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Chapter 7

$20,000 Contempt Penalty Because Mother Hurt Father’s Credit Should Be Dischargeable In Bankruptcy

September 8, 2014 by TomScottLaw

*Disclosure required by 11 U.S.C. § 528(a)(3): We, the law office of Tom Scott & Associates, P.C., are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
Q: A state court judge orders the mother to pay the father $20,000.00 following a contempt hearing as a penalty for actual costs of petitioner’s attorney fee. The award is a contempt penalty following the Judge’s determination that the mother has not been paying student loans in a timely manner thus harming the father’s credit and that the mother has not complied with a parenting time order. Is that penalty dischargeable in Bankruptcy?
A: Bankruptcy Code Section 523 provides a list of debts that are not dischargeable in bankruptcy. Specifically 523(a)(7) states: A bankruptcy discharge “does not discharge an individual debtor from any debt – … (7) to the extent that such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss…”
Under section 523(a)(7), civil contempt sanctions are generally non-dischargeable where, they are imposed to uphold the dignity and authority of the court. For example see U.S. Sprint Communications Co. v. Buscher, 89 B.R. 154, 156 (D.Kan.1988); PRP Wine Int’l, Inc. v. Allison (In re Allison), 176 B.R. 60, 63-64 (Bankr.S.D.Fla.1994). In these cases, the dischargeability of a prior fine was at issue in a subsequent bankruptcy.
A “debtor seeking to discharge a pre-petition sanction faces an uphill battle. While he has the ability under Bankruptcy Rule 4007 to seek a determination of the dischargeability of the sanction in that subsequent proceeding, the bankruptcy court will evaluate and adjudicate the prior debt’s dischargeability guided at least in part by § 523(a)(7). It is for this reason that a representative of a corporate debtor, like Mr. Hansbrough, is not free flatly to ignore the bankruptcy court’s orders, absorb any sanction the court can muster, and then simply file a personal bankruptcy petition before a different court and obtain a discharge as a matter of course.” In Re Hercules Enterprises, Inc., d/b/a JP’s Health Club, Debtor. James Hansbrough, Appellant, v. David Birdsell, Chapter 7 Trustee of Hercules Enterprises, Inc.’s Bankruptcy Estate, Appellee, 387 F.3d 1024 (9th Cir, 2004).
Accordingly, my reading of the Bankruptcy Code is that Section 523(a)(7) creates a two prong test to determine whether a civil contempt action is dischargeable in bankruptcy:
1) The debt cannot be discharged if the penalty is payable to and for the benefit of a governmental unit; AND
2) The debt cannot be discharged if the penalty is not compensation for actual pecuniary loss [a “pecuniary loss” is defined as “a loss that can be evaluated in money terms” (Black’s Law Dictionary)].

If mother files a Chapter 7 bankruptcy and receives a discharge, even if the current $20,000.00 penalty is dischargeable, the underlying order to remain current on student loans is not dischargeable. The mother should file a Chapter 13 bankruptcy to attempt a discharge of both the civil contempt penalty as well as the property settlement order.

In the facts presented, the state court order was that the money be paid directly to the father and not payable to or for the benefit of the any governmental unit. Therefore, the first prong is not met and the debt can be discharged in bankruptcy. The second prong is that the debt cannot be discharged if the debt is not compensation for actual pecuniary loss. Conversely then, the debt is dischargeable in bankruptcy if the penalty is for actual pecuniary loss. In this case, the court order does specifically state that penalty is for actual compensation so it should be dischargeable in bankruptcy.
More importantly, however, is that the divorce decree directed the mother to remain current on student loans and hold the father harmless as a co-debtor. Through issuance of this divorce decree order, the state court has created another potential debt for the mother; that is, the father can collect money for damages if the mother does not remain current on student loans. This potential debt to father will remain in effect until either the student loan is timely paid or the divorce decree order is discharged. A Chapter 7 bankruptcy will NOT discharge any debt to a former spouse that was incurred by the debtor in the course of a divorce. Therefore, if mother files a Chapter 7 bankruptcy and receives a discharge, even if the current $20,000.00 penalty is dischargeable, the underlying order to remain current on student loans is not dischargeable. Accordingly, if the mother ever falls behind on student loans in the future, the father could simply seek another post-discharge contempt order and the mother would have to appear again before an already unhappy judge. Therefore, I would recommend that the mother file a Chapter 13 bankruptcy to attempt a discharge of both the civil contempt penalty as well as the property settlement order.

