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SOME FREQUENTLY ASKED QUESTIONS ABOUT BANKRUPTCY:
Is Bankruptcy For Me?
Which Is Better:  Chapter 7 Or Chapter 13?
Will A Bankruptcy Release Me From All My Debts?

IS BANKRUPTCY FOR ME?

Let’s say you have one irritating creditor who is bugging you.  Otherwise, your finances are in decent order.  Should you file bankruptcy just to get that one creditor off your back?  That can be a bad idea, especially if the debt is not large.  Negotiating a payment plan can be a better option.

Have you filed bankruptcy before?  Depending on how long ago, the type of case you filed (Chapter 7, 11, 12 or 13), the outcome of the old case (discharge or dismissal), and the type of case you now need to file (Chapter 7, etc.), the old bankruptcy may prevent you from getting a discharge in a new case.  Or a new case won’t fully protect you from your creditors.  There are too many factors to explain here.  You need to talk to a lawyer, and I can help.

What kind of debts do you have?  If it’s mostly child support, student loans, criminal fines or restitution, or recent taxes, then your debt is probably non-dischargeable for the most part.  Chapter 7 will be of no real benefit, and even Chapter 13 will provide only temporary relief.  These are real problem areas.  However, you should talk to an experienced bankruptcy lawyer to carefully review the facts, if you want to be sure.  I will be glad to help.  It’s what I’m here for.
But, if your problem debts are primarily credit cards, payday loans, medical bills, or other unsecured debt, or if you need to stop a foreclosure, garnishment, or repossession, then bankruptcy is likely to give you relief, and a fresh start.

WHICH IS BETTER: CHAPTER 7 OR CHAPTER 13?

My overall philosophy is, file Chapter 7 whenever possible, and file Chapter 13 when necessary.  After you learn how each one works, you will see why.

In Chapter 7, you are allowed to keep exempt assets.  You must give non-exempt assets to a Court-appointed Trustee, who will administer them to make money for your creditors.  After a short time, usually four to five months, the Court discharges you (that is, releases you from your dischargeable debts), and you’re off to a fresh start.

If you exempt a car, house, or other property which you’re still paying for, you can keep them if you continue your payments and reaffirm the debt.  To reaffirm, you should be current on your payments for the debt you intend to reaffirm, when you file Chapter 7.
What is exempt property?  For Alabama residents, it’s primarily your earnings, $15,500 equity in a house or mobile home, and $7,750 in personal assets (less what’s owed on a given item).  Usually double in amount, if it’s a joint case.  There are other exemptions, too; I will help you claim all you can, if you decide to file.  In Southwest Alabama, over 90% of Chapter 7 debtors can claim all their property as exempt.

Recent changes to the Bankruptcy Code add a wrinkle.  For Chapter 7, a person’s household income must be below the median for their State; and if it’s not, their disposable monthly income must be below a certain figure.  The median income changes periodically.  As of April 1, 2019, the Alabama median is $47,657 for a household of one; $57,109 for two; $63,940 for three; $78,456 for four, and so on.  There are exclusions for some types of income.  If household income is over the median, some actual expenses may reduce your monthly disposable income.  Otherwise, most household expenses are allocated according to certain IRS tables.  I can analyze your income and/or disposable monthly income to find out if you qualify for Chapter 7.

In Chapter 13, you don’t turn over non-exempt assets to a Trustee.  Instead, you agree to make regular installment payments to a Chapter 13 Trustee and, sometimes, directly to a creditor (usually your home mortgage), under a Court-approved plan. Payments to the Standing Trustee run three to five years.  When you complete payments, you receive a discharge from the Court.  You are allowed to keep all assets (whether exemptible or not) which you need to perform the plan.  That could include your home, even if your equity is $100,000!  It can include a house you rent to tenants, or expensive equipment if you are self-employed.  The possibilities are endless.

Are you way behind on your house note?  Or a second (or even third) mortgage?  Is the repo man circling the block, looking for your car?  In Chapter 13, you can keep the house or car, and catch up on your delinquent payments through a Court-approved plan.  You can pay back taxes through the plan without worrying about levies and seizures. You can significantly reduce title loan debt too.

You typically end up paying less than the full amount of your unsecured debts, such as credit cards, medical bills, payday loans, and loans with collateral not honored in bankruptcy.
And you can file Chapter 13, regardless of how much you earn.  The median income restriction is for Chapter 7’s only.

Summary of Advantages for Each Chapter

Chapter 7 is preferred.  It usually works best if:
-You are current on your house and vehicle notes (or have none).
-You are able to keep all the assets you want as exempt
-You are below the median income, or meet the disposable income test.
-You want to make your fresh start as soon as possible – usually four to five months

Chapter 13 may be needed to address these common contingencies:
-You are delinquent on your house note and you want to keep your house.  Same with vehicles.
-You have non-exempt assets (such as excess equity in your home) you wish to keep
-Your income disqualifies you for Chapter 7, yet you still need bankruptcy protection
-You are willing stay under the Court’s jurisdiction in a 3 to 5 year repayment plan before getting your fresh start
-Remember this advantage to Chapter 13 – you may still end up paying less than the full amount of your unsecured debts.

WILL A BANKRUPTCY RELEASE ME FROM ALL MY DEBTS?

A discharge is the goal of filing bankruptcy.  This is a Court order releasing, or discharging, all your dischargeable debts.  Once it is entered, you can usually begin your fresh start.

Typically, both Chapter 7 and Chapter 13 will release you from your general, unsecured debts.  Examples are: credit cards, medical bills, payday loans, and loans from banks and loan companies.  This includes collateralized debt where you elect to surrender the collateral.  A good example of this would be letting a “lemon” go back to a car loan company.

The only payment a general, unsecured creditor will receive will be (in the rare case) a dividend from the Court-appointed Chapter 7 Trustee who liquidates your non-exempt assets.  Otherwise, you are released from any further personal liability.  Or, in the case of a Chapter 13, payments from the Chapter 13 Trustee from money you pay him under a Court-approved plan.  Otherwise, the Chapter 13 discharge releases you from any further personal liability (unless your case is dismissed before you finish paying your plan).

There are some debts which aren’t discharged.  Examples include:

-Debts (such as car notes and mortgage payments) you reaffirm in a Chapter 7
-Future house mortgage payments in a Chapter 13 where you keep the house
-Child support and related Domestic Support Obligations
-Student loans
-Criminal fines, and some restitution
-Fraud liability
-Recent taxes
-Some credit card charges, if made shortly before filing bankruptcy

Some debts, such as taxes, student loans and unlisted debts, may or may not be dischargeable, depending on many factors.  I can review your individual situation with you and advise you.