If your debts have become overwhelming and you see little hope in substantially reducing your debt load for years to come, bankruptcy may be a solution. Individuals and married couples can use the bankruptcy process to discharge thousands of dollars in debt, or repay creditors over time while saving their home from foreclosure.
For personal bankruptcy, you may use Chapter 7 or Chapter 13 of the bankruptcy code, provided you qualify. Congress significantly amended the bankruptcy code in 2005 and placed restrictions on who may qualify to file, although most consumers are able to use Chapter 7 or Chapter 13.
If you are considering filing for bankruptcy or have questions regarding qualifications or the process involved, call the Law Offices of Jason C.. Matalas at (978) 304-2888.
Chapter 7 Bankruptcy
Chapter 7 is a straight bankruptcy or a liquidation. If you qualify to file, you are able to discharge unsecured debt such as credit card and medical bills, department store bills, personal loans, payday loans, past due rent and utility bills, promissory notes, certain taxes, and any other debt that is not secured. A secured debt is generally one that is collateralized such as car loan or house mortgage or where the lender has a lien or security interest.
When filing bankruptcy, an automatic stay goes into effect. This means that any court actions including collection activities such as property seizures or bank levies must cease. A creditor can file a motion to lift the automatic stay if it can persuade the court that its secured property is not adequately protected. A common example is a house in foreclosure. Courts will routinely lift the automatic stay in such cases.
To file Chapter 7, all consumers must have a household income below the median for its size. As of May 2017, the median income for Massachusetts households were:
- 1 individual: $61,102
- Couple: $76,414
- Family of 3: $93,755
- Family of 4: $113,651
- Add $8,400 for each additional family member
If your income falls below these thresholds, you are eligible to file. But even if you do not, you could still qualify by passing the “means’ test. Factors include the amount of your secured debt, county of residence, marital status, health, and others. You could also qualify under the “totality of the circumstances” test. This can be a complicated process that your attorney, Jason C. Matalas, can analyze for you.
If you are eligible, then all consumers must first take a brief credit counseling class within 180 days of filing that can be arranged by Mr. Matalas. Once completed, you are issued a certificate of completion that is filed with your petition.
A Chapter 7 petition consists of schedules that list all your debts, monthly expenses, certain transactions and other information. Your attorney will help prepare the schedules and file them.
A crucial part of the petition is choosing which exemptions to use for your property, which are state or federal. Your attorney will assess your assets and counsel you on what is exempt and choose the right set of exemptions for your case. For instance, under our state exemptions, you can exempt $7,500 in the equity of one motor vehicle and $500,000 in equity in your home provided you filed a Declaration of Homestead with the registry of deeds. In most cases, debtors are able to exempt all of their personal property. Non-exempt property includes real estate that is not your homestead, second vehicles, a boat, and valuable collections or jewelry with a value over $1,225. In some cases, non-exempt property can be converted to exempt with the assistance and advice of your attorney.
Once your case is filed, it is assigned to a trustee. Within a few weeks of filing, you and your attorney will attend a First Meeting of Creditors, or 341 Meeting, with the trustee. You will be asked basic questions about your petition and if there is any non-exempt property that may be seized or if there are issues regarding certain transactions. For instance, you are not permitted to transfer property to a relative or business associate before filing for the purpose of avoiding its seizure because of its non-exempt status.
This is generally the only meeting or appearance you will make. Before your case is discharged, you will also have to complete a short financial management class.
Regarding secured debt, you have the option of reaffirming the debt, returning the collateral to the lender with no further obligations, or keep the property by redeeming it if it is protected by an exemption. Redeeming the property means paying its replacement value.
About 3-4 months after filing, you will receive a discharge of debts in the mail. Remember that there are certain unsecured debts that are not dischargeable such as most student loans, and court obligations such as past due child support or alimony. Talk to your attorney about tax obligations as some are dischargeable and others are not.
A bankruptcy will remain on your credit record for 10 years. Its effect on your credit will diminish in the years before it disappears.
Chapter 13 Bankruptcy
Not all debtors qualify for Chapter 7 and in some cases, a straight bankruptcy is not the best solution. For example, Chapter 7 will not stop a foreclosure or a vehicle repossession in most cases.
Chapter 13 is a repayment program whereby you repay your creditors over a 3-year period. Similar to Chapter 7 debtors, you do have to complete debt counseling and financial management classes. You will have to have sufficient “disposable” income for the court to approve your repayment plan.
The petition is also very similar to a Chapter 7 with the same schedules except that you will file a plan to repay at least your secured creditors within 3-years. If accepted by the trustee, you make a single monthly payment to the trustee who distributes it to your creditors.
The main benefit of a Chapter 13 is that you can avoid a foreclosure or default on a secured loan. You must have the means to pay the regular monthly mortgage payments, for instance, while also making your monthly Chapter 13 payment. Filing also allows you to pay the IRS without incurring penalties (interest can still accumulate), as well as overdue child support, alimony payments, and student loans.
Further, unsecured debt that is not paid at the end of the repayment period is discharged. This can include a junior or second mortgage on a home.
Sole proprietors can also file Chapter 13, which allows them to repay personal debts over the repayment period and to continue operating their business.
Contact The Law Offices of Jason C. Matalas
Jason C. Matalas is an experienced attorney who handles Chapter 7 and Chapter 13 bankruptcies for individuals and families. Call him at(978) 304-2888 for all of your personal bankruptcy questions and for him to handle your filing and represent you during bankruptcy proceedings.