Bankruptcy law can be confusing, complex, and difficult to navigate but it is one of the areas of specialization for the Reeves Law Firm. The vast majority of our bankruptcy clients are good, hard-working folks who have either had medical issues resulting in massive medical bills that they simply cannot pay or some unexpected life event occurs where they simply need more money than they have at that moment and so they turn to credit cards. The most common causes for having to file bankruptcy are medical bills, credit card debt, lawsuits and judgments filed against a person, and divorce where one spouse has left the other with no money and a lot of debt.
As you likely know, it does not take long for a few credit card bills to consume your finances as the total amount due and interest rates quickly rise to the point that you simply cannot keep up, much less get ahead. Luckily, the United States and Arkansas each have bankruptcy laws that allows a person(s) to either restructure that debt and pay it off (Chapter 13) or to have that debt extinguished all together (Chapter 7). The entire purpose and premise behind these bankruptcy laws is that citizens burdened by debt that they cannot repay are better off to themselves, their families, and our society if that debt can be restructured or extinguished whereby they will be able to continue being productive citizens contributing to society rather than being completely stripped of all money and assets (such as their house) or put into the ancient debtor’s prison.
If you are facing mounting medical bills, overwhelming credit card debt, or a lawsuit, don’t let it consume you and don’t let it control your financial future. There is a way to get back on track and take back control of your financial situation. We can help you close the door on this chapter of your life where you won’t be harassed by creditors and mounting, uncontrollable debt won’t keep you up at night. The first question you likely have is what exactly is bankruptcy and how does it work. I’ll discuss with you some of the basics of bankruptcy and how it works.
What Is Bankruptcy And What Is The Process Of Filing?
As mentioned above, the purpose of bankruptcy is to allow people with substantial debt that they cannot repay to either have that debt discharged or have it restructured so that they can continue with their lives. The general process of filing bankruptcy is as follows:
- Consult an attorney in order to determine what type of bankruptcy will work best for you as well as which type you are eligible for;
- Provide your attorney with all bills and statements of your debt including your mortgage statement, any credit card statements, medical bills, loan payments, car payments, and any other information your attorney will need in order to determine exactly what debts you have;
- Provide your attorney with recent bank statements and your most recently filed tax return;
- Provide your attorney with your paycheck stubs from the previous six months so that your attorney can give an accurate estimate of your monthly income;
- Speak with your attorney regarding other information your attorney will need;
- At this point, once your attorney has all of the necessary information, they will then conduct an analysis of your situation to determine what property is “exempt” from the bankruptcy and what is not exempt and may be subject to a trustee’s liquidation;
- The attorney will then draft and prepare a bankruptcy petition (and a repayment plan if you are filing Chapter 13) to be filed and submitted to the court;
- The court will then send that petition and a notice of filing to all of your listed debtors to make them aware that you are filing bankruptcy;
- Almost immediately after filing your petition, the court will provide you with a date in which you MUST attend a meeting with the bankruptcy trustee called a “creditor’s meeting”;
- The creditor’s meeting usually takes place about a month after you file the bankruptcy petition and it is an informal, stress-free meeting where the creditor will ask you a short-series of questions related to your filing. It usually only lasts about 3 to 5 minutes and so there is no need to fret or worry about attending the creditor’s meeting;
- After the creditor’s meeting, the trustee will then raise any concerns or objections that they might have and they will work with your attorney to get their concerns or objections resolved;
- Once everything has been resolved with the trustee certain of your debts will automatically be discharged a short-time later if you are filing Chapter 7 (usually about a month or so after the creditor’s meeting) or your repayment plan will be confirmed if you are filing Chapter 13;
- All in all, the whole process usually takes around two months at a minimum.
All This Talk About Chapter 7 And Chapter 13: What Is The Difference Between The Two And Which One Is Right For Me?
Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. Commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all the debtor's property. It consists of all legal or equitable interests of the debtor in property as of the commencement of the case, including property owned or held by another person if the debtor has an interest in the property.
Chapter 7 Bankruptcy is also referred to as a “total discharge” or a “liquidation event” whereby the trustee will sell or liquidate certain assets of the debtor (also known as “nonexempt assets”) in order to pay back to the creditors a portion of the debtor’s debt that is owed. Generally speaking, the debtor's creditors are paid from nonexempt property of the estate.
