FREQUENTLY ASKED QUESTIONS ABOUT BANKRUPTCY
1. What is a Chapter 7 Bankruptcy case, and how does it work?
A Chapter 7 Bankruptcy case is a proceeding under federal law in which the debtor seeks relief from creditor actions under Chapter 7 of the Bankruptcy Code. Bankruptcy law is federal law, and Chapter 7 is that part of the Bankruptcy Code which deals with liquidation. In a Chapter 7 case, the debtor receives protection from creditors immediately upon filing the case. Chapter 7 debtors must turn their non-exempt property of any significant value over to a Trustee, who then converts the property to cash and pays the debtor’s creditors. In return, the debtor receives a Chapter 7 discharge which is permanent protection from collection of most debts.
2. What is a Chapter 13 Bankruptcy case, and how does it work?
In a Chapter 13 case, the debtor proposes a plan to repay all or a portion of his or her debts under the supervision and protection of the Bankruptcy Court. The Plan must be approved by the Court to become effective. If the Court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor. Under the Plan, the debtor makes regular payments to a person called the “Chapter 13 Trustee,” who collects the money paid by the debtor and disburses it to creditors in the manner called for in the Plan. Upon completion of the Plan payments, the debtor is released from liability for the remainder of his or her dischargeable debts. Most Chapter 13 Plans require payments for sixty (60) months, or until all unsecured debts are paid in full, whichever happens first. A Chapter 13 case normally lasts much longer than a Chapter 7 case, and is usually more expensive for the debtor.
3. What factors would cause a debtor to choose Chapter 13 Bankruptcy over Chapter 7 Bankruptcy?
Under recent revisions to the Bankruptcy Code, only those persons who are qualified under the Means Test can file for Chapter 7 Bankruptcy. The basic approach of the Means Test is to hold those persons who have a gross income less than the Median Gross Income according to the U.S. Census will be deemed to qualify for Chapter 7 Bankruptcy. Those persons having gross income over the Median Gross Income may also qualify after taking into consideration such person’s payments on secured debt, child support, day care, taxes, health insurance, and other factors. You should consult with an attorney for an opinion as to whether or not you qualify for Chapter 7 Bankruptcy. If the debtor does not qualify for Chapter 7 Bankruptcy, he or she would need to file a Chapter 13, if bankruptcy relief is necessary. One other reason for filing a Chapter 13 is that this type of bankruptcy relief allows debtors to cure defaults on mortgages and other secured debts. Chapter 13 cases typically allow debtors to keep their non-exempt property. These features of bankruptcy relief are not available under Chapter 7.
4. Is there anything a person must do before a bankruptcy case can be filed?
Yes. The debtor is not permitted to file a bankruptcy case unless he or she has, during the six months prior to filing, received a “counseling” class that outlines the opportunities for available credit counseling and assists the person in performing a budget analysis. The class must be conducted by an approved non-profit budget and credit counseling agency and proof of attendance must be submitted to the Court with the initial bankruptcy filing.
5. Can a husband and wife jointly file a bankruptcy case?
Yes, and if a joint case is filed, only one set of Bankruptcy forms is filed for both, and only one filing fee and attorney fee is charged. However, both husband and wife must receive the required credit counseling class before the case is filed.
6. How does filing a bankruptcy case affect collection suits, garnishments, and other legal proceedings that have been, or are about to be, filed against the debtors?
Filing a bankruptcy case stops most lawsuits and collection efforts. Exceptions would be mortgage foreclosures and other suits to repossess secured property, which are temporarily stopped, but which will proceed with regard to the creditor’s collateral with permission of the Bankruptcy Court. Other actions which are not stayed are child support collection efforts, criminal matters, and collections of student loans, which will be allowed to proceed.
7. How does filing a bankruptcy case affect a person’s credit rating?
The answer depends upon the status of the credit rating at the time the bankruptcy case is filed. If the credit rating is extremely poor, the filing of a bankruptcy could have a positive effect by showing creditors that the old debts which were pulling the rating down have or are being dealt with. However, in most cases, filing of the bankruptcy may have a negative effect on the credit rating. As your attorneys, our primary duty as your bankruptcy counsel is to protect you from collection efforts. Your credit rating is a secondary concern which is largely beyond our control, as it is the result of your perceived earning power and your history of payments. However, it is our belief and philosophy that if one handles credit in a responsible manner post-bankruptcy, and has reasonable earnings, then the credit rating will recover.
8. Does a debtor in a Chapter 7 case “lose everything”? What is “exempt” property?
Exempt property is that property which is protected from levy and execution by state law. This includes property such as a person’s home, contents of the home, furnishings, clothing, food, tools of the trade, certain vehicles, and other items. Most bankruptcy cases, Chapter 7 or 13, do not result in the Trustee taking any property from the debtors. However, one of the primary duties of your attorney in a bankruptcy case is to help you identify exempt and non-exempt property and to plan your pre-bankruptcy “estate” so that you can maximize your exempt property and minimize the property which is subject to the risk of liquidation. Pre-bankruptcy estate planning should only be undertaken with the advice of an attorney, who should be knowledgeable as to what type of transactions are allowed, and as to any required disclosures of the transactions in the bankruptcy filings.
9. I have my own business, or am self-employed. Can I still file bankruptcy?
Yes, but in order to pass through the bankruptcy, any business equipment would need to meet the definition of “tools of the trade,” not in excess of $10,000.00 in value, which would be exempt pursuant to Oklahoma’s exemption statute, 31 Okla. Stat §1(A)(5). Cash, inventory, and other such items would be non-exempt, and possibly subject to liquidation in a Chapter 7 case. Handling a small business through a Chapter 7 or 13 can become complex, and you should consult us for further advice on this matter. In either case, you will need to have accurate accounting records as to profits, losses, inventories of equipment, supplies and materials, current through the date of filing; and tax returns current through the year prior to filing before the bankruptcy can be filed.
10. What does it cost to file bankruptcy?
Filing fee for Chapter 7 is $335.00 The filing fee for Chapter 13 is $310.00. Please call to discuss attorney fees.
Located at the corner of Vandament and Holly in Yukon, Oklahoma (the Spring Creek Building).
H. David Hanes, P.C.
508 West Vandament Ave, Suite 300
Yukon, OK 73099
H. David Hanes, P.C. helps families and individuals in Yukon and elsewhere in Western Oklahoma with their bankruptcy, estate planning and administration, business formation and litigation, and personal injury issues. We offer cost-effective legal solutions that will help you work toward the best possible outcome for your case. Contact the Hanes Law Firm today to make an appointment for an initial consultation.
Copyright © 2009 by H. David Hanes, P.C. Yukon, Oklahoma Attorney. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.
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