Filed Under: Chapter 13, Chapter 7, Credit Score, Marriage & Divorce, Non-Dischargable Debt, Questions About Bankruptcy Tagged With: Section 523

Discharging Property Settlements in Divorce Cases: Chapter 13 and Why to File – Overview of Bankruptcy, Part 8

July 3, 2014 by TomScottLaw

Series: #13 0f 13
The previous article in this Overview of Bankruptcy series discussed how stripping off wholly unsecured mortgages is a valuable option in a Chapter 13 case, giving a debtor the opportunity to modify a wholly undersecured second or other junior mortgage. In this last article of the series, we will take a brief look at discharging property settlements during a divorce.

Discharging Property Settlements to Spouse, Ex-Spouse, or Children

Pursuant to 11 U.S.C. § 523*(a)(15), a Chapter 7 filing will not discharge any debt to a spouse, former spouse, or child of the debtor (and not child support) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record.
Certainly an argument can be made that a divorce decree that orders the debtor to pay debts of the marriage or attorney fees incurred in a divorce (which are not in the nature of alimony, maintenance or child support) may not be dischargeable in a Chapter 7 filing. The filing, completion and discharge of a Chapter 13 allow the discharge of such debts and protect the debtor from an angry ex-spouse and/or state court judge.
Oftentimes, the ex-spouse has already filed his or her own Chapter 7 in which case, the debtor may be able to file a Chapter 7. A careful review of the divorce decree and the ex-spouses filing (to determine what debts have been listed and discharged) should be taken before making any determination as to the appropriate chapter.
__________
As we mentioned at the beginning of this series, there are many reasons in which a debtor may find as much or more “stress-relief” in a Chapter 13 reorganization. The attorney must be careful to analyze all the benefits and risks (as required by 11 U.S.C. § 526(a)(3)(B) and rules of professional responsibility) before making such a determination as to which chapter is appropriate. If a Chapter 13 is appropriate, then the attorney needs to carefully determine whether such a plan is feasible and offered in good faith to the court. If all of these factors are met, confirmation of the plan is likely to follow.

* Source: Cornell University Law School Legal Information Institute

Filed Under: Chapter 13, Chapter 7, Marriage & Divorce Tagged With: discharge debt

Chapter 7 Overview: Deciding on Which Bankruptcy to File

February 5, 2014 by TomScottLaw

Series: #5 of 13
As briefly mentioned in our previous article, “Initial Interview: Chapters 7 and 13 Bankruptcies – Deciding Which Chapter to File,” the goal of bankruptcy (regardless of the chapter) is to attempt to get some money for the general unsecured creditors in exchange for certain debts being discharged. The difference between a Chapter 7 and Chapter 13 bankruptcy, then, is how the court finds money.

What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a “liquidation” in which the debtor truly and honestly lists all assets and allows the court to determine if any assets are valuable enough to sell and help pay down the debt. The Code allows individual states to claim the Federal exemptions enumerated at 11 U.S.C. § 5221 or opt out of the Federal exemptions and take state exemptions. Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court.
Indiana is an “opt out” state and Indiana residents take exemptions found under state law. The majority of exemptions may be found in the Indiana Code at IC 34-55-10-2(c)2 and are generally broken down into four categories (which increased on March 1, 2010):

  1. Real estate or personal property constituting the personal or family residence of the debtor or a dependent of the debtor, or estates or rights in that real estate or personal property, of not more than $17,600.00. The exemption under this subdivision is individually available to joint debtors concerning property held by them as tenants by the entireties
  2. Other real estate or tangible personal property of $9,350.00
  3. Intangible personal property, including chooses in action, deposit accounts, and cash (but excluding debts owing and income owing), of $350.00
  4. An interest, whether vested or not, that the debtor has in a retirement plan or fund to the extent of contributions, or portions of contributions, that were made to the retirement plan or fund by or on behalf of the debtor or the debtor’s spouse which were not subject to federal income taxation to the debtor at the time of the contribution, or which are made to an individual retirement account in the manner prescribed by Section 408A of the Internal Revenue Code1 of 1986.

