Answers to Chapter 13 and Chapter 7 Bankruptcy Questions
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What are the income limitations on filing a bankruptcy?
Previously I spoke of exempting your property so creditors would not be allowed to attach your property. The other requirement is that your monthly net income and monthly living expenses have to be about the same. Otherwords, you can not have much income after expenses left over each month. However, the Bankruptcy Code does allow you to have a little over $100.00 left over each month. There are basically two income tests. The first is the means test. What is looked at is your gross income over the past 6 months. So you need to provide your pay information for the past 6 months prior to the date that you file. The IRS provides various types of deductions that you can take from your gross income to arrive at a monthly disposable income. This income is then annualized and compared to a medium state income for the number of people that live in your household. Where you come down on that scale determines whether you can file a Chapter 7 or Chapter 13 Bankruptcy. The means test looks at your past income. There is another income test and that is Schedule I & J. Here your income moving forward is looked at. Your monthly pay information minus such mandatory deductions as taxes, etc. are used to arrive at your monthly net income. Then your monthly living expenses are deducted from your net income. These can be broader and include more of your actual living expenses than just those allowed on the means test. Again, the two figures need to pretty much offset each other. Income is considered to be about anything derived from any source. However, there are some items that are excluded from these caculations. For instance, social security is not considered in making these calculations. If you are able to pass these tests, then you can file a Chapter 7 Bankruptcy. If not, you will need to file a Chapter 13 Bankruptcy that may have many benefits of its own.
Will I lose any property by filing for bankruptcy?
Most people who file bankruptcy own various pieces of property. The types of property can be anywhere from a house to clothes and furniture. The Bankruptcy Code provides a person with a series of exemptions. Exemptions are kind of like shields that allows you to cover up your property. This takes the property off limits from creditors and prohibits them from being able to attach or levy on your property. Exemptions are allowed to be claimed by each individial debtor. That means that a joint filing by husband and wife provides each spouse with a set of exemptions. Both spouses must choose the same type of exemptions. The huband and wife will basically being receiving double exemptions. These exemptions are only up to certain dollar values. However, they are rather generous, so generally no one loses any property.
Pennsylvania provides a person with a choice of exemptions. There are federal exemptions and state exemptions that you can choose from. The federal exemptions are the most generous, so most likely would be the best choice. As an alternative to the federal exemptions, Pennsylvania allows you to select the state exemptions. These state exemptions are rather limited in scope, but on occasion will be the best choice based on your set of circumstances. If you decide to use the state exemptions, then you are also able to use the exemptions provided by federal non-bankruptcy law. The dollar amounts of the federal exemptions are adjusted every three years to take into consideration the changing costs of living. On April 1, 2016, the exemption amounts were last changed. Currently, the federal bankruptcy exemptions include the following categories:
(This exemption can be applied to any interest in real or personal property that is used as a residence up to $23,675.00. The amount that needs to be exempted only includes any remaining value after subtracting for any valid security interests or lins.)
* Motor Vehicle
(This exemption can be applied to an interest in one motor vehicle up to $3,775.00.)
* Household Goods, Household Furnishings, Wearing Apparel, Appliances and Similar Items
(This exemption can be applied to the above mentioned items that are held primarily for personal, family or houshold use of the debtor or the debtor's dependents up to $600.00 in value in one item and a total of $12,625.00.)
(This exemption allows you to exempt up to $1,600.00, as long as held for personal, family or household use of the debtor or a dependent of the debtor.)
* Any Property
( This exemption is oftentimes called the "wild card" and be be applied to any property up to $1,250.00 per debtor, plus up to $11,850.00 of any unsed portion of the homestead exemption.)
* Tools of the Trade
(This exemption can be used toward implements, professional books or tools of the trade that belong to the debtor or a dependent of the debtor up to $2,375.00.)
* Unmatured Life Insurance
(This exemption is to be used for policies owned by the debtor that do not have a cash or loan value.)
*Accrued Dividend, Interest, or Loan Value of Life Insurance
(This exemption is to be applied toward policies that have a cash value up to $12,625.00 and insure the life of the debtor or someone to whom the debtor is a dependent.)
