Am I eligible to file for bankruptcy under Chapter 7?
It used to be possible for anyone to file for bankruptcy under Chapter 7. However, a new bankruptcy law—the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005—came into effect on October 17, 2005. Under the new bankruptcy law, you are eligible to file for bankruptcy under Chapter 7 if you earn less than the median income in your state. If you earn more than the median income in your state. then you will only be eligible to file for bankruptcy if you pass a “means test” to determine whether you are eligible.
Discharge under Chapter 7 is not available if you filed for bankruptcy and were granted a discharge under Chapter 7 within the past eight years.
You cannot file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because: you violated a court order the court ruled that your filing was fraudulent or constituted an abuse of the bankruptcy system, or you requested the dismissal after a creditor asked for relief from the automatic stay.
How does the means test work?
The means test was designed to limit the use of Chapter 7 bankruptcy to those who truly can’t pay their debts. If you earn more than the median income in your state, then the state applies a means test to determine whether you are eligible to file for bankruptcy under Chapter 7. For those whose household income exceeds the state median, the means test computations get significantly more complex. You must determine whether you have enough income left over (called “disposable income”), after paying your “allowed” monthly expenses, to pay off at least a portion of your unsecured debts (such as credit card bills). If your disposable income adds up to more than a certain amount, you fail the means test and cannot file for Chapter 7.
May I use bankruptcy to get rid of all my debts?
No, bankruptcy does not discharge all types of debt. If a debt is excepted from discharge you remain legally responsible for it. Exceptions include:
- • Tax claims
- • Alimony
- • Child support (including past-Clue Support arrearages)
- • Property settlement obligations from a divorce or separation
- • Most Student loans
- • Fraudulent debts (there is a presumption of fraud in last minute credit card binges involving more than $1150 in either cash advances or jewelry purchases within 60 days before a bankruptcy filing)
- • Criminal obligations such as fines, and
- • A Court-ordered Judgment from a drunk driving incident
Chapter 7 bankruptcy also will not release you from damages for “Willful and malicious” acts such as assaulting another person.
Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out:
- • Money owed for child support or alimony, fines, and some taxes;
- • Debts not listed on your bankruptcy petition;
- • Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
- • Debts resulting from “willful and malicious” harm;
- • Most student loans, except if the court decides that payment would be an undue hardship;
- • Mortgages and other liens which are not paid in the bankruptcy case (hut bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor)
What Property Can I Keep?
This information is accurate for New Jersey.
In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. In New Jersey, the Federal Exemption is more generous than New Jersey state law allows. Consequently, debtors in New Jersey generally utilize the federal Exemption, which allows an individual to retain, among other things:
- • $20,200 in equity in your home;
- • $3,225 in equity in your car;
- • $10,775 worth of household furniture, kitchenwares, and certain other household goods;
- • $1,350 in jewelry
- • $20,200 in personal injury payments
- • $20,200 in real property
- • $2,025 in tools of trade
- • $1,075 wildcard –any property
- • $10,125 wildcard- unused amount of $20,200 in real property
Your right to receive certain benefits such as social security, unemployment compensation, veteran’s benefits, public assistance, and pensions–regardless of the amount.
The amounts above are doubled when a married couple files together.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $200,000 house with a $190,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t tile bankruptcy.
What Will Happen to My Home and Car If I File Bankruptcy?
In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13.
However, some of your creditors may have a “security interest” in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
There are several ways that you can keep collateral or mortgaged property alter you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in lull. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
Can I Own Anything After Bankruptcy?
Yes! Many people believe they can not own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain alter the bankruptcy is Filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors with property or money is not exempt.
- • Chapter 7 allows debtors to discharge most of their debts. It is the most common form of bankruptcy by individual consumers. In a Chapter 7 bankruptcy case, a trustee is appointed to supervise your case.
- • If you earn less than the median income in your state, you are automatically eligible to file for bankruptcy under Chapter 7. If you earn more than the median income in your state, the court will impose a means test to determine whether you are eligible to file under Chapter 7. If you earn too much to use Chapter 7, the court will convert your tiling into Chapter 13.
The Discharge in Bankruptcy
The bankruptcy discharge varies depending on the type of case a debtor files: chapter 7, 11, 12, or 13. Bankruptcy Basics attempts to answer some basic questions about the discharge available to individual debtors under all lour chapters including:
- • What is a discharge in bankruptcy?
- • When does the discharge occur?
- • How does the debtor get a discharge?
- • Are all the debtor’s debts discharged or only some?
- • Does the debtor have a right to a discharge or can creditors object to the discharge?
- • Can the debtor receive a second discharge in a later case?
- • Can the discharge be revoked?
- • May the debtor pay a discharged debt alley the bankruptcy case has been concluded?
- • What can the debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
- • May an employer terminate a debtor’s employment solely because the person was a debtor or failed to repay a discharged debt?
What is a Discharge in Bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting, the creditors of the debtor from taking any form of collection action on discharged debts, including, legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.
Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by’ the lien.
When Does A Discharge Occur?
