Options Under the Bankruptcy Code
As experienced Arkansas Bankruptcy Lawyers, we understand that there are five (5) Chapters under the Bankruptcy Code, and each one has it’s own unique set of options.
Chapter 7 is a liquidation of non-exempt property; Chapter 9 is for Cities and Municipalities; Chapter 11 is for individuals or businesses who owe large sums of money; Chapter 12 is for family farmers; and Chapter 13 is for individuals to reorganize their debts to keep their property.
The most common Chapters under the Bankruptcy Code are Chapter 7 & Chapter 13; therefore, this web site will concentrate on those two Chapters.
Chapter 7 Bankruptcy
Chapter 7 is commonly referred to as “straight liquidation”. What this means is the Chapter 7 Trustee will take all of your “non-exempt” property, if there is any, and sell it to pay your debts; however, in 98% of the cases handled by this firm, there is no “non-exempt” property for the Trustee to sell. Only in very, very unusual circumstances does anybody lose property to the Trustee, because the property is “non-exempt”.
In order to keep secured property in a Chapter 7, you must, usually, be current on your payments, enter into a “re-affirmation agreement” with the secured creditor and continue making your payments. A Chapter 7 will wipe out all of your dischargeable debts, the Bankruptcy rules spell out exactly what property you may exempt and what non-dischargeable debts are, and are discussed in more detail in the Exemption section and Non-Dischargeable Debt section.
Chapter 7 Bankruptcy For Businesses
When a business can no longer pay its creditors, it may file (or be forced by creditors to file) for bankruptcy under Chapter 7 in a federal court. Filing Chapter 7 states that the business ceases it’s operations unless continued by a trustee. Typically, a trustee is appointed as soon as possible and generally sells all the assets of the business to be used to pay creditors.
When very large businesses enters Chapter 7, the company may be divided up into portions that can be sold to other companies. What this means is that not all employees may be forced to find a new job.
Chapter 7 Bankruptcy For Individuals
Chapter 7 bankruptcy for individuals is generally called a “straight bankruptcy” in which the individual is permitted to keep certain exempt property. Most liens, such as real estate mortgages and auto loans, are not exempt. Exemptions vary from state to state, so it’s important to contact an experienced Arkansas bankruptcy lawyer if you live in the state of Arkansas. If there are any assets, they are sold by the trustee to repay creditors.
For most purposes, a bankruptcy stays on the individual’s credit report for up to 10 years. This can affect an individual’s credit unfavorably, although other factors can also scar your credit rating such as high debt. Consumer creditworthiness is a complicated matter in and of itself, and ability to obtain credit in the future depends on many factors, making this hard to predict. Creditworthiness is only one issue to consider when determining whether to file a Chapter 7 bankruptcy.
Chapter 13 Bankruptcy Attorney
As Bankruptcy Attorneys, we know that Chapter 13 is commonly referred to as a “wage earner’s reorganization”. It allows people, within certain debt limitations, to consolidate and reorganize their debts and protect secured property necessary to running a household or business.
There are three (3) major reasons for filing Chapter 13.
First, you may not have the attorney’s fee and filing fee necessary to file a Chapter 7 Bankruptcy. Second, there may be debts you want paid through a plan of reorganization or property you want to keep. Third, you failed the second rung of the “Means Test” indicating that you have “Disposable Income” that should be paid to unsecured creditors which prohibits you from filing a Chapter 7 Bankruptcy.
Usually the major question when filing for Chapter 13 Bankruptcy is: how much will my monthly payment be?
There are eight factors that determine your minimum payment in a Chapter 13 Bankruptcy. They are as follows:
- Your Means Test results show you have “disposable income” to pay towards unsecured creditors. Additionally, if your income is above “median” it may affect your plan length also.
- What your Plan Length is. The length of your plan of repayment can be a minimum of 36 months (3 years), unless the Means Test says otherwise, and a maximum of 60 months (5 years).