(This exemption is unlimited and may be applied to professionally prescribed health aids for the debtor or a dependent of the debtor.)
* Disability, Retirement and Other Benefits Replacing Wages
(This exemption applies to the debtor's right to receive in the future social security, unemployment, welfare, disability and illness benefits. A debtor may also exempt alimony and support payments, but only to the extent reasonably necessary for the support of the debtor and any dependents of the debtor. Also, most pensions or other employee benefit plans are exempt to the extent reasonably necessary for the support of the debtor and the debtor's dependents. All of these benefits are generally of the type that are already in pay status and are currently being received.)
* Rights to Compensation for Injury or Losses, and Payments for Lost Earnings
(This exemption applies to payments received from various types of injuries or losses. These include 1) crime-victim reparation awards, 2) wrongful death payments of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, 3) payments on a life insurance contract that insured the life of an individual of whom the debtor was a dependent, to the extent reasonalby necessary for the support of the debtor and any dependent of the debtor, 4) payments on account of personal bodily injury, but not to include pain and suffering, of the debtor or an individual of whom the debtor was a dependent up to $23,675.00 and 5) payments for compensation of loss of future earnings.)
* Pensions and Retirement Accounts
(This exemeption applies to retirement funds that are in a fund that are exempt from taxation from the Internal Revenue Code. This would include most pensions, profit sharing, stock bonus plans, employee annuities; individial retirement accounts, deferred compensation plans of state and local government and tax exempt organizations. The value of the debtor's amount that may be exempted is up to $1,283,025.)
Oftentimes, what exemptions and the amount of those exemptions available to a debtor will determine what type of bankruptcy to file. If you are able to fully exempt all of your property, then a Chapter7 Bankruptcy would most likely be your best option. If you have significant amounts of property that are not exempt, then a Chapter 13 Bankruptcy would probably be your better choice. In a Chapter 13, the minimum amount that will have to be paid back to unsecured creditors will be the portion of the assets that are unable to be exempted.
The Bankruptcy Code was amended several years ago in the area of exemptions to prevent forum shopping. Otherwords, there was reason to believe that some people might move to another state before filing bankruptcy simply to obtain more generous exemptions. The state exemption law that applies is determined by the state in which the debtor's domicile has been 730 days immediately prior to the filing. If the debtor's domicile has not been located in a single state for the 730 day period, then the state exemption law is that of the state in which the debtor was domiciled for the 180 days preceeding the 730 day period, or in which the debtor was domiciled for the longer portion of such 180 day period than any other place. This location will then determine what state's exemptions that you must utilize. Many states have opted out of the federal exemptions and allow you to only use the exemptions provided by that state. Other states are like Pennsylvania and allow you to choose either the federal exemptions or the state exemptions.
Again, it should be pointed out that very seldom does a person lose any property. The whole idea behind allowing a debtor to exempt various pieces of property is to obtain a fresh start in life and to fully reap the benefits of the bankruptcy discharge. If you are tired of living in financial stress and would like to obtain a fresh start, then call Attorney Rodney Shepherd today at 412-471-9670.
Can I keep my tax refund upon the filing of bankruptcy?
Some people file for bankruptcy during tax season. The thought is to use their tax fund to help pay for the bankruptcy filing. However, it is important to know just how tax refunds are handled in bankruptcy. The Bankruptcy Code basically views tax refunds twofold:
1) the right to receive a tax refund, which is for a year prior to the filing of the bankruptcy is undoubtedly property of the Bankruptcy Estate and must be exempted to fully protect it; ; or
2) the debtor may have a excessive withholding from his or her wages by their employer for the current tax year. If a refund does result from this withholding, then oftentimes the refund is prorated over the entire year with the prebankruptcy portion being considered property of the Bankruptcy Estate. It would then be necessary to exempt this portion to fully protect it from the reach of creditors.
Most of the time the exemptions are generous enough that the tax refund can be fully exempted. However, in those situations where the debtor is not able to fully exempt it, then it will most likely be expected to be turned over to the Bankruptcy Trustee.
