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Chapter 7: Discharge Debts, Receive a “Fresh Start,” and Keep Protected Property
DISCHARGE DEBTS
1. Dischargeable debts may include: Credit cards, personal loans, repossessions, foreclosures, and medical bills. These are the most common examples and by no means form the complete list of dischargeable debts.
2. Non-dischargeable debts may include: IRS and state tax claims, maintenance and support obligations, and school loans. These are the most common examples, but are not the entire list. In addition, some non-dischargeable Chapter 7 debts are dischargeable in a Chapter 13.
RECEIVE A "FRESH START"
1. Chapter 7 Bankruptcy cases do not require a payment plan, and usually are completed within 6 to 8 weeks after the Trustee meeting.
2. Creditors with dischargeable debts are wiped out creating the fresh start for the bankruptcy client.
KEEP PROTECTED PROPERTY
1. Federal and state laws allow for you to protect property from being taken in a bankruptcy. Protected property is called “exempt property.”
2. Most Chapter 7 cases protect 100% of a client’s property. This includes such items as your house, cars, jewelry, household goods, tools used for work, life insurance, retirement, and many other items.
3. Property that may not be protected may include certain sporting goods, cash on hand, money in checking accounts, and tax refunds. These are the most common examples of unprotected property.
Chapter 13: Payment Plan, Discharge Some Debts, and Keep Protected and Unprotected Property
PAYMENT PLAN
1. Most Chapter 13 Bankruptcy cases have a payment plan that lasts for 5 years. In certain cases, the payment plan may be for a period of time that is less than 5 years.
2. Payments are based on your income and the type of debts you owe.
3. The type of debt that you have may also determine your monthly payment. Secured debts (i.e. house, car, etc.) must be accounted for in full if you plan on keeping the secured item. Also, priority debts (i.e. taxes, maintenance/support, etc.) must be accounted for in full in your Chapter 13 Bankruptcy.
Accounted for debts in full means that for secured debts, all past payments ("arrearages") owed must be paid 100% during the duration of your plan, and all priority debts must be paid 100% during the duration of your plan. For example, if you owe $10,000 in past payments ("arrears") for your home, and $30,000 to the IRS for past tax debt, then you would have to pay a minimum of $40,000 into your plan over the duration of your plan.
4. The payment plan must also pay a small percentage of money to unsecured creditors in addition to the creditors who must be paid in full.
DISCHARGE SOME DEBTS
1. Unsecured creditors do not need to be accounted for 100% in creating a Bankruptcy payment plan. Unsecured creditors (i.e. credit cards, personal loans, medical bills, etc.) who would be discharged in a Chapter 7, will likely have the majority of their debt discharged in a Chapter 13. However, in a Chapter 13, unsecured creditors will receive some of the money paid into the Chapter 13 payment plan, if they provide the court with proof of their claim against the debtor.
2. Once the plan has paid in full and payments have ended, the unsecured claims that have not been paid may be discharged.
KEEP PROTECTED AND UNPROTECTED PROPERTY
1. Federal and state laws allow for you to protect property from being taken in a bankruptcy. Protected property is called “exempt property.”
2. Most Chapter 13 cases protect 100% of a client’s property. This includes such items as your house, cars, jewelry, household goods, tools used for work, life insurance, retirement, and many other items.
3. Property that may not be protected may include certain sporting goods, cash on hand, money in checking accounts, and tax refunds. These are the most common examples, and by no means forms the complete list of unprotected property.
4. When property cannot be protected, the trustee may request turnover of the property so that it may be distributed to the creditors.
5. In Chapter 13, some unprotected property may be kept by paying more money every month to the trustee in your bankruptcy plan. Reorganizing payments in this fashion is often referred to as “reconciling.” A common case where this happens is when a portion of the value of a home is not protected. In this example, the unprotected portion may be reconciled. Here is how reconciling works. The home may have equity (what someone would receive after selling a home and paying all debts on the property) of $60,000. The equity in the home may only be protected to $45,000. $15,000 is unprotected. The debtor may still keep the house even though it is not completely protected as long as their Chapter 13 plan adds $15,000 extra to be paid over the life of the plan to unsecured creditors.
In General:
GARNISHMENT, COURT PROCEEDINGS, FORECLOSURE, AND EVICTION
Bankruptcy will stop garnishment, court proceedings, foreclosure, and eviction. However, in regards to foreclosure and eviction, Chapter 7 is usually used to allow the debtor more time before proceedings are commenced against the debtor, and an inevitable eviction or foreclosure proceeds. In Chapter 13, repayment and continued residence instead of foreclosure and eviction may be sought.
SECURED DEBTS
Secured debts (i.e. house, car, personal loans, etc.) are often fully (Chapter 7), or partially (Chapter 13) dischargeable if the property is surrendered. If secured property is to be kept, then in both chapters of bankruptcy, the regular monthly payment will need to be made and the collateral must be properly insured.
SCHEDULE A CONSULTATION ONLINE
Contact our Colorado bankruptcy lawyers to schedule an informative consultation that will help you take control of your financial affairs and reduce your anxiety. Our bankruptcy attorneys will help you determine if bankruptcy is the right option for you, and what other options may be available given your unique situation.
A qualified attorney will review your case and discuss your options. This informative, one-hour, initial consultation will give you knowledge, options, and directions that can put you control and help you manage debt. Do not wait. Contact us today, so we can help you
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