Bankruptcy and Foreclosure

In a Chapter 13, you can keep your home, and you agree to pay your creditors via a payment plan.   Filing for bankruptcy protection immediately stops the foreclosure action and stays your creditors from collecting any debts you owe unless the creditor gets the permission of the bankruptcy court.

Chapter 13 Bankruptcy

Qualifying For Chapter 13 Bankruptcy

Individuals qualify for filing Chapter 13 Bankruptcy whose secured debts are under $1,010,650.  And unsecured debts are under $336,900. These amounts may change again in April of 2010, as it is adjusted every three years for inflation purposes. You will also have to show proof that you filed your state and federal income tax returns for four years prior to the bankruptcy filing date.

How Chapter 13 Bankruptcy Can Help In Foreclosure

In a Chapter 13 Bankruptcy, you can keep your home because you agree to pay your creditors via a payment plan. The automatic stay stops the foreclosure proceeding as soon as you file your Chapter 13 petition. You can bring your past due mortgage payments current over a period of three to five years through a payment plan. However, if your lender has completed the foreclosure sale after you file your petition, you could still lose your home.  If you fail to make your payments under the payment plan, you could lose your home also.

Chapter 13 Bankruptcy Process

To initiate a Chapter 13, you as the debtor must file a petition with the federal bankruptcy court nearest to where you reside. A husband and wife may file a joint petition or individual petitions.  You must file a repayment plan with the petition or within 15 days after the petition is filed. In addition, you must provide the court with the following:

  • List of assets and liabilities
  • Schedule of current income and expenditures
  • List of executory contracts and unexpired leases
  • Statement of financial affairs
  • Certificate of credit counseling and a copy of any debt repayment plan
  • Paycheck stubs for the previous 60 days before filing
  • Statement of monthly net income and any increase in income or expenses
  • List of interest on any bank accounts
  • Provide the trustee with a copy of current year tax return
  • List of creditors names and addresses

The court will then appoint a trustee to the case.

The bankruptcy clerk is required to give notice of the bankruptcy case to all your creditors whose names and addresses you must provide to the court.
Somewhere between 20 and 50 days after you file the Chapter 13 petition, the Chapter 13 trustee will hold a meeting of creditors. You must attend the meeting and answer questions regarding your financial affairs and the terms of your proposed payment plan. If a husband and wife file a joint petition, they both must attend the creditors' meeting and answer questions.  Bankruptcy judges are prohibited from attending the creditors' meeting.

Note that there are three types of creditor’s claims: priority, secured, and unsecured.  Creditors are required to file their claims with the court within 90 days after the first date set for the meeting of creditors.

Secured claims are those for which the creditor has the right take back certain property if the debtor does not pay the underlying debt.
Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee.

No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing to approve the plan and make sure it meets the  standards for confirmation set forth in the Bankruptcy Code. If the court approves the plan, the Chapter 13 trustee will distribute the funds collected under the plan to your creditors.  If the court does not approve the plan, you have options to either file a revised and modified plan or convert the case to a Chapter 7 liquidation case.

Bankruptcy laws are complicated and are constantly undergoing changes. It is recommended that speak with your bankruptcy attorney regarding the scope of the bankruptcy law and Chapter 13 discharges.

Chapter 7 Bankruptcy

Qualifying For Chapter 7 Bankruptcy

Individuals, partnerships, corporations or other business entity qualify for Chapter 7 Bankruptcy protection. There is no limit on the amount of debt and whether you are solvent or insolvent. Some debt cannot be discharged such as property tax liens, child support, alimony, student loans, and income taxes, personal injury debts or criminal restitution debts.

How Chapter 7 Bankruptcy Can Help In Forclosure

The bankruptcy court will issue an automatic stay that prevents all collection actions and prohibits creditors from initiating/continuing lawsuits or wage garnishments. Chapter 7 allows you to keep all of your property such as your car or home as long as you reaffirm the debt and the payments are current. However, if you have significant equity in your home, you probably will need to either have filed a homestead exemption or hold the property as tenants in the entirety.  Generally lenders are happy that you are willing to pay them your mortgage payment so they probably won’t object to you reaffirming the debt. The state where the property is located is the state law that governs, not the state where you reside. To find out if your state has a homestead exemption, you should contact a bankruptcy or real estate attorney in your area.

The following states allow tenancy by the entirety:  Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming.

Chapter 7 Bankruptcy Process

To initiate a Chapter 7, you as the debtor must file a petition with the federal bankruptcy court nearest to where you reside. A husband and wife may file a joint petition or individual petitions.  You must provide the court with the names and addresses of your creditors and the amounts of debt owed, a list of your assets and any other financial information the court requests such as paycheck stubs and tax returns.

20 to 40 days after filing your petition, the court will notify you of the 341 meeting which you must attend. If a husband and wife have filed a joint petition, both must attend the creditors’ meeting. The purpose of this meeting is for your creditors to question your claim that you are unable to pay your debts. Creditors want to know if you could pay at least 50 cents on the dollar. If you cannot, they usually don’t waste their time objecting to the bankruptcy discharge.

The next step is the court accepts your petition and the trustee liquidates any nonexempt assets that you may have. You should discuss which assets are considered nonexempt or exempt with your attorney.

Between 60-90 days later the court will grant your discharge, and you will be provided with an official discharge notice in the mail.

Chapter 7 vs. Chapter 13: Which Is Right For You?

Chapter 7 is typically a no asset case. Your major goal in a Chapter 7 case is to be able to retain exempt property and get as many debts discharged as possible.  If you have income or assets, you will want to file under Chapter 13, or if you are a business, corporation or partnership, you may want to file under Chapter 11.  A Chapter 7 basically wipes out your debt so you can start over fresh. It is best to consult with your attorney before making a decision as to which bankruptcy protection you wish to file for or to find out if you have any other alternatives.

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