THE FILING OF BANKRUPTCY CREATES AN AUTOMATIC STAY
The filing of a bankruptcy petition brings about the creation of an automatic stay. This stay basically prevents any further action against you by creditors. It prohibits:
1) any act to collect, assess or recover a claim against the debtor that arose prior to the filing of the bankruptcy petition;
2) the setoff of any debt owing to the debtor that arose prior to the filing of the case against any claim against the debtor; and
3) the commencement or continuation of a proceeding in the United States Tax Court concerning any tax liability by the debtor for a tax year prior to the filing of the bankruptcy petition.
INTERNAL REVENUE SERVICE PROVIDED WITH EXCEPTIONS TO THE AUTOMATIC STAY
Even though the automatic stay prevents most actions, the Bankruptcy Code provides numerous exceptions where the stay does not apply. An exception is granted to the Internal Revenue Service. This exception allows the Internal Revenue Service or other taxing authority to set off a tax refund that existed prior to the bankruptcy filing against a tax debt that also existed prior to the bankruptcy filing. If there is a pending action to determine any tax liability for a period prior to the bankruptcy filing, then the taxing authority may hold the refund until a final determination is made. Clearly any tax refunds for tax years after the bankruptcy filing do not fall within the exception and may not be intercepted or setoff against tax years after the bankruptcy filing.
It is important to note that this exception to the stay only applies to income tax liability and not with respect to any other non-tax liability owed to any other government entity. For instance, any setoff or interception of a tax refund to pay student loans or other debts owed to a government agency is stayed.
DEBTOR MAY UTILIZE AVOIDANCE POWERS GRANTED BY THE BANKRUPTCY CODE
The Bankruptcy Code provides the debtor with certain avoidance powers. Any levies or executions by unsecured creditors that take place within 90 days prior to the filing of the bankruptcy may be avoided. Therefore, any tax refund intercepts made by the Internal Revenue Service for such things as student loans or other government owed debts can be set aside if made within 90 days of filing the bankruptcy petition.
EXPERIENCE COUNTS WHEN SELECTING A BANKRUPTCY ATTORNEY
If you are interested in filing for bankruptcy or simply have any questions, then contact Pittsburgh Bankruptcy Attorney Rodney Shepherd. We may be contacted through our contact information form on our website or by telephone at 412 471-9670. A free consultation will be scheduled to better analyze your situation to put you on the road to financial freedom.
What type of certifications must be obtained prior to filing bankruptcy and subsequent to the filing of the bankruptcy?
A CERTIFICATE OF CREDIT COUNSELING MUST BE OBTAINED PRIOR TO FILING BANKRUPTCY
The Bankruptcy Code requires a person to obtain a certificate of credit counseling prior to the filing of any bankruptcy petition. This certificate must be obtained within 180 days or 6 months prior to the petition filing date from an approved nonprofit budget and credit counseling agency. The statute actually reads that the briefing must be obtained during the 180 day period ending on the date of the filing of the petition. A more careful reading of the statute actually permits the briefing to be obtained on the date of the filing. This would permit the briefing to be obtained on that date even if the bankruptcy petition was filed earlier in the day. This would apply to the typical situation where a person had a sheriff sale and filed on the date of the sheriff sale to prevent the sheriff sale from taking place, but did not obtain the counseling briefing until later that day. As a precautionary measure, it most likely would be better to obtain the certificate prior to any bankruptcy filing. This counseling requirment can be fulfilled through a variety of channels. Most agencies can provide counseling online over the Internet or telephone, then there is the in-person briefing that is an option. The local credit counseling agency in the Pittsburgh area is Advantage Credit Counseling located at 2403 Sidney Street, Suite 400, Pittsburgh, PA 15219, which may be contacted at 1 (866) 699-2227. A lot of credit counseling courses intially cost around $50.00, but today you can obtain certificates at very low costs between $10.00 to $20.00. The agency must actually waive its' fee for any individuals that meet certain income requirements, who are unable to pay. The income threshold is currently if a person's household income is less than 150% of the poverty guidelines. Depending on the particular circumstances, any briefing can be obtained rather quickly. A typical counseling session last about an hour. During the session the agency will prepare a budget to review the debtor's income and expenses. The idea behind preparing a budget is to determine whether there are any other reasonable options besides filing bankruptcy that are available to such person. Generally, the agency comes to the conclusion that there are no other options available to such person other than the filing for bankruptcy relief. Therefore, the failure to obtain the required briefing prior to any bankruptcy filing will usually result in the dismissal of the case.
