Archive for October, 2009

Should I File A Chapter 13 Case Instead Of A Chapter 7 Case

Thursday, October 22nd, 2009

Ideally, a debtor who contemplates filing a bankruptcy case to discharge debts strives to do so under chapter 7 of the Bankruptcy Code because a chapter 7 case is of shorter duration and is less costly than a chapter 11, 12 or 13 case filing.  However, a debtor typically considers filing under chapter 7 if he or she: (A)  will not lose property that he or she desires to keep; and (B) has household gross income that is less than the published median for the debtor’s state of residence.

By contrast, a debtor may file under chapter 13 for any of the following reasons:

1.  The debtor has non-exempt equity in assets.  Simply stated, this occurs when the value each of the debtor’s assets or value of an asset group exceeds the encumbrances on the asset or asset group and the allowed exemptions afforded by the Bankruptcy Code for each asset or asset group.  If a debtor will lose property that he or she desires to keep, he or she will file a petition to institute a chapter 13 case and pay an amount equal to the non-exempt equity of his or her assets in a chapter 13 case over a period of 36 to 60 months. This may result in unsecured creditors receiving anywhere from 1% to 100% of their allowed claims.

2.    Even if a debtor has no non-exempt equity in assets, the debtor must file under chapter 13 if his household gross income exceeds the published median for the debtor’s state of residence.  Nevertheless, even if the debtor is an “above median” debtor,  he still may be able to file under chapter 7 if his “allowable ” monthly expenses offset his monthly gross income, leaving him with net disposable income of approximately $182.50 per month or less. (“Allowable” is defined by IRS standards.)  If a debtor is compelled to file a petition to institute a chapter 13 case as a result of being an “above median” debtor with $182.50 or more of monthly disposable income, then he or she must pay that monthly excess into a 60-month chapter 13 plan. This may result in unsecured creditors receiving anywhere from 1% to 100% of their allowed claims.

3.      A debtor may consider filing a chapter 13 case if he or she desires to keep his or her home but has incurred a mortgage arrearage or is subject to a mortgage foreclosure action.  A chapter 13 filing is a common way to enable a debtor to “cure” or bring current a mortgage arrearage by making payments to a chapter 13 trustee over a period of 36 to 60 months while maintaining monthly mortgage payments directly to the mortgage company. This is known as a “cure and maintain” plan, where the trustee will distribute funds toward the arrearage each month.

4.    A debtor may consider filing a chapter 13 case to cure non-dischargeable unsecured debts over a 5-year period (i.e., 60 months) while stopping the running of interest.

5.    A debtor may also consider filing a chapter 13 case simply to keep creditors at bay until a sale of assets at fair value is consummated.

6.   A debtor may consider filing a chapter 13 case to eliminate or modify  a mortgage or other secured debt if certain conditions are met.

7.   A debtor may  consider filing a chapter 13 case where the debtor desires to control his or her assets and avoid administration or scrutiny by a trustee.

8.    A  debtor may consider filing a chapter 13 case where the debtor has potential claims  for lender liability, or collection, creditor reporting or other violations, where the debtor believes that the bankruptcy court will be a better forum to hear such claims.

9.    A debtor may  consider filing a chapter 13 case to altruistically pay back some or all of his or her debt.

Please call me to discuss your situation at (570) 823-9400 or send an e-mail to me at davidharrisesq@epix.net. You may also write to me at 69 Public Square, Suite 700, Wilkes-Barre, PA 18701.

Please also visit MY HOME PAGE to learn more about my law practice and me.

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Will You Lose Property If You File A Bankruptcy Case

Saturday, October 3rd, 2009

More often than not, No!

A chapter 7 bankruptcy case is a liquidation or “straight bankruptcy” case, meaning that the debtor’s assets are liquidated and the proceeds are used to pay creditors’ claims.  In exchange for surrendering property to  satisfy claims, debtors are granted a discharge of liability on most prepetition (i.e., pre-bankruptcy) debts.  However, not all of an individual debtor’s assets are liquidated to pay claims;  rather, some assets are “exempt” and do not become property of the debtor’s bankruptcy case. In other words, exempt assets are not part of the pie which is liquidated and then distributed. A debtor’s claim of exemptions is at the heart of a bankruptcy case.

Permitting individual chapter 7 debtors to claim certain property as exempt serves the “fresh start” policy upon which the Bankruptcy Code is based. The items which a debtor can claim as exempt are items which are vital to a debtor’s ability to get on with his or her life after being granted a discharge. It is essential to the fresh start policy that, at an early stage in their bankruptcy cases, debtors have a clear picture regarding whether the assets they have claimed as exempt are, in fact, exempt.

Please call me to discuss your situation at (570) 823-9400 or send an e-mail to me at davidharrisesq@epix.net. You may also write to me at 69 Public Square, Suite 700, Wilkes-Barre, PA 18701.

Please visit MY HOME PAGE to learn more about my law practice and me.