Any attorney acting as debtor’s counsel should be fully cognizant of all available exemptions available for debtors.
Further, debtors should be aware whether their case will likely be an asset case or not as soon as it is known, but certainly prior to the filing of the case.
Finally, debtors should be advised that filing of the bankruptcy creates a bankruptcy estate (see 11 U.S.C. § 541 – Property of the Estate1) which includes almost everything, and that they must not dispose of estate property until abandoned by the Chapter 7 trustee. Attorneys should also become familiar with 11 U.S.C. § 523 – Exceptions to discharge1 which details those debts which will not be dischargeable in a Chapter 7 case and advise debtors accordingly.
Not all debtors are eligible for a Chapter 7 bankruptcy and must file a Chapter 13 to receive the Section 362 automatic stay and subsequent discharge.
Chapter 13 is commonly described as the “adjustment of debts of an individual with regular income” or a reorganization of one’s finances through a plan approved by the court.
In addition to not being qualified for Chapter 7 (or other chapters,) there are numerous reasons for a debtor to choose to file Chapter 13. In our next installment, we will begin a closer look at the primary reasons why to file a Chapter 13 rather than a Chapter 7 bankruptcy.
Next: Chapter 13 and Why to File, Part 1 – Disqualification

Sources: (links open in new windows)
1. Cornell University Law School Legal Information Institute
2. State of Indiana Constitution on IN.gov

Filed Under: Chapter 13, Chapter 7 Tagged With: liquidation, reorganization, unsecured creditors

Initial Interview for Chapters 7 and 13: Bankruptcy Overview – Deciding Which Chapter to File

January 13, 2014 by TomScottLaw

Series: #4 0f 13
In previous articles of this series, we have discussed those sections of the Bankruptcy Code related to Debt Relief Agencies: section 526, restrictions on debt relief agencies and section 527 – disclosures, and section 528 – requirements for debt relief agencies. The next few posts will talk about some of the differences between Chapter 7 and Chapter 13 bankruptcies, and why a debtor would use one versus the other, beginning with deciding on which chapter to file.

Initial Interview / Deciding on which Chapter to File

Most debtors who walk into your office only know about Chapter 7 bankruptcy and have some common misconceptions about how a Chapter 7 works, how it differs from a Chapter 13 bankruptcy, and how much paperwork they will need to provide to properly prepare and advise the Chapter 7 trustee and the court. Many debtors incorrectly believe that Chapter 7 is a simple process available to all persons and simply allows the debtor to discharge debts. However, these ideas are incorrect and oftentimes misunderstood.
Very generally speaking, all persons who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 (“straight bankruptcy”, or liquidation) except for railroads, insurance companies, and certain banking institutions. However the debtor is not eligible for a Chapter 7 discharge if the debtor has received a Chapter 7 discharge in the prior eight years or a Chapter 13 discharge in the prior six years unless the plan paid at least 70% of claims and was proposed in good faith (See 11 U.S.C. Section 727*(a)(8)-(9)).
In addition a debtor may not be qualified to file a Chapter 7 if filing the Chapter 7 would be an abuse of the Chapter 7 provisions. To get debtors in the right “mindset” I start every initial interview advising that there is no “free ride” in any chapter of bankruptcy and that the goal of bankruptcy (regardless of the chapter) is to attempt to get some money for the general unsecured creditors in exchange for certain debts being discharged.
Next: Chapter 7 Overview: Deciding on Which Bankruptcy to File

* Source: Cornell University Law School Legal Information Institute

Filed Under: Chapter 13, Chapter 7

Chapter 7 and Chapter 13 Bankruptcy Code Overview: Introduction to Sections 526, 527 & 528

November 11, 2013 by TomScottLaw

Series: #1 0f 13
This series of articles will take a look at the three sections of the bankruptcy code related to debt relief agents, sections 526, 527 and 528, and the requirements and responsibilities they impose on attorneys that act as a debt relief agency. We will then take an in-depth look at primary reasons why filing Chapter 13 rather than Chapter 7 bankruptcy may be the better (or the only) option for your client.
Pursuant to 11 U.S.C. § 101(12A), a “debt relief agency” means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration. Accordingly, if the attorney charges any fees whatsoever or receives any other valuable consideration in the area of bankruptcy assistance, that attorney is a “debt relief agent” and must comply with the requirements of Sections 526, 527 and 528.
Future articles in this overview of bankruptcy will discuss:

Chapter 13; Section 526: Debt Relief Agent Requirements

Section 526 requires (among other things) debt relief agents to:

  • Provide all services promised
  • Properly advise the assisted person on benefits and risks associated with filing bankruptcy
  • Refrain from advising assisted persons to make untrue or misleading statements
  • Not advise the assisted person to incur more debt in contemplation of filing bankruptcy

While these issues seem clear and unambiguous on first reading, a closer understanding of this section shows the potential risks. We will take a more in-depth look at Section 526 in our next post.