EXCEPTIONS TO THE CREDIT COUNSELING REQUIREMENT THAT MAY PERMIT THE BANKRUPTCY COURT TO WAIVE THE REQUIREMENT
There are a few exceptions to the credit counseling requirement, which permits the court to waive the requirement. The first is to be incapacitated. The Bankruptcy Code defines incapacity as being so impaired due to a mental illness or mental deficiency as to be unable to realize and make rational decisions regarding financial responsibilities. The second exception is to be considered disabled. Disabled is defined as being so physically impaired as to be unable to participate in an in-person, online or telephone briefing, after a person has made reasonable efforts to do so. In order to fall within the exemption, the debtor needs to prove the following: 1) the debtor is severely physically impaired; 2) the debtor has made a reasonable effort, despite the impairment, to participate in the prepetition credit counseling; and 3) the debtor is unable because of the impairment to participate meaningfully in the prepetition course in an in-person, telephone or Internet brifing. The third exception is to be on active military duty in a combat zone.
BEWARE THAT YOU MUST NOT ONLY COMPLETE THE COURSE BUT SUBSEQUENTLY CONTACT THE COUNSELOR!
A person should be aware of the fact that even though they may have completed counseling over the Internet or an automated telephone recording, the counseling is not deemed to have been completed until the debtor has had some type of live interaction with a counselor, whether that be by telephone, live chat or email following the automated portion of the session. Otherwords, it will be necesssary to contact a counselor after you have finished taking the course.
Upon completing the credit counseling requirement, then the certificate must be filed with the Court. Either the document can be filed at the time the bankruptcy petition is filed or within the following 14 days.
AFTER YOUR BANKRUPTCY HAS BEEN FILED, THE DEBTOR MUST OBTAIN A CERTIFICATION FROM A PERSONAL FINANCIAL MANAGEMENT COURSE
Once a person has obtained a certificate of credit counseling and filed their bankruptcy petition, an additional certification is required during the bankruptcy process. Just like with credit counseling, any debtors filing a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy must complete a personal financial management course also known as a debtor education course from an approved provider. This certification can only be obtained after your bankruptcy petition has been filed and is required in order to receive a discharge.
IN A CHAPTER 7 BANKRUPTCY THE DEBTOR MUST OBTAIN A CERTIFICATE FROM A PERSONAL FINANCIAL MANAGEMENT COURSE WITHIN 60 DAYS OF THE FIRST SCHEDULED MEETING OF CREDITORS
The time period in which to file the certification from the financial management course in a Chapter 7 Bankruptcy case is no more than 60 days after the first date set for the meeting of creditors. It should be noted that the certification has to be obtained from the scheduled date of the first meeting of creditors, as opposed to the date of any rescheduled meeting. The deadline to obtain the certification may be extended by the Court for cause. However, such request for extension must be filed prior to the expiration of the sixty days. If the debtor does not obtain the required certification, then the court will close the case without discharge. This does not mean that your case has been dismissed, but that you will not receive a discharge. In order to receive a discharge this will mean that it will be necessary to file a new bankruptcy.
IN A CHAPTER 13 BANKRUPTCY THE DEBTOR MUST OBTAIN A CERTIFICATE FROM A PERSONAL FINANCIAL MANAGEMENT COURSE PRIOR TO THE DATE THE LAST PAYMENT IS DUE
A personal financial management certification must also be obtained in a Chapter 13 Bankruptcy. This certification must be obtained no later than the date that the last payment is made pursuant to the Chapter 13 Plan. The debtor can take it earlier during their bankruptcy, but there is not the 60 day requirement like in a Chapter 7 Bankruptcy. This course is primarly designed to assist the debtor in coping with his or her future financial situation by developing a budget.