- What Secured Property you want to keep and pay for. In the case of secured property there are two major options:
- Surrender the property back to the creditor and not pay anything;
- Keep & Pay for the property, and if it was purchased recently (910 days, i.e. 2 ½ years, for vehicles and 365 days, i.e. 1 year, for household goods) pay the balance due plus interest, or if purchased not too recently, pay the balance due or the “retail” value of the property, whichever is less, plus interest, through your plan. With a home payment, there are three options: first, provided the payments are current, continue to pay it directly yourself; second, make the regular monthly payment through the plan, and if behind on the payment, catch up the payments within the plan, so when the Bankruptcy is over, you will be current and pick up and pay the normal monthly payment; and third, pay the balance in full within the plan.
- What Leased Property you want to keep and pay for. More often than not, lease-purchases are not financially wise transactions. If you have leased property, you have three (3) options:
- Reject the lease and let the creditor have the property back and pay them nothing;
- Accept the lease contract as written, and continue to pay them directly, not through the plan, if your payments are current; and
- Accept the lease contract as written, and pay it through the plan, and if you are behind on payments, catch those payments up through the plan.
- What Priority Debt, such as taxes and child support, you have. All priority debt, except child support, must be paid in full within the life of the plan. We recommend full payment of back child support within your plan; however, if it is not feasible, you can pay whatever the divorce Court has told you to pay, usually 10% above your current support obligation; however, you will owe whatever back child support has not been paid when you get out of Bankruptcy. Any current support obligation payments must be paid directly by you.
- What, if any, Non-Dischargeable Debt (usually student loans) you intend to repay. Remember, any amount not paid will be due and owing after you get out of Bankruptcy plus interest and any collection fees charged. You have two options:
- Ignore the student loan and pay nothing through the plan; and
- Pay your normal monthly payment and catch up what you are behind.
- What, if any, Consumer, Co-Signed or Joint Debts, owed with non-filing debtors, you intend to repay. You have two options:
- Pay nothing towards the obligation and let the responsibility fall on the co-debtor or person jointly obligated.
- If you wish to protect the non-filing co-debtor, you must pay the debt, in full within the plan, plus interest.
- What, if any, Non-Exempt Property you must pay the value of. If you have property that cannot be exempted, which is unusual, you will pay the value of the property to the Trustee, through your Plan of Repayment. If you file a Chapter 7, this property would be taken and sold by the Chapter 7 Trustee to pay towards your debts.
A Chapter 13 Bankruptcy is flexible. During the course of a case, in some situations, you can make your payment go down by surrendering collateral back to the secured creditor. If you have less than a five year plan you may also be able to extend your plan length to reduce your monthly payment amount. Additionally, if for some reason you incur other bills, usually medical, they can, in some instances, be added to your Bankruptcy and be discharged.
Arkansas Bankruptcy Attorneys – Bankruptcy Exemptions
As Arkansas Bankruptcy Lawyers, we know that the Bankruptcy Exemption rules are very important to anyone considering filing for Bankruptcy protection. The Exemption Rules protect certain items of property from the Chapter 7 Trustee’s ability to take and sell it to pay your debt. Also, it keeps the Chapter 13 Trustee from requiring a debtor to pay the property’s equity into a Plan of Reorganization.
The vast majority of people our Firm represents in Bankruptcy can fit all their property into an Exemption. On the rare occasion that all the property cannot be exempted, there are ways to protect that property that our would discuss with you in that event.
If your residence has been in Arkansas, continuously, for two (2) years or more, you are allowed to elect either the Arkansas Constitutional Exemptions or the Federal Exemptions, no mixing between the two are allowed. Usually the Federal Exemptions are best to use, unless you have substantial equity in your home. The provisions of both are discussed below.
A. Arkansas Constitutional Exemptions. You may exempt your homestead, regardless of value, if you are married or have dependants, subject to acreage restrictions. The acreage restrictions are: one quarter (1/4), of an acre for urban property and eighty (80) acres for rural property. Additionally, you may exempt your clothes, and up to $500 of any other personal property if you are married or have dependants or $200 if single with no dependants. If two spouses are filing, the exemptions would be $500 each plus your homestead, plus your clothing.