Chapter 13; Section 527: Disclosure

Basically, Section 527 requires a debt relief agency to provide very specific written notices to the assisted person “not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person.” While this may appear clear on its face, it can be very tricky to follow in certain circumstances.

Chapter 13; Section 528: Compliance

Section 528 has the final list of requirements with which the attorney may or may not be able to comply. We will go into more details about both Sections 257 and 258 in the third article of the series.

Initial Interview & Deciding Which Chapter to Use

Most debtors who walk into your office only know about Chapter 7 bankruptcy and have some common misconceptions about how a Chapter 7 works, how it differs from a Chapter 13 bankruptcy, and how much paperwork they will need to provide to properly prepare and advise the Chapter 7 trustee and the court.
Additionally, a debtor may not qualify for Chapter 7 protection due to any of a number of factors, which we will discuss later in this series.
Even though a debtor may not qualify for a Chapter 7 due to a prior filing or because the debtor has excess income, there are many reasons in which a debtor may find as much or more “stress-relief” in a Chapter 13 reorganization. The attorney must be careful to analyze all the benefits and risks (as required by 11 U.S.C. § 526*(a)(3)(B) and rules of professional responsibility before making such a determination as to which chapter is appropriate.
Next: Restrictions on Debt Relief Agencies: Overview of Bankruptcy: Chapter 13, Section 526

* Source: Cornell University Law School Legal Information Institute

Filed Under: Chapter 13, Chapter 7 Tagged With: bankruptcy assistance, compliance, debt relief agent, disclosure

Cars and Other Collateral: Basics of Bankruptcy – Chapter 13 vs. Chapter 7 – Part 3

October 24, 2013 by TomScottLaw

In the previous installment of our series “Basics of Bankruptcy,” we discussed some of the reasons to file a Chapter 13 bankruptcy rather than Chapter 7 as they relate to mortgages.
This post looks at reasons why Chapter 13 might be the better choice for personal bankruptcy than Chapter 7 in relationship to cars and other personal collateral.

Cramming a Car

Summary: Provisions exist that can exclude any vehicle acquired for personal use or any other personal property purchased within 910 days of filing.
The ability to cram a recently purchased vehicle (or other personal property) has been limited by the BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act) amendments (11 U.S.C. §§ 526–528 (2006)1), referred to as the 910-Rule). The unnumbered (hanging) paragraph at the end of §1325(a)1 excludes any vehicle acquired for personal use or any other personal property purchased within 910 days of filing from the application of §506.
In short, this means that if the personal automobile was purchased within 910 days of the filing date, the claim may not be bifurcated and the entire payoff balance shall be the secured value. However, because Section 1325(a)(5) gives debtors three options for confirmation of secured claims (creditor’s acceptance of the plan, satisfaction of enumerated terms, or surrender of the collateral), arguably, if the plan provides for the payment of only the fair market value for a 910 claim, and the creditor fails to object, upon confirmation the creditor is deemed to have accepted the plan and is bound by the terms of the plan.
In the past when cramming a car in a plan, it was advisable to include language that required that the title be released upon payment of the value offer. However, pursuant to the revised §1325(a)(d)(B), a secured creditor may object and the plan can not be confirmed unless the secured claim holder retains their lien until the debt is paid in full or the case is discharged.
However, because paragraph (5) gives three options (acceptance, satisfaction of enumerated terms, or surrender), arguably, if the plan specifies that title will be released upon payment of the secured portion of the claim, and the creditor fails to object, upon confirmation the creditor is deemed to have accepted the plan and is bound by the terms of the plan.
If a value agreement cannot be reached at the §341 meeting, the matter will be set over for a hearing before the Court. The Courts have generally favored concrete evidence of the value, but have recently indicated a willingness to look at “book” values, preferring the NADA guide.

Cramming other personal property

Summary: In an attempt to keep personal property, debtors may, within one year of filing, offer the fair market value on virtually any piece of personal property, including furniture, appliances and boats.
Subject to the same hanging paragraph limitation addressed above, debtors may offer the fair market value on virtually any piece of personal property, including furniture, appliances and boats. For any other collateral acquired for the personal use of the debtor, however, the time limitation is lowered from 910 days to one year.