The timing, of the discharge varies, depending on the chapter under which the case is filed. In a chapter 7 ( liquidation) case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing, a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse (60 days following the first date set for the 341 meeting). Typically, this occurs about four months after the date the debtor files the petition with the clerk of the bankruptcy court. In individual chapter 11 cases, and in cases under chapter 12 (adjustment of debts of a family farmer or fisherman) and 13 (adjustment of debts of an individual with regular income), the court generally grants the discharge as soon as practicable after the debtor completes all payments under the plan. Since a chapter 12 or chapter 13 plan may provide for payments to be made over three to five years, the discharge typically occurs about four years alter the date of filing. The court may deny an individual debtor’s discharge in a chapter 7 or 13 case if the debtor fails to complete “an instructional course concerning financial management.” The Bankruptcy Code provides limited exceptions to the “financial management” requirement il -the U.S. trustee or bankruptcy administrator determines there are inadequate educational programs available, or if the debtor is disabled or incapacitated or on active military duty in a combat zone.
How Does the Debtor Get A Discharge?
Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustee’s attorney, if any. The debtor and the debtor’s attorney also receive copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.
Are All the Debtor’s Debts Discharged or Only Some?
Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of-debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of-the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving).
There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.
Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of non dischargeable debts are certain types of-tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for- most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.
A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for will fill and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. Although a chapter 13 debtor generally receives a discharge only after completing all payments required by the court-approved (i.e., “confirmed”) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a “hardship discharge” even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control. The scope of a chapter 13 “hardship discharge” is similar to that in a chapter 7 case with regard to the types of debts that are excepted from the discharge. A hardship discharge also is available in chapter 12 if the failure to complete plan payments is due to “circumstances for which the debtor should not justly be held accountable.”
Does the Debtor Have the Right to a Discharge or Can Creditors Object to the Discharge?
In chapter 7 cases, the debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. Creditors receive a notice shortly after the case is filed that sets forth much important information, including the deadline for objecting to the discharge. To object to the debtor’s discharge, a creditor must file a complaint in the bankruptcy court before the deadline set out in the notice. Filing a complaint starts a lawsuit referred to in bankruptcy as an “adversary proceeding.”
The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer- or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of books or records; perjury and other fraudulent acts; failure to account for the loss of assets; violation of a court order or an earlier discharge in an earlier case commenced within certain time frames (discussed below) before the date the petition was filed. If the issue of the debtor’s right to a discharge goes to trial, the objecting party has the burden of proving all the facts essential to the objection.
In chapter 12 and chapter 13 cases, the debtor is usually entitled to a discharge upon completion of all payments under the plan. As in chapter 7, however, discharge may not occur in chapter 13 if the debtor fails to complete a required course on personal financial management. A debtor is also ineligible for a discharge in chapter 13 if he or she received a prior discharge in another case commenced within time frames discussed the next paragraph. Unlike chapter 7, creditors do not have standing to object to the discharge of a chapter 12 or chapter 13 debtor. Creditors can object to confirmation of the repayment plan, but cannot object to the discharge if the debtor has completed making plan payments.
Can A Debtor Receive a Second Discharge in a Later Chapter 7 Case?
The court will deny a discharge in a later chapter 7 case if the debtor received a discharge under chapter 7 or chapter 11 in a case filed within eight years before the second petition is filed. The court will also deny a chapter 7 discharge if the debtor previously received a discharge in a chapter 12 or chapter 13 case filed within six years before the date of the filing of the second case unless (1) the debtor paid all “allowed unsecured” claims in the earlier case in lull, or (2) the debtor made payments under the plan in the earlier case totaling at least 70 percent of the allowed unsecured claims and the debtor’s plan was proposed in good faith and the payments represented the debtor’s best effort. A debtor is ineligible for discharge under chapter 13 if he or she received a prior discharge in a chapter 7, 11, or 12 case filed four years before the current case or in a chapter 13 case filed two years before the current case.
Can the Discharge be Revoked?
The court may revoke a discharge under certain circumstances. For example, a trustee, creditor, or the U.S. trustee may request that the court revoke the debtor’s discharge in a chapter 7 case based on allegations that the debtor: obtained the discharge fraudulently; failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the bankruptcy estate; committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or failed to explain any misstatements discovered in an audit of the case or fails to provide documents or information requested in an audit of the case. Typically, a request to revoke the debtor’s discharge must be tiled within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge.
In a chapter 11, 12 and 13 cases, if confirmation of a plan or the discharge is obtained through fraud, the court can revoke the order of confirmation or discharge.
May the Debtor pay a Discharged Debt After the Bankruptcy Case has been Concluded?
A debtor who has received a discharge may voluntarily repay any discharged debt. A debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a debtor agrees to repay a debt because it is owed to a lamely member or because it represents an obligation to an individual for whom the debtor’s reputation is important, such as a family doctor.
What Can the Debtor Do If A Creditor Attempts to Collect a Discharged Debt After the Case is Concluded?
If a creditor attempts collection efforts on a discharged debt, the debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
Can an Employer terminate a debtor’s employment Solely Because the Person was a Debtor or Failed to Pay a Discharged Debt?
The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of’ governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.