EXCEPTIONS TO THE REQUIREMENT OF OBTAINING A CERTIFCATE FROM A PERSONAL FINANCIAL MANAGEMENT COURSE
Similar to the credit couseling requirements, there are limited exceptions for debtors that are unable to complete the personal financial course due to a disability or incapacity or who are on active military duty in a combat zone. In order to fall within the exemption or to obtain a waiver with respect to being disabled three items need to be shown: 1) the debtor is severely physcially impaired; 2) the debtor has made a reasonalbe effort, despite the impairment, to participate in the instructional course concerning personal financial management; and 3) the debtor is unable because of the impairment to meaningfully participate in the required instructional course in an in person, telephone or Interent briefing.
Listed below are just a few lower priced agencies.
www.summitfe.org 1 (800) 780 5965
www.AccessBK.org 1 (800) 210-0522
www.ccadvising.com 1 (855) 980-6690
www.beadviser.com 1 (855) 976-1700
www.PreBk.com 1 (844) 599-9689
www.bothcourses.com 1 (855) 313-4527
EXPERIENCE COUNTS WHEN SELECTING A BANKRUPTCY ATTORNEY
Attorney Rodney Shepherd can offer his experience regarding filing bankruptcy and help you through the process. Attorney Shepherd is licensed to practice in all Pennsylvania Courts, including the Supreme Court. He is also a member of the National Association of Consumer Bankruptcy Attorneys. If your are interested in filing bankruptcy or simply have any questions about possibily filing, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412 471-9670 or fill out our contact information form to schedule a free consultation.
Who may file bankruptcy?
Just about anyone can file a petition in bankruptcy. Any individual who resides, is domicled or has property or a place of business in the United States can file a Chapter 7 Bankruptcy. It is not even necessary that you be a U.S. citizen. Otherwords, you do not even have to reside in the United States, as long as you own some type of property in the United States. Corporations and partnerships are also able to file a Chapter 7 Bankruptcy, as they too are considered to be a person or separate entity. However, there are limits to where you can file. You must file in the judicial district in which you reside, are domiciled or have property or a principal place of business for six months prior to the petition being filed or for the longer portion of that six month period. It should be pointed out that you can only file a Chapter 7 Bankruptcy every eight years in order to receive a discharge of most of your debts. Please keep in mind that the eight year period runs from the date that you filed your prior bankruptcy, not the date that you received your discharge. Also, you cannot receive a discharge in a Chapter 7 if you previously received a discharge in a Chapter 13, which was filed within six years of the filing of the Chapter 7 Bankruptcy. Even if the Chapter 13 Bankruptcy discharge was obtained in less than six years, and you paid unsecured creditors at least 70% in your Chapter 13 Plan, then you can still file for Chapter 7 and obtain a discharge. Even though you initially filed a Chapter 7 Bankruptcy, circumstances may arise that determine that converting to a Chapter 13 Bankruptcy is your best option. Such conversion will be allowed, as long as you are eligible for relief under Chapter 13.
A person may file a Chapter 13 Bankruptcy if they are an individual, who resides, is domiciled, or has property or a place of business in the United States. Such individual must have a regular source of income that will allow them to make their Chapter 13 plan payments. A Chapter 13 Bankruptcy can be filed at any time, even if you just recently received a discharge in a Chapter 7 Bankruptcy. However, there are some limitations on your ability to receive a discharge in your Chapter 13. A person who has received a discharge in a Chapter 7 can receive a discharge in a Chapter 13, as long as four years separates the time periods of the filing of the prior Chapter 7 and the filing of the Chapter 13. You cannot receive a discharge in a Chapter 13, if you received a discharge in a previous Chapter 13 that was filed in the past two years. Sometimes a person's Chapter 13 runs into a series of problems and is facing dismissal. In that case, you can convert your case to a Chapter 7 Bankruptcy, as long as you have not received a discharge in a Chapter 7 that was filed within the past eight years.
Besides the various time limits on filing for bankruptcy and receiving a discharge, you cannot file for any type of bankruptcy relief for at least 180 days, if :
1) your case was dismissed and the court determines that it was due to your willful failure to abide by court orders;
2) you had requested and got your case voluntary dismissed following the filing of a motion for relief from the automatic stay.
