The primary purpose of bankruptcy under Chapter 7 is to help you keep as much of your exempt property as possible while discharging as many of your debts as possible.
A discharge means that you are no longer liable for that debt. Once a debt has been discharged, a creditor cannot take any collection actions against you. While the majority of debts in a Chapter 7 bankruptcy case are discharged, there are some debts that cannot be discharged. You should consult a qualified bankruptcy attorney to ensure you understand what can be and what cannot be discharged in a Chapter 7 bankruptcy case prior to filing.
According to the Bankruptcy Code, the court may deny a discharge under Chapter 7 if:
“. . . it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management.” (11 U.S.C. § 727; Fed. R. Bankr. P. 4005)
If you have equity in your home, there are possible exemptions and protections that your attorney may be able to utilize to help you keep your home. If there is no equity in your house, the court-appointed trustee will typically “abandon” your house to you. For this to happen, you must continue to make a “good faith effort” to make your mortgage payments. Contact a qualified bankruptcy attorney today to find out what options exist for you.
If you have an outstanding loan on your automobile, it is considered a secured debt. In this case, a creditor may be able to repossess your vehicle. If you wish to retain the possession of your car, you may be able to “reaffirm” the debt. A reaffirmation of debt means that, in exchange for protection against repossession, you agree to remain liable for your debt (even if it would otherwise be discharged under a Chapter 7 bankruptcy), and promise to pay the remaining balance owed. There are timelines dictating when you are allowed to “reaffirm” a debt during the bankruptcy process. To find out more about a “reaffirmation of debt”, speak to a qualified bankruptcy attorney today.
If all of your assets are either exempt or subject to valid liens, your bankruptcy case will be considered one involving “no assets.” In a “no asset” case, there is no distribution to unsecured creditors as there is no property to liquidate.
A bankruptcy under Chapter 13 is a structured repayment plan designed to save your house from foreclosure, other property from repossession, or (in some instances) to lower your payments on existing debts.
A discharge of a debt means you are no longer liable for that debt. Under Chapter 13, you generally must complete your court-approved repayment plan in order to obtain a discharge.
According to the Bankruptcy Code, your "plan need not pay unsecured claims in full as long as it provides that the debtor will pay all projected 'disposable income' over an 'applicable commitment period,' and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor's assets were liquidated under Chapter 7." (11 U.S.C. § 1325)
"In chapter 13, 'disposable income' is income (other than child support payments received by the debtor) less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor's gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses." (11 U.S.C. § 1325(b)(2)(A) and (B))
If this is the case, you would pay your lender directly rather than paying the court-appointed trustee. Typically, once protected by Chapter 13, you make payments to your trustee for purposes of disbursement to creditors. However, if the court has not yet confirmed your plan, you would continue to interact with your lender yourself. The amount paid would then be deducted from the amount you would have paid the court-appointed trustee.
Completing a Chapter 13 repayment plan can be difficult; some statistics say 90% of Chapter 13 bankruptcies fail. However, once the court has confirmed your plan, you are legally bound to adhere to the payments and schedule set forth within it. If circumstances arise that are outside of your control, you may be eligible for a "hardship discharge." An experienced bankruptcy attorney can advise you of your eligibility for such a discharge.
You have the option of utilizing a payroll deduction to pay your court-appointed trustee. This may help you make your payments on time, and help you avoid a dismissal of your case due to a failure to adhere to your plan.