Under Federal law and Arkansas law, debtors can “exempt” certain assets and certain values of the assets from bankruptcy which means that the trustee cannot sell these assets and the debtor can keep them. There are many exemptions under Federal and Arkansas law and you should absolutely consult an attorney in order to maximize those exemptions and protect as much of your property from the bankruptcy as possible. The property that is not exempt (“nonexempt”) from the bankruptcy is what is subject to the trustee being able to sell and liquidate in order to get money to pay back some of the creditors. Put simply, you will be able to keep a large amount of your property out of the bankruptcy entirely by properly utilizing the exemptions permitted by law. The remaining property that cannot be exempt may be sold by the trustee.
What Is “Discharge”?
A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. It is important to note that secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Unlike Chapter 13, Chapter 7 Bankruptcy allows a debtor to have certain debts discharged and effectively “forgiven” or “wiped away.”
Who Is Eligible To File For Chapter 7?
Chapter 7 is a way for individuals, partnerships, LLCs, and corporations to have certain debts discharged with no repayment plan. There are certain income limitations to filing for Chapter 7 whereby if your income is high even, you may be subject to the “means test.” If you pass the means test then you are in the clear, but if you fail the means test, then Chapter 7 may not be an option for you. You should absolutely consult an attorney to determine if you are eligible for Chapter 7.
Other limitations on eligibility to file Chapter 7 include:
- You cannot have had a bankruptcy petition dismissed within the preceding 180 days
- You must have lived in that jurisdiction for the previous 180 days
- You cannot have filed and had debts discharged under Chapter 7 within the previous 8 years
- Generally, you cannot have had a discharge under Chapter 13 within the previous 6 years.
I Have A House With A Mortgage And A Car With A Payment And Neither One Is Exempt, How Can I Keep My House And My Car?
A debtor that has secured assets with a creditor and money is still owed on that asset, the debtor can enter into a “reaffirmation agreement” with the creditor which effectively takes that asset out of the bankruptcy and reaffirms that secured debt with that creditor. Put simply, it is a way for a debtor to keep any secured property that they owe money on by renewing their agreement to pay the creditor. This means that the debtor will still be responsible to continuing paying that debt to the creditor and that debt WILL NOT be discharged through the bankruptcy. Reaffirmation agreements are a great tool that helps debtors be able to keep certain property and take it out of the bankruptcy all together. If you have a house and a house payment or a car and a car payment, you can usually enter into a reaffirmation agreement with the creditor which will enable you to be able to keep that secured property.
As opposed to a Chapter 7 and receiving an automatic discharge of certain debts, Chapter 13 will allow a debtor to keep almost all of their property by putting together a repayment plan whereby they will pay a certain amount per month to the trustee and the trustee will then pay certain of the creditors some of the debt owed to them. The repayment plan can last between 3 and 5 years and if a debtor successfully makes all of the payments for the duration of the plan, certain of the debts may be discharged or extinguished at the end of the payment plan period. Generally speaking, folks that have a significant amount of assets that they want to keep but cannot protect in a Chapter 7 opt for the Chapter 13. The general process is the same as a Chapter 7 except that your attorney will put together a repayment plan and work with the trustee and any creditors to get that repayment plan agreed upon and confirmed by the court.
Who Is Eligible To File Chapter 13?
In order to file for Chapter 13 and have your debt restructured, a debtor must meet several guidelines as listed and described here.
- The debtor must have a job and enough disposable income to pay the monthly repayment amount in the plan.
- The debtor’s debt must be within the debt limits.
- Only individuals can file Chapter 13, not businesses or business entities.
- You must have current income tax filings.
- A debtor may be eligible if their income exceeds the means test limits.
- A homeowner who is behind on their payments may want to file Chapter 13.
- A debtor that wants to keep nonexempt property from being sold.
If you have a stable job and stable income but you need to restructure your debt because you cannot afford to have it taken away or sold in a Chapter 7, then Chapter 13 may be a great option for you to restructure that debt and get a repayment plan in place where you will pay a lump sum monthly payment to the trustee for a period of 3 to 5 years, and after the conclusion of that repayment period certain of your debts will be extinguished. All in all, with a Chapter 13 you can pay far less under a 3 to 5 year repayment plan and your debt can be discharged at the end of the payment period effectively shortening the term of your debt.
If you have any questions or just want some additional information, call us today at (870) 376-4455 and we will be glad to talk with you in order to help you get on the right track to financial freedom.