Bankruptcy is a powerful tool for individuals and their families to eliminate debt and to recover from financial hardship. But, filing chapter 7 bankruptcy has risks attached to it. It may not be the best solution for the debt problems that some debtors have.
First, chapter 7 generally won’t help you stop a foreclosure or repossession. If you are facing foreclosure or repossession and want to keep the property, chapter 13 may be the better option.
Second, when an individual files a chapter 7 case the court appoints a “trustee” who has the power to sell certain kinds of property of the debtor. The trustee’s job is to determine what, if any, of the debtor’s property, can be sold at a profit. If there is, the profit may be distributed to creditors. For most debtors, this never happens because the bankruptcy law gives generous allowances that allow debtors to protect most kinds of property from the trustee. But, for those debtors who may own property that is worth more than those generous allowances, there is a risk that the trustee may sell it. If the debtor doesn’t want to lose that property, then chapter 7 may not be the best solution. Your Bredow Law attorney’s primary job is to help you identify your property and help you protect it.
Second, you must qualify to file chapter 7 and some debtor’s do not qualify for chapter 7 relief. A bankruptcy court may dismiss a chapter 7 case filed by an individual with non-business debt if the court finds that the granting a discharge of debt would be an abuse of chapter 7. 11 U.S.C. § 707(b). What is abuse? The Bankruptcy Code requires debtors to qualify to file a chapter 7 case. The bankruptcy law requires the debtor to pass a “means test” to determine whether the chapter 7 filing is “presumptively abusive”. The bankruptcy court will consider debtor’s chapter 7 filing is presumptively abusive:
1) If a debtor’s “current monthly income” is more than the state average household income for a family of the same size as the debtor’s family, and
2) if the debtor has more than $30,800.00 in nonpriority unsecured debts, the debtor has the ability to pay 25% of the total of those debts over the next 5 years (at least $128.34), or regardless of the amount of the debtor’s unsecured debt, the debtor has the ability to pay to unsecured creditors $12,850.00 from their current monthly income over the next 5 years.
Because chapter 7 is not for everyone, debtors should be aware that there are alternatives to liquidation by seeking chapter 7 relief.
Debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment or may seek a more comprehensive reorganization. Sole proprietorships may file a chapter 11 case but may also be eligible for relief under chapter 13 of the Bankruptcy Code.
Chapter 13 relief is most appropriate for individual debtors who are employed and/or have regular income. Sole proprietors and individual debtors may modify their debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure or their cars from repossession by allowing them to “catch up” past due payments through a payment plan.
Debtors should also be aware that an attorney can often make out-of-court agreements with creditors to pay off debts at a lower amount or on monthly terms that the debtor can afford. These options may provide an alternative to a bankruptcy filing.
Dealing with consumer credit problems starts with the selection and consultation with a qualified Debt Relief Attorney who specializes in bankruptcy. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in helping consumers get relief from their debts. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email info@bredowlaw.com
*Source: Administrative Office of the U.S. Courts. http://uscourts.gov
