FAQs – Bankruptcy
Pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), please be advised that:
We are a Debt Relief Agency.
We help people file for Bankruptcy Relief under the Bankruptcy Code.
Q. What is Bankruptcy?
A. Bankruptcy is a declaration by honest debtors that, due to unforeseen circumstances, can no longer pay their bills. It is a process where the Bankruptcy Courts and Trustees review the debtor’s situation and, if appropriate, either eliminate all his/her debts, or stop the accruing of interest and permit the debtor to make payments on his/her debts for up to five years. The purpose of bankruptcy relief is to give honest debtors a fresh start in their financial lives.
Q: If I file for Bankruptcy, will I lose my property?
A: Because a person has the potential of having all his or her debts completely eliminated, the Bankruptcy Courts and Trustees must review the debtor’s situation to ensure they really qualify for the fresh start. In doing that review, the Courts and Trustees can look at your property and determine if it can be sold to pay some debts. However, this is not done randomly and the Courts and Trustees are bound by strict limitations on their ability to take and sell any property. No property can be sold unless it produces a certain amount of revenue after the costs of sale, the satisfaction of any outstanding liens, the trustee’s fee, taxes, and exemptions are applied. Generally, unless you have something valuable that the Court or Trustee can sell and get more than about $5,000.00 for, the court will not sell it.
Practically speaking, most people keep everything they own. Only about one percent (one person out of a hundred) has the Bankruptcy Court sell something they own. In those rare cases, usually only one item is sold and the debtor keeps the rest of his or her property. Virginia law allows you to keep your furniture, clothes, and car up to certain limits of value (often called the exemption amount). The law also gives you the right to protect other assets such as bank accounts, cars and tools used in your work, family heirlooms, etc. up to certain limits.
In Virginia, each debtor has, at a minimum, a $1000 exemption for clothes, $5000 exemption for household goods, $2000 exemption for a car not used in business, and a $5000 exemption for cash. These exemption amounts are applied to the equity in a property after considering all liens. The limits of value are calculated at garage sale or thrift store values. Thus, virtually no one has clothes or household goods worth selling by the trustee. If you are married, these limits apply for each spouse, so, for example, a couple has a $10,000 exemption for household goods. Further, the Court or Trustee cannot sell certain family heirlooms, such as your engagement or wedding rings. Also, a debtor’s 401(k), IRA, or other qualified retirement plan cannot be touched. Thus, you could have several hundred thousand dollars in a 401(k), file for bankruptcy relief, and keep your entire retirement account.
For example, a person who has clothes, household furniture, $3,000 in the bank, $100,000 in a 401(k), and a car worth $15,000 but with a loan balance of $13,000, would keep all of his property if he sought protection under the bankruptcy code.
Whether one keeps a house usually depends on two factors: 1) whether one is married or single, and 2) whether there is any equity. Because married couples in Virginia usually hold title as tenants by the entirety with the common law right of survivorship (this language is on the deed), the Bankruptcy Court or Trustee usually cannot order the house sold if only one spouse is declaring bankruptcy, regardless of how much equity is in the property. This does not apply if federal tax liens or federal agricultural loan liens attach to the property.
Further, if one is single or if both spouses are jointly filing, just as with other property, the Court or Trustee would have to realize more than $5000 from the sale of the property after paying off the mortgages, taxes, realtors and other costs of closing, and his fee, in order to sell the property. If the Court or Trustee can realize more than $5000, a house may still be protected from sale through other application of other provisions of the bankruptcy law, such as filing under Chapter 13 (a discussion of the difference between chapters is found in another FAQ).
At Westlake Legal Group, we are prepared to look at all of your assets, determine the equity in them, assess the status of title, and make a recommendation as to how one should proceed through the bankruptcy process.
Q: What Are The Bankruptcy “Chapters”?
A:The laws regarding Bankruptcy are found in Title 11 of the United Stated Code. Each chapter of that Title deals with certain parts of the bankruptcy process. For example, Chapter 1 provides general provisions and definitions as they apply to the bankruptcy process. Several chapters deal with specific relief for specific types of debtors. Chapter 11 provides the rules and law for the reorganization of large companies that want to keep operating. Most individual debtors are concerned with either Chapter 7 or Chapter 13.
Chapter 7 is the most common chapter used by individual debtors. It is considered to be the quickest and least expensive way of obtaining relief. When filing under Chapter 7, most of your unsecured debts are discharged–meaning they are eliminated and cannot be collected. Usually you cannot eliminate taxes, student loans, or child support. You also may not be able to eliminate some debts associated with a divorce. At Westlake Legal Group, we can analyze your debts and give you an accurate prediction of the likelihood of their discharge.
