Despite changes in bankruptcy law, bankruptcy filings have been on the rise nationwide in the wake of the “Great Recession.” More and more people have been feeling the strain of job losses or cutbacks, and seeking debt relief. There may be some people who have reached that point by being financially irresponsible, but we know that most of our cases are ordinary hardworking individuals and businesses who are simply drowning in debt.
The important thing to remember if things have come to this impasse is that relief is not beyond your grasp.
Protect your family and their future
We know how stressful and embarrassing this process can be. We want to be the Austin bankruptcy attorney you turn to for guidance and help.
Our law practice specializes in:
- Chapter 7 personal bankruptcy
- Chapter 13 debt reorganization
- Foreclosure
Chapter 7 Personal Bankruptcy
Commonly known as a “liquidation” or “straight bankruptcy,” Chapter 7 filings are the usual route for bankruptcy filings (and the quickest). It’s most commonly used by individuals or couples, but can also apply for corporations and partnerships. In principle, a Chapter 7 will involve a court-appointed trustee who will seize and sell your “non-exempt” property to satisfy debts to your creditors. This is usually nothing more than a formality, though; most Chapter 7’s are “no-asset” cases, meaning there’s not any non-exempt property that can be seized and sold.
The 2005 changes in Federal bankruptcy law now call for more stringent means testing, examining debt vs. income to see if the filer can truly apply for Chapter 7 protection. The idea is to make Chapter 7 available for those who truly can’t repay debts and limit its availability.
The first step of a Chapter 7 filing will be an official petition and a “statement of financial affairs” registered at the bankruptcy court. Expect the bankruptcy forms to cover:
- Full list of creditors, including amounts and types of claims
- Full statement of income, including source, amount and schedule
- Detailed list of all possessions and property
- Complete accounting of monthly living expenses
As soon as the papers are filed, an automatic stay will bring an immediate end to any litigation and collection efforts, helping you to keep your property. Creditors can only proceed with collection efforts after showing the bankruptcy judge just cause, i.e. property that might depreciate in value while the bankruptcy is in process. The court’s trustee will call a first meeting of creditors within 20 to 40 days after the filing, also known as a “341 meeting.” You will be required to attend the 341 meeting, with the trustee asking you questions about property and debt (under oath). The next step after the 341 meeting will be the creditors’ chance to make their case; they’ll have 60 days to convince the judge that you shouldn’t be allowed to vacate the debts.
Should the trustee seize and sell assets, he will pay off creditors in order according to the priority of their claims. Any “secured” claims (i.e. a car note) will be paid first. Any wages you earn after the filing are yours, and beyond the reach of the creditors
Remember:
Voluntary liens like mortgages, deeds of trust or tax liens are NOT wiped out in a Chapter 7 filing. The lender or taxing body can still foreclose on a delinquent tax bill after Chapter 7. The main idea of Chapter 7 is to wipe much of your debt clean so you can make payments on secured debt (car note or house note) more easily. A car note, in particular, can be “reaffirmed” after your initial 341 meeting. Some lenders may give you the option of buying the car outright for a lump sum of the principal a that point.
Chapter 13 Bankruptcy
A Chapter 13 is also known as a reorganization; it’s a structured schedule of payment to creditors. Rather than wiping the slate clean, it gives the debtor more time to settle debts. Chapter 13’s are a good fit in cases such as:
- a mortgage or car note needs to be reinstated or other loans need to be brought current
- taxes or child support that cannot be wiped clean
- moral convictions that debts should be paid no matter how long it takes.
A Chapter 13 will require a stable income, with a reliable amount of disposal income left over aft er the bare necessities are met. There will be certain limits on secured debt (property that can be repossessed or foreclosed on) and unsecured debt.
Any Chapter 13 will also involve detailed repayment schedules, for a three-to-five-year span. All debts will be prioritized, with tax debts at the top of the list. A Chapter 13 setup will also have the debtor making a monthly payment to the court’s bankruptcy trustee, who will then parcel out the payment to various creditors as agreed in the plan. Chapter 13 filings require a detailed repayment plan for a three-to-five-year period. You’ll be given the option to protest if you genuinely think that any part of the plan is unreasonable or unworkable for your situation. Please note that if you’re also faced with foreclosure on your home, filing Chapter 13 will also put an automatic stay on the foreclosure process.
Recent changes in Chapter 7 bankruptcy law will eliminate many debtors who were formerly eligible to file under Chapter 7. Many of those debtors will now have to file a Chapter 13 reorganization instead, due to more-stringent requirements for Chapter 7. You’ll also need to be aware that a Chapter 13 filing will remain on your credit report for seven years, while a Chapter 7 will stay with you for ten years.
Changes in Bankruptcy Law
2005′s Bankruptcy Abuse Prevention Act put federal limits on many bankruptcy laws. Some of the changes include:
- New conditions on Chapter 7, or sometimes outright bans
- Increased payments under Chapter 13
- New conditions and presumptions against debtors, with newly-increased penalties
- Tightened judicial discretion when balancing competing interests