WHAT IS CHAPTER 7 BANKRUPTCY?

Chapter 7 bankruptcy, which is many times called a straight bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. Only non-exempt property is actually turned over. Most of the debtors we have represented in the past had no property which had to be turned over. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".

The debtor receives a discharge of all dischargeable debts usually within four months. In the meantime the debtor enjoys protection from the Bankruptcy Code and all harassing calls are stopped.

HOW DIFFICULT WILL IT BE TO FILE CHAPTER 7
UNDER THE NEW BANKRUPTCY LAWS?

For the vast majority of people Chapter 7 is still available with very little difference in the outcome!

There has been much doom and gloom written about the bankruptcy “means test” required by the new law and how many will not be able file Chapter 7. It's true that there are more hoops to jump through under the new laws and it's true that the bankruptcy “means test” will result in some people having to file chapter 13 instead of Chapter 7. However, for the vast majority of filers Chapter 7 is still available with very little extra effort!

WILL MY CREDITORS STOP HARASSING ME?

YES, your creditors will have to BACK OFF! The law requires that all actions against a debtor must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments.   Even repossessions are halted, but only temporarily. Secured creditors, such as banks holding a lien on a car, can get the stay lifted if you do not make payments.

WILL MY SPOUSE BE AFFECTED?

Your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they have a supplemental credit card they are probably responsible for that debt. There are a few exceptions to that rule, such as the purchases of real estate where a failure to pay the payments could result in the loss of the property for you and your spouse. Your attorney will be able to guide you in this regard.

WHO WILL KNOW?

Bankruptcy filings are public records.  However, under normal circumstances, no one will know you went bankrupt. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.

WHAT ARE THE MOST COMMON REASONS FOR A CHAPTER 7 BANKRUPTCY?

Unemployment; Large medical expenses; Seriously overextended credit; Marital problems, and; Other large unexpected expenses are the leading causes for bankruptcy.

WHAT IS CHAPTER 13 BANKRUPTCY?

Chapter 13 Bankruptcy is also known as the reorganization chapter in bankruptcy. Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. However, a person who wants to pay off their debt must still demonstrate an ability to do so by way of a PLAN. The plan will require that the person have disposable income left each month after their reasonable expenses have been met. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep.

I HAD TO FILE BANKRUPTCY BEFORE. CAN I FILE AGAIN?

A person can file Chapter 7 again if it has been more than 8 years since he or she was discharged from the previous Chapter 7 bankruptcy. Under certain circumstances a person can file a Chapter 13 sooner than 8 years.

IF I USE A CREDIT COUNSELOR WON'T I GET A BETTER
CREDIT RATING THAN IF I GO BANKRUPT?

No, you will not get a better rating. It will cost you less money and you will rebuild your credit rating faster if you file Chapter 7 or Chapter 13.

It is likely that using a Credit Counselor will cost you more money and take you longer to rebuild your credit rating and then only if you are successful. Many people cannot keep up with the terms of the repayment plans.

WILL I EVER GET CREDIT AGAIN?

Yes!  A number of lenders now offer "secured" credit cards where a debtor puts up a certain amount of money in an account at the bank to guarantee payment.  Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt.  Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profiles who have not filed bankruptcy.  The size of your down payment and the stability of your income will be much more important than a past bankruptcy.

CAN MY BOSS FIRE ME FOR FILING BANKRUPTCY?

Federal Law (U.S.C. Sec. 525), PROHIBITS any employer from discriminating against you because you filed bankruptcy.

CAN I KEEP SOME OF MY PROPERTY?

You are allowed to keep certain assets. To check specific

exemptions APPLICABLE in Kentucky you should consult with a Bankruptcy Attorney.

WHAT DON'T I KEEP IN BANKRUPTCY

In a bankruptcy, only assets in excess of your allowed personal exemption, or non exempt assets such as, real estate, automobiles and boats will be liquidated by the trustee. Most persons considering bankruptcy do not have assets which are not exempt.

ALTERNATIVES TO BANKRUPTCY

Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.

In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to "catch up" past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707(b).

If the debtor's "current monthly income"(1) is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $10,000, or (ii) 25% of the debtor's non-priority unsecured debt, as long as that amount is at least $6,000. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's consent) or will be dismissed. 11 U.S.C. § 707(b)(1).

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.  However, such agreements should be approached cautiously.