Chapter 13 is referred to as an adjustment of debt and is used when a debtor has regular income and can pay his or her living expenses, but cannot make all the payments on his or her regular, scheduled debts. Essentially, the debtor cannot make all his payments but can make some contribution to paying back his debt. Often people with higher incomes are required to initially file under Chapter 13. Under a Chapter 13 filing, the Court adopts a payment plan you can afford. The plan stops the accrual of interest on unsecured debt and can require payments for up to five years. If all the debt can be paid off sooner once interest is stopped, the plan may be for a shorter period. One is eligible for Chapter 13 relief if his or her unsecured debts are below $360,475 and his or her secured debts are less than $1,081,400.
Q: If I file for Bankruptcy relief, do I have to indentify all of my assets?
A: Regardless of which Chapter you use when filing for relief under Bankruptcy, you must disclose all of your assets and all of your debts. This requirement is made to ensure that all creditors are treated equally, regardless of whether they ever receive any payment. If you do not disclose all of your assets, you could have the bankruptcy dismissed. Depending on the nature of the non-disclosure, you could also be subject to criminal charges. If you do not disclose all of your debts, you run the risk of the non-disclosed debt not being discharged.
Q: What is the process for a Chapter 7?
A: If you feel you want to discuss your options for filing for Bankruptcy relief, schedule an appointment with Westlake Legal Group. Bring with you a list of your assets and your current bills. We will ask you to fill out a questionnaire with regard to those assets and bills. Often, we will ask you to do that at a computer in our office. We will also provide you with certain required notices. We will ask you to authorize a credit report, which will be ordered and sent to us.
After we get your information, we will apply what is called the “means test.” This is a test based on income to give a preliminary determination of your eligibility to apply for relief under Chapter 7. You are automatically eligible to wipe out your debts with a Chapter 7 bankruptcy if you are below the average income for your family size in Virginia. As of April 19, 2010, the averages for Virginia are:
|Family Size*||One Person||Two People||Three People||Four People||Five People|
*Add $7500 for each person in excess of four
If your family income falls below those listed above, you are automatically entitled to relief under Chapter 7. If you exceed those limits, an additional analysis needs to be performed.
If your family income exceeds the average as identified above, you may still be eligible for a Chapter 7 filing. To determine that, Westlake Legal will evaluate your specific case. We will determine your “disposable income” after deducting certain expenses from your income.
If your projected disposable income over the next five years is less than approximately $175 per month, you will likely be eligible for Chapter 7 relief. If you have more than approximately $175 disposable income per month, you may only be allowed to use Chapter 7 if you can demonstrate special circumstances, such as on-going medical situation. Otherwise, you may have to consider filing under Chapter 13.
Once we have determined that you are eligible for filing under Chapter 7, we will ask you to take an online credit counseling course. This is usually done in our office. Once completed, we will prepare the necessary paperwork, with your assistance, and file with the Bankruptcy Court.
Once we have filed, you will be required to take another online course, this one on financial management. This is also usually done in our office. This must be completed before you can receive a discharge.
Approximately 30 days after filing, the Trustee will conduct a hearing to verify the information placed in the Bankruptcy Petition and to ask questions about any equity in highly valued assets. After the Trustee’s hearing, the Trustee sends notice to creditors and gives them approximately 60 days to make inquiry and object to the discharge, if a reason exists. After the 60 days, assuming there are no objections, the Court enters a final Order of Discharge and the case is ended.
Q: What is the process for a Chapter 13?
A: A Chapter 13 case follows the same process as a Chapter 7 case from initial consult through determination of eligibility for a Chapter 7 via the application of the “means test”. Once it is determined that you are not eligible for relief under Chapter 7, Westlake Legal Group will begin to prepare your application for relief under Chapter 13.
When filing under Chapter 13, Westlake Legal Group will propose to the Chapter 13 Trustee a payment plan that sends him your disposable income to be used to pay off your creditors. The payment plan cannot exceed your disposable income and the plan cannot exceed 60 payments (5 years). Unless your plan allows you to pay off all your debts in fewer than 60 payments, you should count on a 60 month plan. At the end of the plan term, the remaining debts (with a few exceptions) are eliminated, just as in a Chapter 7 case. While the plan is in effect, you do not pay interest on most debts. You may also pay a portion of your legal fees through the plan
At the moment Westlake Legal Group files your Petition for relief under Chapter 13, legal and collection actions must stop. This “stay” applies to foreclosures, garnishments, repossessions, and any other lawsuit. The first payment of the plan is due no later than 30 days after filing. This payment is due even if the plan is not ultimately approved. Failure to make this payment will result in an automatic dismissal of your case.
One other important obligation, incurred as a result of being granted the “stay” upon filing, is that you must keep all of your regularly incurring debts current. These include house payments, car payments, and any other secured installment payment.