  • If no objections are received, the trustee will pay the value offer with interest, and will treat the remaining balance of the claim as unsecured.
  • Interest should be offered as §1325(a)(5) requires that the creditor must receive “present value” of the collateral.
  • However, it would seem that if interest were not offered and the creditor failed to object, the value could be paid at a flat rate (no interest).

Use caution when “cramming” the debtor’s personal property in a plan however, as the “Best Efforts” test will have some bearing. That is, if the debtors are attempting to retain collateral that is not “reasonable and necessary” as contemplated by §1325(b), the trustee may raise an objection to the utilization of estate funds to retain an unnecessary item. This objection may be resolved by either a surrender of the collateral in question, or by a modification of the plan that will increase the amount offered to general creditors by the amount of funds necessary to retain the property.
Some items that may merit a trustee’s best efforts objection include additional or luxury cars, a big screen TV, a boat, or a baby grand piano.

Lowering Interest Rates on Cars (and other collateral)

Summary: Plans can be set up to lower interest rates on collateral to the “Till rate,” which is determined by the national prime rate plus a risk factor.
Regardless of whether the collateral is eligible to be crammed or not, the plan may lower the interest rate to the Till rate. In re Till, 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004)2 is still assumed to be the appropriate standard for establishing the interest rate to be offered on secured claims.
Till, using the formula approach, established that the interest rate should be the national prime rate plus a risk factor (between 1 and 3%) depending on the circumstances of the particular debtor. A recent decision out of the Southern District of Illinois by Judge Coachys of the Indianapolis Division, In re Rushing (05-37004), applied Till to both cram downs and 910 vehicles. Other judges have since followed suit.
The last article in this series will take an in-depth look at liquidating tax debt, as well as discuss how to protect co-debtors.

Sources:
(links open in new windows)
1. Cornell University Law School Legal Information Institute
2. Bulk.Resources.org

Filed Under: Chapter 13, Chapter 7, Personal Bankruptcy in Indiana, Property & Asset Protection, Vehicles Tagged With: collateral, personal property

Income & Assets: Basics of Bankruptcy – Chapter 13 vs. Chapter 7 – Part 1

October 13, 2013 by TomScottLaw

In this second installment of our series “Basics of Bankruptcy,” we discuss reasons to file a Chapter 13 bankruptcy rather than the less complex Chapter 7 bankruptcy.

WHY FILE CHAPTER 13 ANYWAY?

When considering to file bankruptcy, the first decision that probably should be made is whether you should file either a Chapter 7 or Chapter 13 bankruptcy. There are several reasons why a debtor should (or must) file a Chapter 13 bankruptcy, including (but not necessarily limited to):

  1. Not eligible for a Chapter 7 discharge
  2. Above-Median debtor
  3. Debtor does not want to liquidate assets
  4. Curing a mortgage
  5. Cramming a mortgage
  6. Stripping
  7. Cramming a car
  8. Cramming other personal property
  9. Lowering interest rates on cars (and other collateral)
  10. Liquidating tax debts
  11. Protecting a co-debtor

In this post, we will look at the first three reasons above to choose Chapter 13. The remaining reasons will be covered in parts 2-4 of this series.

Not Eligible for a Chapter 7 Discharge.

Summary: A person cannot file for Chapter 7 bankruptcy within eight year of previously filing for Chapter 7 or Chapter 11, or within six years of filing for Chapter 12 or Chapter 13 protection.

Not Eligible for a Chapter 7 Discharge (opens in new window)
Click for US Code, Title 11, Chapter 7, Subchapter II, Section 727

Pursuant to US Code, Title 11, Chapter 7, Subchapter II, Section 727(a)(8)*, you (the debtor) are not eligible for a Chapter 7 discharge if you were granted a discharge in a Chapter 7 or Chapter 11 bankruptcy in a case that began within eight years before the date of the new bankruptcy filing.
Further, Section 727(a)(9) states that the debtor will not be eligible for a Chapter 7 discharge if the debtor was granted a discharge in a Chapter 12 or Chapter 13 bankruptcy filed within six years of the new filing (unless the plan payments paid 100% of allowable claims or paid 70% of such claims and the plan was proposed in good faith and was the debtor’s best effort).
Thus, an individual who received a discharge in a Chapter 7 bankruptcy six years prior would either have to wait two more years or file a Chapter 13 bankruptcy.

