Although the economy has generally improved since the Great Recession, many Ohioans continue to struggle with managing their finances. When debts become insurmountable, one option may be to file for personal bankruptcy. Nonetheless, declaring bankruptcy can have a long lasting impact on a person’s creditworthiness. For this reason, it is crucial to have the advice and counsel of an experienced bankruptcy attorney.
Ferguson Legal Group is a debt relief agency that helps individuals navigate the bankruptcy process in Beaver Creek, Dayton and throughout Greene and Montgomery counties. Because filing for bankruptcy requires careful consideration, we provide each client with compassion and knowledge and help them explore all their options.
Under the U.S Bankruptcy Code, individuals can file either a Chapter 7 or Chapter 13 bankruptcy, each of which has its own guidelines and requirements.
A Chapter 7 bankruptcy is also referred to as a liquidation bankruptcy whereby the debtor’s property and/or assets are sold to pay off as much of his or her unsecured debt as possible. Unsecured debt are financial obligations that do not have specific property, such as a house or a car, as collateral. Any remaining debt is then eliminated or discharged. This includes:
It is important to note that other debts, such as student loans, spousal maintenance (alimony), child support, and criminal fines, cannot be discharged in a personal bankruptcy.
In order to be eligible, your income must be lower than the median income for a similar size household in Ohio. If your income is higher than that amount, it is necessary to pass what is known as a means test to determine whether or not you have sufficient disposable income to pay your debts. If you do not pass the means test, you must file for a Chapter 13 bankruptcy. In any event, you cannot file for Chapter 7 if any of the following apply:
In a Chapter 7 filing, certain types of property are protected, or exempt, from being sold, including residential real estate, automobiles and personal property such as furniture and clothing. On the other hand, cash, bank accounts, stocks and bonds, and vacation homes are not exempt.
Before you can file for a Chapter 7 bankruptcy, it is necessary to attend credit counseling with an agency approved by a bankruptcy trustee. After completing the course, you can file a petition in a local bankruptcy court. The bankruptcy petition must include information about your income, debt, expenditures, secured and unsecured debt, the sale of prior property, and a list of exempt property.
Once the petition is filed, a court order known as an “automatic stay” immediately goes into effect. This stops all debt collection activities by creditors as well as repossessions, foreclosures, garnishments, and lawsuits, unless permission is granted by the bankruptcy court. The automatic stay will remain in effect until the bankruptcy is discharged.
After the petition is filed, a bankruptcy trustee is appointed to manage your case. Generally, within 30 to 45 days of filing you will be required to attend a “ 341 Meeting” of creditors. The trustee oversees the meeting, reviews the petition to determine if all the information is accurate, and decides which debts will be discharged. Although creditors are allowed to attend and ask questions about your finances and property, most do not attend. Depending on the circumstances, a Chapter 7 bankruptcy case may take between three to six months from the time it is filed until a discharge is granted.
A Chapter 13 bankruptcy, also known as a reorganization bankruptcy, establishes a repayment plan to pay off debts with future income. Unlike a Chapter 7 filing, you are allowed to keep your property. You must undergo an income test – similar to a means test, which is used to determine the length of your repayment plan.
A Chapter 13 filing begins with the filing of a petition which includes a proposed 36-60 month repayment plan, based on your income. Again, a trustee will be appointed to manage your case and conduct the 341 Meeting. In some cases creditors will attend. A mortgage lender, for example, may want to verify that you will be able to make the payments to catch up on your mortgage and make future payments. Similarly, an auto lender may be present if you intend to “reaffirm” a car loan.
In short, you must be able to show the trustee that you have enough income to meet the conditions of the proposed repayment plan. Once the court approves the repayment plan, you must make monthly payments to the trustee, who will then make disbursements to your creditors. In order to receive a discharge, you must complete all the payments under the plan. If you fail to do so, the bankruptcy will be dismissed, and creditors can restart collection activities.
There are a number of benefits to filing for protection under Chapter, not the least of which is that it stops collection activities by creditors, as well as garnishments, repossession actions, utility shut-offs and civil lawsuits. This form or bankruptcy can also stop a foreclosure proceeding, allowing you to remain in your home, provided that you make any outstanding payments and continue to make current payments. Additionally, a Chapter 13 bankruptcy allows you to repay the balance of a car loan over a 3 to 5 year period.
Nonetheless, there are limitations to filing for Chapter 13. First, a discharge will not eliminate certain debts, including child support and spousal maintenance (alimony) claims, student loans, DUI liabilities, criminal fines, and restitution obligations, and debts not included in the repayment plan. Moreover, while your bankruptcy is open, you cannot incur new debt or sell or transfer any property without the court’s approval. Finally, a Chapter 13 bankruptcy will remain on your credit report for up to 10 years, which will impact your ability to borrow money in the future.
Because navigating the bankruptcy process can be complicated, you are well advised to engage the services of our highly capable bankruptcy attorneys. We will help you explore all your options, determine if you are eligible for a Chapter 7 or Chapter 13 filing, and whether there are viable alternatives, such as debt settlement. Although a personal bankruptcy can be an emotional burden, we can help to lift that burden. If you’re looking to make a fresh start, call our office today for a free consultation or complete the contact form on our website.