B. Federal Exemptions. The Federal Exemptions have a list of categories of property that can be exempted and a value limitation for each item of property. One important point about the Federal Exemptions is, if you and your spouse are both filing you may double the exemptions; in other words, if an exemption is $100, and, you and your spouse are filing, the combined exemption is $200. The Federal Exemptions are as follows:
- Homestead: $20,200, for single or $40,400 for joint filing in real property or personal property used as residence, can also be used towards a burial plot.
- Motor Vehicle: $3,225 in one motor vehicle per person.
- Personal Property: $1,075 for “any particular item” and $10,775 of household furnishings, household goods, wearing apparel, appliances, books, animals, crops or musical instruments for household use.
- Jewelry: $1,350 (per person) for jewelry.
- Wildcard: $1,075 for any property plus up to $10,775 of any unused portion of the homestead exemption (per person).
- Work Items: $2,025 in implements, professional books, tools, tools of the trade.
- Unmatured Life Insurance: any unmatured life insurance contract owned by debtor.
- Any Interest in Any Unmatured Life Insurance Contract: $10,775.
- Health Aids: any professional prescribed health aids.
- Subsistence Payments: exempt any of the debtor’s right to receive: (A) Social Security, unemployment, public assistance; (B) VA benefits; (C) disability, illness, unemployment benefit; (D) alimony, support or separate maintenance to the extent reasonably necessary for the support of debtor; (E) payment under stock bonus, pension, profit sharing, annuity or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of debtor or his dependants.
- Right to Receive Property Traceable to: (A) crime victim’s reparation; (B) wrongful death of individual whom debtor was dependent; (C) payment under life insurance of an individual whom debtor was dependent; (D) $20,200 on account of bodily injury, not to include pain and suffering or compensation for actual pecuniary loss; (E) compensation of loss of future earnings of debtor, to the extent reasonably necessary for the support of debtor or his dependants.
- Retirement Funds Exempt from Taxation: unlimited.
If you have not been a resident of Arkansas continuously for the past two (2) years, which state’s exemption scheme applies in your situation is complex. The question is, which state did you live in the most during the 6 months before the 2 years before filing Bankruptcy? Therefore, you go back 2 1/2 years then come forward to 2 years. You then figure out which state you lived in the most during that 6 month period, and what ever state you lived in the most is the state that will control your exemption scheme.
After determining which State’s Exemptions applies, you must figure out several other things, which is beyond the scope of this writing, before you know exactly what exemptions you have. Of course our experienced Bankruptcy Lawyers know how to make the calculations and determine exactly what exemptions apply to your situation.
The Bankruptcy rules say that certain debts are non-dischargeable and will still be owed after going through the Bankruptcy process, unless it is paid through the Bankruptcy process. The most common non-dischargeable debts are as follows:
- Taxes, with limited exceptions;
- Alimony, maintenance or support (also child support);
- Criminal fines, tickets, criminal hot checks or restitution;
- Damage resulting from driving while intoxicated;
- Some property-debt division Orders in a divorce;
- Some debt incurred within ninety (90) days of the date of filing a Chapter 7;
- Student loans guaranteed by the Government, with limited exception (undue hardship);
- Debt obtained by fraud.
Criminal Fines, Tickets, Hot Checks
Bankruptcy does not affect Criminal Fines, Restitution, Tickets or Criminal Hot Checks. You must comply with whatever the criminal justice system requires you to do. Filing Bankruptcy will not stop any of the Criminal Court’s orders.
Bankruptcy Definitions and Terms
Click on any term to read it’s definition
Anything that has any value that you can sell or trade and get money for it.
A Bankruptcy rule that prohibits creditors from attempting to collect a debt from a debtor whether it be by repossession, foreclosure, sending bills, phone calls demanding payment.
Any item of property used to secure a loan. In other words, it’s the property a debtor would lose (by repossession or foreclosure) if payments on the debt are not made.