It is also important to realize that the Trustee will not send you a monthly reminder. It is up to you to make sure your payments are received by the Trustee on time. In addition, the Bankruptcy Code requires that a payroll deduction order be entered so that your employer pays the Plan payment directly to the Chapter 13 Trustee. However, you are responsible to ensure the payment is made. If your employer fails to make the payment for some reason, your case can be dismissed.
Once the Petition and plan are filed, if the Trustee recommends approval of the plan, you will receive a Confirmation Order setting forth the duration of the plan, the amount of payment, and other obligations. If the Trustee does not initially approve the plan, or a creditor successfully objects to the plan, we have to file an amended plan or attend a hearing. It is imperative that you continue to make your plan payment even if there is an objection or a request to submit an amended plan.
After the plan is filed, as in a Chapter 7 case, the Trustee will conduct a hearing to verify the accuracy of your Petition and to determine the status of your assets and income. Creditors have 90 days from that hearing to file a proof of claim in order to receive some payment from the plan (governmental units, like the IRS, have 120 days). Usually within six months of filing, the Trustee’s office will send a report called “Notice of Intent to Pay Claims.” You will have 30 days to object to any amounts claimed in the report, otherwise the debt will be deemed valid and paid in the Chapter 13 case.
If the plan does not call for paying all debts in full, every year you will be required to provide signed copies of your Federal and States tax returns to the Trustee within 10 days of their filing. Westlake Legal Group will also assist you in determining the proper number of tax exemptions to take from your employer, as all tax refunds in excess of $250.00 must be paid to the Trustee as an additional payment for the benefit of your creditors.
Every six months, you will receive a report from the Chapter 13 Trustee’s office listing the payments received and to whom payments have been made during that period. This report should be reviewed to ensure consistency. Approximately 6 to 8 months after filing, the Chapter 13 Trustee will conduct a short, half-hour meeting to review your case.
Information regarding your Chapter 13 filing and the specifics of its administration are available as matters of public record, and the financial details of your case will be disclosed to parties in interest.
When you are finished making all of the payments in the plan, as directed by the Confirmation Order, the closing procedure will begin. If you are paying less than 100% to your unsecured creditors, you must file all the appropriate tax returns in order for the case to be closed. After all required information and payments have been received, the Chapter 13 office will issue an order to stop your payroll deduction. Any overpayments will be refunded after your case has its final audit. If you pay 100% of your debt, you can pay your case off early. After all the requirements of your case have been satisfied, you will receive your discharge papers from the Court in approximately four to six weeks.
Q: What happens if I miss a payment under my Chapter 13 plan??
A: It is important not to miss any payments to the Trustee. If you miss a payment, the Trustee cannot pay your creditors as called for by the Plan and the Trustee may be obligated to file papers with the Bankruptcy Court asking that your case be dismissed. If your case is dismissed, your creditors will be notified, and they may resume collection against you.
If there is a serious change in your circumstances that affects your ability to make payments under the plan, contact Westlake Legal Group immediately. DO NOT MISS A PAYMENT. We will notify the Trustee. We will also review your status, and possibly seek to modify your plan.
Q: Can I purchase a car while in the Chapter 13 plan?
A: It is possible to purchase a vehicle while under a Chapter 13 plan. However, this requires approval of the Trustee and may require an amended budget or plan to determine if you have the ability to make the purchase.
Q: Can I sell or refinance my home?
A: If you are single, or married with both spouses filing, and file for relief under Chapter 7 and the Trustee abandons your property (agrees not to sell it), you can keep your home as long as you continue to make the payments. You are also free to sell or refinance your home.
If you file as a single person, or married with both spouses filing, and are filing for relief under Chapter 13, in order to sell or refinance your property, you are required to obtain a court order prior to doing so. In addition, you need to notify the Trustee and all creditors. If you are refinancing, and your plan requires you to pay less than 100% of your debts, you will be required to pay 100% back to your creditors.
In a Chapter 13, all proceeds from the sale or refinance of your property must be paid into the plan for payment to any remaining creditors. Upon the completion of the sale or refinance of your home, you are required to provide a copy of the HUD-1 to allow adjustment of the debts in your plan.
• You must follow your Plan as filed. This means keeping current with all Chapter 13 Plan payments, post-petition mortgage payments, post-petition taxes, ongoing expenses such as utilities, any secured debts listed in your Plan that you are to pay directly to the creditor, (i.e., vehicles), and forwarding copies of all required tax returns to the Trustee (if applicable).
• Your case number must appear on ALL payments and correspondence or when you call the Chapter 13 Trustee’s office.
• Any requests for information must be submitted in writing and allowed 5-10 business days for processing. All requests for information will be sent to your address on record and cannot be faxed to anyone, which includes you as the Debtor.
Potomac Falls Professional Center
46175 Westlake Drive, Suite 320
Potomac Falls, VA 20165