In the most straightforward Chapter 7 cases, you qualify to file because your income is not too high, everything you own is “exempt” and protected, none of your debts have any collateral or else are current on them, and all your debts will be written off (“discharged”). Many cases fit this description. But what if your situation is not so straightforward?
YOUR INCOME IS HIGHER THAN “MEDIAN INCOME”
If your income is no higher than the applicable median income for your state and family size, than you immediately pass the “means test.” In Texas, here are the median income amounts by family size):
|FAMILY OF 1||FAMILY OF 2||FAMILY OF 3||FAMILY OF 4|
(These amounts are for cases filed after November 1, 2012, and will likely change somewhat in early spring 2013).
“Income” for this purpose is different than normally understood. It is defined much more broadly than normal taxable income, and is based precisely on what you received during the 6 full calendar months before filing bankruptcy.
If your income IS higher than median income, often you can still file Chapter 7 based on your expenses or other unusual circumstances. But you have an extra hoop or two to jump through.
SOME OF YOUR ASSETS ARE NOT “EXEMPT”
If you have some asset(s) that are not protected through “exemptions”-which is relatively rare-a number of things can happen.
Your bankruptcy trustee may still not want the unprotected asset if it is not worth enough to provide a “meaningful distribution to the creditors.” That means that the trustee decides that the time and expense to collect and sell it are not worth the money that would come from it. Or sometimes there are questions about whether the asset is worth anything, and it would a fair amount of money up front even just to find out the value-such as if you had a claim against someone that it would take a lawsuit to potentially turn it into cash. The trustee may be unwilling to bear the costs of such a lawsuit. Overall, the trustee has a great deal of discretion what to do with a non-exempt asset.
If you have such an asset, but you’d like to keep it instead of handing it over to the trustee, we can often arrange for you to keep it by having you make monthly payments to the trustee to gain back your rights to it. The trustee then pays that money to your creditors in the order stated in the Bankruptcy Code.
And sometimes the trustee has a right to an asset that you don’t need-such as the remaining assets of a business that you’ve closed. So the trustee liquidates those assets and pays some of your creditors.
WHEN YOU ARE NOT CURRENT ON YOUR SECURED DEBTS
You have two basic options: surrendering or trying to keep the collateral.
You have the right to surrender the collateral to the creditor, and then discharge all of the remaining debt you may owe. This is an important option because, without a bankruptcy, the remaining balance on a secured debt after the surrender can be huge. The “deficiency balance” on a vehicle loan is often way more than expected, because the creditor can usually add all the costs of repossession and sale to the balance, plus the sale proceeds are often lower than you’d expect because the vehicle is usually sold at an auto auction. And with a second mortgage or other debt on a home, you could owe its entire balance if there is no equity protecting that debt.
If you want to keep the collateral but are behind on payments, the creditor may let you catch up with a combination of regular monthly payments plus an additional payment towards the arrearage. But whether you will be allowed to do this depends on the kind of debt and the flexibility of the creditor. Vehicle loan creditors tend to be quite inflexible, usually requiring you to get current within a month or two after filing. Mortgage holders tend to be more flexible, often allowing up to about a year to catch up. Your attorney will usually have a good idea what your particular secured creditor would be willing to accept.
DEBTS THAT WON’T GET DISCHARGED
One of the most important aspects of a Chapter 7 case is to determine if you have any debts that will not get discharged, and if so, whether you should instead file a Chapter 13 to deal with that debt.
Most if not all of your debts are going to be discharged. But some special ones may clearly not be dischargeable (certain taxes, support obligations, and such), while one or two others may be up in the air depending on the aggressiveness of the creditor.
One of the many good reasons you need an experienced bankruptcy attorney helping you through your case is to deal with such delicate judgment calls.
If you are in the Dallas area you will find that attorney at The Law Offices of Roger Fuller. Let’s get acquainted at the no-charge consultation that we offer. Please either call us at 214-516-6187 or use this quick contact form to reach us. Thank you.