Confirmation of Plan
The process that a plan of repayment goes through to make sure it meets all the requirements of the Bankruptcy rules, once it does, it will be approved by the Court.
A person or business to whom a debtor owes money.
Any obligation to pay money or perform services to/for another person or business.
Any person who owes money to another person or business (a creditor).
Forgiveness of debt. After receiving a discharge, a debtor does not legally owe the debt and a creditor cannot demand payment.
The difference between how much is owed on secured property and the value of secured property. For example, a car worth $4,000 that you owe $3,000 on has $ 1,000 of equity in it.
A Bankruptcy rule that protects a certain item of property from the Chapter 7 Trustee’s ability to take and sell it. Also it keeps the Chapter 13 Trustee from requiring a debtor to pay the equity in the property into a Plan of Reorganization.
Any cost necessary to run a household, such as utilities, insurance, food, clothing, shelter.
The ability to make plan payments to the Chapter 13 Trustee after debtor pays his monthly expenses.
To take, by legal process, money in the hands of someone, other than the debtor, and give it to a creditor. In order to garnish something, a creditor must first file a lawsuit against the debtor, obtain a judgment in Court, file a garnishment and serve it on, usually a bank or the employer of the debtor, and the bank/employer will hold money out of debtor’s account/pay check and send it to the creditor.
Any money received, whether it be from working, government benefits, child support, tax refund, the receipt of personal injury settlement, etc.
Meeting of Creditors
A meeting that every debtor is required to attend where the Trustee and any creditor, may ask the debtor questions while under oath. Usually, it is held within thirty, (30) to forty, (45) five days from the date of filing Bankruptcy. The meeting usually lasts about five (5)minutes.
Plan of Repayment
The document, in a Chapter 13, that tells everyone how a Debtor’s debts will be handled. Probably the heart of a Chapter 13 case.
A non-dischargeable debt usually in the form of child support, alimony, criminal fines, hot checks, restitution and taxes. This type of debt will not be discharged in a Chapter 7 and will be owed after the case is over. In a Chapter 13, priority debts are paid through the Plan of Repayment, with some exceptions.
Anything that can be converted into money.
Only applies in a Chapter 7. When the debtor and creditor enters into an re-affirmation agreement, the debtor agrees to pay the debt to the secured creditor in order to keep the secured property. If in the future, the debtor does not pay the debt for whatever reason, the creditor will be able to repo the secured property, sue the debtor, obtain judgment and collect from debtor, even though debtor filed Bankruptcy.
When a secured creditor takes the collateral that secures the debt owed. For example, the repo man takes the vehicle, because debtor is behind on payments.
What you would have to pay to buy property.
Any debt that if debtor did not pay, the creditor could repossess some property that was put up as collateral.
Property of any kind where a creditor can repossess it if the debtor doesn’t make payments as agreed. Example would be a home mortgage or vehicle loan.
To let secured property, that serves as collateral for a debt due a secured creditor, go back to the secured creditor. If debtor surrenders property back to a creditor, debtor will not pay any money to the secured creditor, in most cases, if filing Bankruptcy.
To sell, trade, or give any property to another person or business.
The person appointed to oversee a Bankruptcy case.
Chapter 7 Trustee
The job of a Chapter 7 Trustee is to determine whether the debtor has non-exempt property that he can take and sell to pay towards the debtor’s debts. If there are no assets, the Trustee will declare the case to be a “no asset case”.
Chapter 13 Trustee
The job of a Chapter 13 Trustee is to review the debtor’s Bankruptcy petition and plan of repayment and make sure they meet all the Bankruptcy rules. This Trustee collects the plan payments from debtor and after the Plan of Repayment is confirmed, will pay the money to creditors in accordance with the Plan of Repayment.
Any bill that doesn’t have any secured property to go along with it. In other words, if you didn’t pay, there is no property for the repo man to take. Common examples are credit card debts, medical bills, open accounts and signature loans.
What you could actually sell an item of property for.