Above-Median Debtor

Summary: The court may dismiss an individual consumer debtor’s case filed under Chapter 7 if the debtor’s household income is greater than the median income for a household of the same size.
Filing Chapter 7 would create abuse.
Pursuant to Section 707(b)*, the court may dismiss an individual consumer debtor’s case filed under Chapter 7 if it finds that the granting of relief would be an abuse of the provisions of Chapter 7.

  • If the debtor’s household income is greater than the median income for a household of the same size, then the court shall presume abuse exists if current monthly income minus the means test standardized expenses leaves at least $182.50/mo (or $10,950.00 for 60 months).
  • If the net result is greater than $109.58/mo ($6,575.00 for 60 months), but less than the $182.50 figure, then there shall be a presumption of abuse if the net figure times sixty is at least 25% of the debtor’s general unsecured debts. In other words, if the debtor has incurred large amounts of debt, then the debtor may actually be more likely to get a discharge in a Chapter 7.
  • The presumption of abuse may only be rebutted by demonstrating special circumstances “such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative” [See Section 707(b)(2)(B)(i)].

Debtor does not want to Liquidate Assets

Summary: Debtor may protect those assets that they do not want to have liquidated by filing for Chapter 13 bankruptcy protection rather than Chapter 7.
Under a Chapter 7 bankruptcy, the duty of the trustee is to “collect and reduce to money, the property of the estate for which the trustee serves” [Section 704(a)*].
If, after utilizing all applicable exemptions for your client, there remains an asset that may be properly liquidated and your client desires to retain such assets, your client may protect those assets by filing for Chapter 13 bankruptcy protection.
As stated in Section 1325(a)(4)*, the court shall confirm a plan if the value of property to be distributed under the plan is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under Chapter 7 of this title.
In our next post, we will discuss mortgage curing, cramming, and stripping, methods employed to help reduce debt.

* Source: Cornell University Law School Legal Information Institute

Filed Under: Chapter 13, Chapter 7, Exemptions, Personal Bankruptcy in Indiana, Property & Asset Protection, Questions About Bankruptcy Tagged With: debtor, discharge debt, lower interest rates, means test, standardized expenses

Basics of Bankruptcy: Introduction to Chapter 7 and Chapter 13

October 4, 2013 by TomScottLaw

This series of posts discusses the basics of Chapter 7 and Chapter 13 bankruptcies and why one should be selected over the other.

Why Choose Bankruptcy?

The goal under any chapter of bankruptcy (at least as far as Congress is concerned) is to try and generate funds to distribute to the unsecured creditors and, in exchange for that attempt, the debtor’s debts will be discharged, other than for for several exceptions including, but not limited to:

  • Certain taxes
  • Student loans
  • Domestic support obligations
  • Criminal fines and restitution
  • Personal injury automobile accidents involving drugs or alcohol

The biggest difference between a Chapter 7 and a Chapter 13 is how the funds are collected.

Basics of Chapter 7 Bankruptcy

A Chapter 7 can be thought of as a “liquidation” bankruptcy. The Chapter 7 trustee appointed to the case will value the debtor’s property and determine whether property may be liquidated and funds distributed on a pro rata basis to the unsecured creditors.
Each state allows debtors to keep property necessary for the “fresh start.” The property that may be kept (which is exempt from liquidation) is called an exemption.
The major exemptions in the State of Indiana are as follows:

  1. Retirement (in a qualified retirement account) is fully exempt
  2. Real or personal property constituting the debtor’s primary residence is exempt up to $17,600.00 in equity ($35,200.00 for a married couple)
  3. Personal property valued up to $9,350.00 is exempt ($18,700.00 for a married couple)
  4. Intangible assets up $350.00 are exempt ($700.00 for a married couple).

While the majority of cases are “no asset” cases, the debtors must honestly and fairly list all assets and cooperate with the trustee in liquidation of assets in order to receive a Chapter 7 bankruptcy discharge.
The entire Chapter 7 bankruptcy takes approximately 120 days from start to finish and is a fairly simply way to obtain a fresh start. This article will focus on the Chapter 13 bankruptcy due to its time and complexity.
Our next post will discuss why to file for Chapter 13 bankruptcy vs. Chapter 7, including income levels and personal assets:
Income & Assets: Basics of Bankruptcy – Chapter 13 vs. Chapter 7 – Part 1

Filed Under: Chapter 13, Chapter 7, Exemptions, Property & Asset Protection Tagged With: assets, bankruptcy attorney, exceptions, liquidation, personal property, real property, Retirement

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