Massachusetts Bankruptcy Court
People contemplating a bankruptcy situation in personal life or business are not sure of the exact course of action for debt relief. Often in a hurry to clear off their pending bill payments, they tend to do more harm to themselves and their businesses. However, it is not compulsory for you to file a bankruptcy and that should only be resorted to in cases where it becomes inevitable.
We know from our past experience as bankruptcy lawyers that there are more myths attached to Bankruptcy than the reality. For, as soon as anybody files for bankruptcy, they get immediate relief in the form of automatic stay that immediately stops most creditors from contacting them and collecting their debts. You also get shielded from lawsuits, and foreclosure, etc.
Depending on your available assets, you can file bankruptcy under, among other Chapters, Chapter 7 or Chapter 13. While Chapter 7 primarily helps to eliminate unsecured debts, Chapter 13 allows you to retain your assets and repay secured debts over a period of time. Filing bankruptcy may be a tough decision. If you overcome the first step, you win half the battle.
Chapter 7 is a liquidation.
You give up your non-exempt property for release from your debts. Some people have so little property that they do not have to give up anything because it is all exempt under the laws. Here are a few key points about Chapter 7:
1. Qualifying: You have to qualify for Chapter 7. In general, if you can afford to pay part of your debts, you don’t, and instead you must file Chapter 13 bankruptcy. There are concepts like median income, the means test, and the totality of the circumstances tests under Section 707(b)(3) of the Bankruptcy Code that attempt to get it this question, but at core it’s a simply concept: The laws are designed to only let you out of your debts if you can’t afford to pay them.
2. Credit: Chapter 7 stays on your credit report for ten years from the date of filing. This does not destroy your credit for the whole ten years. What it does do is put a bad mark on your credit for the whole ten years. However, as time passes, the weight given to the bankruptcy by the credit bureaus gets lighter–after ten years it’s gone completely.
3. Eight-year rule: You can only get one Chapter 7 discharge every eight years.
4. Assets: If you do have assets that are not exempt and want to keep them, you cannot do so in a Chapter 7 and will need to file a Chapter 13. You can learn what will happen to your assets in a Chapter 7 bankruptcy by calling us and answering our questions honestly. We will then tell you.
5. Nondischargeability: Not all debts are discharged in a Chapter 7. Student loans and recent taxes are a couple of examples.
6. In Chapter 7 cases you cannot stop foreclosures by curing mortgage arrears like you can in Chapter 13 cases. You can also not cram down car loans, strip off wholly unsecured second and third mortgages, and pay off non-dischargeable tax debts. Chapter 13 offers more flexibility and options than Chapter 7 and sometimes is the better choice. However, sometimes Chapter 7 is the perfect remedy to financial problems that you just can’t fix any other way.
Chapter 13 is a reorganization. It is a court-approved partial repayment plan of debts that lasts three to five years. At the end of that time, any remaining balances are forgiven on most debts (credit cards, medical bills, unsecured personal loans, etc.) Certain debts are not forgiven at the end of a Chapter 13, like student loans and recent tax debt.
The Powers of the Plan: In a Chapter 13 your lawyer proposes a plan that the Court approves. This gives you the ability to do many things that are not possible in a Chapter 7. For example, in Chapter 13 you can stop foreclosures by curing mortgage arrears, cram down car loans, strip off wholly unsecured second and third mortgages, and pay off non-dischargeable tax debts. The plan that you propose is based on what you want to accomplish and also on your income, expenses, assets and debts.
Income Qualification: Some people file Chapter 13 because it is the only type of bankruptcy they qualify for based on their income. The law requires that most people who can afford to pay part of their debts do so in Chapter 13 instead of Chapter 7. Most, but not all, people who are above-median income only qualify for Chapter 13. In Massachusetts, the median income by family size (for cases filed after March 15, 2010):
• Family of one: $54,161
• Family of two: $67,142
• Family of three: $82,385
• Family of four: $100,462
• Add $7,500 for each additional family member (for all cases filed after November 1, 2010).
Credit Reporting: One of the bits of good news about Chapter 13 is that it stays on your credit report for seven instead of ten years, like a Chapter 7 case does.
Keeping property: Another common reason people file Chapter 13 instead of Chapter 7 is to keep property they would otherwise lose in a Chapter 7. No one loses property in a Chapter 13: It is not a liquidation chapter. This is a big benefit, even though most people have such limited property that they would lose nothing in a Chapter 7. However, that is not always the case. Some people do have non-exempt property–like excess equity in houses or cars–and do not want to risk losing in a Chapter 7. If these people still need relief from debt, the best way to get it is sometimes through a Chapter 13 bankruptcy. Fewer people will need Chapter 13 for this reason in 2011 and beyond because of the modernization of Massachusetts exemption laws enacted in January 2011.
With the new bankruptcy law effective since October 17, 2005 (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 S. 256), it is more important than ever before to consult and speak with a Bankruptcy Lawyer before filing for bankruptcy.