Will the filing of a Chapter 7 Bankruptcy erase all of my debts?
The ultimate goal of filing a Chapter 7 Bankruptcy is to obtain a discharge. In otherwords, to obtain a fresh start and to put your financial problems behind you. Bankruptcy is most often used to wipe out unsecured debts, such as medical bills, personal loans, past due utility bills, business debts, charge accounts, collection agency debts, and late fees. However, there are certain debts that can survive bankruptcy, meaning that you will continue to owe the creditor until those debts are paid in full.
Your Bankruptcy Determines Which Debts Will Be Discharged
The discharge that you receive will be effective in eliminating all debts except:
1. certain taxes; or (Most taxes are nondischargeable. There are certain exceptions that if the tax is so many years old that it can be discharged. This is rare and even in those situations you must have in fact filed a tax return).
2. some debts not listed in the schedules; or (Sometimes when a person files for bankruptcy they may not have listed a debt, as they either forgot about it or did not even know about it. In a Chapter 7 Bankruptcy, all debts that were not listed are still discharged, as long as the bankruptcy is determined no be a no-asset case. This means that you were able to exempt all of your assets, so the trustee will not be selling any of you property to distribute money to creditors. The thought is that a creditor would not be harmed by not getting notice of your bankruptcy filing since it would not have received anything anyways).
3. debts from domestic support obligations; or (These debts are defined as obligations for such things as child support, alimony or any other type of debt that would be in the nature of alimony, maintenance or support and are nondischargeable).
4. most fines and penalties owed to governmental units; or (Debts that have been incurred from any fines, penalties or restitution imposed on a person from a federal, state or local government are nondischargeable).
5. most student loans; or (Discharging student loans are more difficult that even discharging taxes. The only exception to discharging a student loan is obtaining a hardship discharge. It is somewhat of an overstatement, but this basically means that you have to be on your death bed. A financial hardship by it self is usually not sufficient).
6. debts which were or could have been listed in a prior bankruptcy in which the discharge was denied; or (If you have had a prior Chapter 7 Bankruptcy case dismissed that was due to some fraud or misconduct on your part, then those debts are not dischargeabe in your new case).
7. debts incurred by driving while intoxicated; or (Debts that you have incurred by driving while intoxicated whereby you have killed or injured someone are not dischargeable. Note that only debts incurred from personal injuries are not dischargeable. Debts for property damage are dischargeable).
8. debts which have been ruled nondischargeable during the case; or (Unless the debt falls within one of the listed exceptions, then the debt is dischargeable. However, if a creditor files an objection to the dischargeabilty of the debt (there are specific grounds that have to be met in order to to do this) and the court has ruled that the debt is nondischargeable, then that particular debt cannot be discharged in your bankruptcy).
9. debts incurred to pay nondischargeable taxes; or (Sometimes a person may incur a debt through the use of a credit card or a loan to pay off a tax debt. If the tax debt would have been nondischargeable, then the debt incurred through the use of the credit card or the loan is likewise nondischargeable).
10. marital property settlement agreements; or (Any debts that are owed to a spouse, former spouse or child and that arose out of a divorce or separation agreement cannot be discharged in a Chapter 7 Bankruptcy).
11. certain condominium, homeowner's association and cooperative fees; or (Fees or assessments owed on condominium, homeowners association dues or cooperative fees that become due after your bankruptcy filing cannot be discharged, as long as you or the trustee have an ownership interest in the unit. Any fees that were owed before the bankruptcy filing can be discharged).
12. certain court fees and costs owed by prisoners; or (People that are prisoners oftentimes file various complaints or motions and incur different types court fees and expenses. Those types of debts are not dischargeable in a Chapter 7 Bankruptcy).
13. debts for repayment of loans from pension plans (If you have taken out a loan from a retirement plan that is qualified under IRS rules, then you are obligated to pay that loan back and cannot discharge that debt in your Chapter 7 Bankruptcy).
- If you would like a free consultation to discuss the best way to procced on your filing for bankruptcy, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412-471-9670 or fill out the convenient online contact form for a personalized assessment of your case.