Bankruptcy Blog - Chapter 7

Whether you can file a Chapter 7 case depends partly on whether your recent income was above or below the “Median Family Income” published by the U.S. Census Bureau. A couple months ago these income benchmarks changed. Because of the ravages of the tough economy, in most parts of the country these “Median Family Income” amounts went down instead of up as they consistently had in the past.  What does that mean for you if I want to file a Chapter 7 case?

A short sale of your home will more likely succeed when it done as part of an organized strategy in conjunction with filing a bankruptcy case.

Last week we showed how a Chapter 7 bankruptcy filing gives you a way to take care of your divorce obligations, such as ongoing and back child support, plus debts which the divorce decree ordered you to pay.  But using Chapter 7 to accomplish this only works in simple situations and where the support arrearage and other debts are relatively small. Otherwise, Chapter 13 is often a much better option.

This time of year, you may be really counting on getting your income tax refunds. But watch out if you are thinking about filing a bankruptcy. The timing of that filing can make the difference between keeping those refunds and losing them to your creditors. Here’s how it works.

In this blog we get really basic. The most basic kind of bankruptcy is a Chapter 7 case. What is Chapter 7 at its core, at its heart?

The protection you get from most creditors through the homestead exemption does not apply to some categories of creditors. We listed the most important of these categories in recent blog called The Homestead Exemption in Action. We said there that even though these special creditors can defeat the homestead exemption, they can still often be handled in a favorable way through certain bankruptcy procedures. That’s what we talk about here. Plus how sometimes owing money to these special creditors can even be turned to your advantage.

When a business goes out of business, its owners can be left owing many of the tax debts of that business. Have you recently shut down a business and are concerned about whether you are personally liable on any of the taxes of the business? Or have you been closely involved in the finances of a business in which you were NOT an owner, and that business was shut down and still owes taxes? Finally, are you considering shutting down your business but need to know how to deal with its remaining tax debts?

Over the years our clients have occasionally asked if they can file a “medical bankruptcy.” This term implies that there is a particular kind of bankruptcy, one with special rules for a person with lots of medical debts. Somehow, somewhere, somebody came up with this “urban myth.” It’s not true. There are no special rules for a person who has primarily medical debts. At least NOT UNTIL NOW. Congress is in fact now seriously considering a law which would give definite advantages to people who have major medical debts and need to file bankruptcy.

There is no “Chapter 20” bankruptcy option, at least not in the same sense that a person can file a Chapter 7 case or a Chapter 13 one. Instead “Chapter 20” is a shorthand way of talking about filing a Chapter 13 case after having filed an earlier Chapter 7 one. (13 + 7 = 20.) This option has been significantly limited after major amendments to the bankruptcy laws in 2005, but “Chapter 20” can still provide critical help in certain special situations.

On November 1, 2009 the Median Family Income amounts changed. The new amounts apply to anyone in the U.S. filing a Chapter 7 bankruptcy case on or after that date. What are these new amounts, and how can they determine WHETHER you can file a Chapter 7 case at all, and WHEN you can do so?

If you have a choice between doing either a Chapter 7 “straight bankruptcy” or a Chapter 13 “wage earner plan, why would you do the Chapter 13? Some people don’t qualify for Chapter 7, and so do not have any choice. But every year at least tens of thousands of people intentionally choose Chapter 13 because it is better for them. Often it’s because of their vehicles: Chapter 13 can SAVE a vehicle that you would otherwise LOSE in a Chapter 7 case. And it can enable you to KEEP a vehicle by GIVING YOU MORE TIME TO PAY FOR IT and sometimes PAYING LESS to your creditor—sometimes LOTS LESS—than you would in Chapter 7.

This summer the Oregon exemption for a vehicle increased from $2,150 to $3,000. In practical terms, how does this increase work in Chapter 7, particularly if you are married? What if the two of you have only one vehicle? Or if you each have a vehicle but only one is filing bankruptcy?

A Chapter 7 bankruptcy is quite rigid about what possessions you are allowed to keep. If you own anything that is not on the list of "exemptions" or is worth more than the one-size-fits-all exemption dollar limit, you must give it to the Chapter 7 trustee. If you are in this situation, Chapter 13 could provide an excellent way to keep everything own, or everything you want to keep.

Except in quite rare situations, credit card debt continues to be completely written off, or “discharged,” in a Chapter 7 bankruptcy.