, they can sell the house. Unsecured creditors in chapter seven get completely discharged. They have absolutely no way to get any of their money back. If you own a house and you declare chapter seven bankruptcy, you can have reaffirm your mortgage on that house and reaffirmation means that you Tell the mortgage company, listen, I want to keep the house and I’m willing to continue making payments on house as previously agreed. It’s the same thing with car payments. If you want to keep your car, just make an agreement with the car companies saying hey, I want to keep my car and I will continue to make payments. On the other hand, in both cases if you don’t want to keep the house or car, you discharge them and all you need to do is return the property you know it or leave the house and find somewhere else to live.
You can pick and choose what that that you want to keep? Yes, absolutely.
Well tell me about the process. What happens? What are the time frames?
What happens is after he contact the attorney, we have to do a petition. A petition lists your income and your debt. Lists your your financial history basically. Lists what’s secured. What assets are secured and what assets are not secured. lists what you want to keep and what you don’t want to keep. And usually within thirty days 30 to 60 days after the bankruptcy petition is filed, you’ll have a meeting of creditors. A meeting of creditors is conducted before a trustee. A judges is not present. It occurs in a meeting room, not in a court room. And in fact federal judges are prohibited under the law from actually attending the meeting of the creditors. The entire length of time for a bankruptcy takes about 90 - 100 days. Again thirty days for the 341 hearing, then sixty days to wait for people to file objections. If now one files objections, then a discharge order is issued by the judge once the judge sees that followed the proper financial management course or taken a financial management course over the Internet and have filed the proof of taking that course.
What if someone tries to collect debts I owed say from back in college?
Well there is a four year statute of limitations on collecting debt. If you have student loans, the government can collect those debts no matter how old they are. Those are government guaranteed loans and those are not dischargeable under under bankruptcy. But there is a four year statue of limitations on collecting debt. And once that passes, the collection agency can not come after you. You cannot be sued for that debt.
Do Collection agencies always follow that four year statute?
Oh absolutely not. There are people getting phone calls after four or five or six years. Some collection agencies are more tenacious than others of course. Some of them don’t take no for an answer until you file for bankruptcy.
Isn’t there a game that some of them play with a minimum payment that can get you in trouble with restoring the clock?
Oh yeah. What happens is they try to get you to make like minimum payments and then all of a sudden there is a situation which you come across where if you don’t make those minimum payment they basically can come in an sue you because they will say that you have started the payment over again because you have started a new contract with them by by agreeing to make these payments. So the best advice is to not talk to these collection agencies. Get counsel to talk to these agencies.
Well keep it you don’t qualify for a chapter seven bankruptcy because maybe you make too much money and have too many assets then what are your alternatives?
Well the other basic bankruptcy alternative is a chapter thirteen.
That’s the subject for our next show we are going to start that one in in a minute. You know, one other thing I think some people wonder about is are you better off just trying to negotiate through Your debts with creditors before filing bankruptcy. I mean what’s the strategy with that. Does that make sense? Does it depend?
In a very limited situation. I mean a lot of people that come in to the office can’t even make the minimum payments. And these companies want at least the minimum payment. There is no reason to negotiate otherwise. And in a particular situation, you have got to remember even if you agree to make certain payments or you try to negotiate the debt down, if you missed a couple of those payments, you know you’re still back in the same situation. You are treading water and and some people just can’t handle paying off their debt and need chapter seven bankruptcy protection.
…..All right So I’d like to thank Warner for joining our show and spending some time helping us to navigate chapter seven. If you have any other questions you can call us at 877-7-123-LAW if you are here in Western Pennsylvania. You can check out all of our shows on the Internet at our website at www.makinglaweasy.com. Thanks a lot and I look forward to talking with you on our next show.