BANKRUPTCY: CHAPTER 7 AND CHAPTER 13

When your debts exceed your personal or business income, one way to avoid losing your house and basic possessions is to file bankruptcy.  Almost anyone is eligible to use a bankruptcy petition as a last resort for debt settlement. Chapter 13 Bankruptcy allows you to arrange manageable payments to your creditors over time, and Chapter 7 Bankruptcy arranges asset liquidation to pay creditors, and requests your creditors to “forgive” or erase some of your financial obligations.

The type of bankruptcy you file determines details like which bills to forgive, length of time allowed for repayment, and which belongings you are permitted to keep. The Cincinnati bankruptcy lawyers at O’Connor, Acciani & Levy can help you navigate complicated bankruptcy laws and guide you in choosing the best way to achieve debt relief, either through personal bankruptcy or using other methods of debt relief.  

Filing bankruptcy is not free of consequences, and can affect your ability to secure future credit, housing and employment. If your situation is temporary, it may be possible to contact your creditors individually and agree on a either a payment extension, or debt reduction. If you have no valuable assets, your creditors cannot collect your debt, so bankruptcy filing is not necessary.  

Chapter 7 bankruptcy may be filed every 8 years, and 6 years following a Chapter 13 petition. Chapter 13 bankruptcy can be filed every 2 years, or 4 years after filing for Chapter 7 bankruptcy. Bankruptcy law permits changing the type of bankruptcy you have filed only one time. Be aware that when changing the type of bankruptcy petition, any new items of personal property may be confiscated to repay your debt. This is common when moving from a Chapter 13 to a Chapter 7 petition. 

How to File for Bankruptcy

There are several steps to take once you decide to file bankruptcy. Amendments are permitted to include omissions or correct errors; however the debtor risks being charged with perjury. Here is a list of the main things you need to have available:

• Inventory of all your debts, former and current
• List of all your assets and liabilities
• Financial statements
• Payment for the bankruptcy filing fee

Married couples may jointly file bankruptcy, but unmarried persons must file their cases separately. If divorced or separated, both former spouses need to file individually. If one spouse does not file, he or she may become responsible for all the debt. This is especially risky in cases where the former spouses co-signed loans together. Creditors have the right to obtain payment from a co-signer if the debt originator files bankruptcy.  Cincinnati Bankruptcy lawyers at O’Connor, Acciani & Levy  are an invaluable resource in these cases.

If you obtain cash advances within 20 days or make purchases using credit cards within 40 days of filing a bankruptcy petition, these charges can be considered fraudulent, and may not be included in the bankruptcy. The administrator, called the Trustee, investigates the debtor’s purchases and determines whether to include them or not. If not included, the debtor is responsible for paying these debts.

It is advisable to proclaim your plan to repay certain debts, such as a car loan, with a reaffirmation agreement. This document clearly states your intentions, and may help you retain possession of specific items you will need to rebuild your life.

Payments to Creditors

Creditors are permitted to attempt debt collection until your petition is processed. Written notification with case number and date filed is sent to creditors by the bankruptcy court as soon as your bankruptcy is approved. Legal action is authorized against creditors who persist in debt collection after receiving this notification.

A Trustee is appointed by the government to conduct the tasks related to your bankruptcy. This includes determining which assets to sell, and assessing their value. Your assets must be liquidated to repay as much of your debt as possible. Arrangements for an estate sale or auction are made by the Trustee, as is collection of money and payments to creditors. Cases may be reopened by the Trustee if omissions or other mistakes are discovered.

The court sets a date for creditors to discuss terms of bankruptcy with the debtor and also sets a deadline for objections to specific debt settlement and debt forgiveness arrangements. Creditor claims, if permitted, are decided on a case by case basis.

Debt Settlement

When you use personal collateral such as your house or car to secure a loan or debt, (secured debt) your creditors can claim this property as compensation for delinquent payments if you declare bankruptcy. Signature loans or debt that is not backed up with a valuable asset leaves the creditor without recourse for payment in the event of bankruptcy (unsecured debt). Click here for more on debt settlement.

Not all debts are eligible for forgiveness, regardless of Chapter 7 or Chapter 13 petitions. Examples of types of debt that must be paid after filing bankruptcy are listed below.

• Child support and alimony
• Local, state and federal taxes
• Financial obligations due to causing death or injury resulting  from driving under the influence of alcohol or drugs
• Debt due to fraud
• Unscheduled debt or financial obligations that the debtor agreed to pay
• Intentional harm caused to individuals or property by debtor
• Student loans sponsored by the government, except in cases showing hardship
• New debt, acquired after filing bankruptcy

Accounts and Property Protected in Bankruptcy

Social Security accounts and retirement funds are protected from seizure under both Chapter 7 and Chapter 13 bankruptcy petitions. However, once funds are paid or withdrawn from these accounts, the money may be considered income. If the debtor cannot prove it is retirement money, creditors may be able to claim it.

The decision of whether a debtor’s home may be taken depends on state laws and exemptions, and status of the mortgage with respect to foreclosure. If payments are current, Chapter 13 offers the debtor more protection than Chapter 7.

Recovering from Bankruptcy

It may take up to ten years for a bankruptcy to be cleared from your records. While you cannot take any action to remove the bankruptcy petition before this time, you are permitted to file a letter stating the facts leading to your bankruptcy. Establishing your good credit after bankruptcy depends on your individual creditors. Some will extend credit to you immediately, while others will not, considering you a credit risk.

The bankruptcy laws do not affect your ability to secure credit and repair debt once the petition expires. Some companies claim that they can restore your credit, but they usually charge more for their service than it is worth, and can’t do any more than you can.  It is wiser to spend your time establishing credit in good standing and renewing your relationships with former creditors than to give your money to a credit restoration company.

Bankruptcy lawyers at O'Connor Acciani & Levy can help you protect your home, car and other assets under certain state and federal bankruptcy exemption provisions. Bankruptcy laws are complicated and subject to many different interpretations. Contact our Cincinnati bankruptcy Lawyers for a free and confidential consultation regarding your debt settlement by calling 513-241-7111 today.