Written by Canterbury Law Group

What Is The Downside of Filing For Bankruptcy

What Is The Downside of Filing For Bankruptcy

It is not appropriate for everyone to file for Chapter 7 bankruptcy. Even if filing for Chapter 7 bankruptcy seems like the best option for you to reduce your debt, you should weigh the drawbacks first.

If your income is too high, you cannot file for Chapter 7.

You must not have any disposable income and make less than the state median income in order to qualify for Chapter 7. Individuals with disposable income are those who have money left over after covering their essential living expenses and can save. The means test can be used to get your disposable income.
If you have too much extra money than you need, you can’t just stop paying off your debt. While filing under Chapter 13 repayment plans is not permitted, you can still receive a bankruptcy discharge.

There Will Be a Brief Detriment to Your Credit

Prior to filing for bankruptcy, those who are able to make their monthly payments on time and maintain a high credit score will initially see a decline in their score. Additionally, your interest rates may rise momentarily. Nonetheless, declaring bankruptcy frequently improves a filer’s credit rating over time. You have the chance to raise your credit score right away if your bankruptcy discharge is approved.

Not All Unsecured Debts Are Erased by Chapter 7

Certain unsecured debts, such as child support or alimony, are never dischargeable in bankruptcy. Certain debts, such as tax obligations and certain student loans, may be difficult to discharge through bankruptcy. A common misconception is that filing for bankruptcy cannot be used to discharge student loan debt. According to the Bankruptcy Code, you may be able to discharge your student loan debt if repaying it would put you through extreme hardship. The Department of Justice gave courts more precise guidelines in late 2022 regarding what constitutes undue hardship. See if you qualify for this requirement by reading our article on how to file for bankruptcy while having student loans. Our group even produced a filing tool to facilitate the cancellation of student loans.

Some Property Types May Be Lost

Giving up some pricey things could be one of the trade-offs for receiving a bankruptcy discharge in a matter of months. We refer to these things as nonexempt property. In Chapter 7 bankruptcy proceedings, the bankruptcy trustee may sell assets of this kind to satisfy creditors. Having said that, Chapter 7 cases hardly ever involve this.

Your Bankruptcy Under Chapter 7 Others Are Not Protected by Filing (Like Co-signers)

Your only obligation to pay the debt is eliminated by Chapter 7. It does not relieve someone else of their debt. The only kind of bankruptcy that can shield a co-signer is Chapter 13, but that protection is limited to situations where you pay off the debt through your repayment plan.

What Is Bankruptcy Under Chapter 13?

For those seeking a fresh start, Chapter 7 and Chapter 13 bankruptcy are both effective debt relief options. Chapter 13 (also known as the “reorganization” bankruptcy) may be appropriate for you if you have a lot of disposable income, nonexempt assets that you wish to preserve, and the ability to adhere to a payment schedule.

The Price of Bankruptcy Filing

The cost of declaring bankruptcy can be high. The two required credit counseling and debt education courses, the court filing fee, and the cost of legal representation (should you decide to retain counsel) must all be taken into account. For Chapter 7 cases, the Bankruptcy Court levies a $338 filing fee, which, unless you are granted a waiver, you must pay. The court will dismiss your case if you fail to pay the fee in full, even though you are able to request to pay it in four installments. In addition to the court filing fees, you will be required to pay the attorney fees of any law firm or bankruptcy attorney you retain for assistance. This usually adds up to roughly $1,500, and it needs to be paid before your case is filed.
The price of attending the required debt education and credit counseling courses is in addition to the filing fee and legal fees.

Written by Canterbury Law Group

What is an Emergency Bankruptcy Filing?

When you file for bankruptcy in an emergency, you just need to submit the bare minimum of paperwork to start the process. It facilitates speedy case filing. If you need to halt serious collection actions like wage garnishment, foreclosure, or repossession, emergency filings can be useful. You have 14 days from the date of filing to finish the remaining paperwork in an emergency bankruptcy case, or your case may be dismissed.

What Is the Process of Filing for Emergency Bankruptcy?

A bankruptcy case filed with only a portion of the necessary forms is known as an emergency bankruptcy filing. An emergency filing may also be referred to as an incomplete filing, a skeleton bankruptcy, or a barebones filing, depending on where you live. The minimal information needed to invoke the automatic stay protection is included in an emergency bankruptcy petition as required by the Bankruptcy Code.

Even in urgent situations, the automatic stay begins to operate as soon as your bankruptcy case is filed. All of your creditors are required by the automatic stay to cease pursuing collection actions against you. The automatic stay can start working even before you’ve finished filing for bankruptcy thanks to an emergency petition.

While it is possible to file for bankruptcy in an emergency situation before finishing all the necessary paperwork, doing so does not release you from filing for bankruptcy in an ordinary manner. As required by law, you have 14 days from the date of your emergency filing to file the remaining forms. If not, your case will be dropped, allowing your creditors to start pursuing collection.

Why Do Individuals File for Bankruptcy in an Emergency?

Most people file for emergency bankruptcy in order to stop a collection action that could soon be initiated. Before choosing to file for bankruptcy, many people do some research and consider their options. It may take some time to gather all the required paperwork and complete all the forms, even after you’ve made the decision to file.

The automatic stay has the power to halt additional collection attempts, but it cannot reverse already completed actions. For this reason, it’s imperative that the automatic stay be in place before there is a wage garnishment, bank levy, repossession, or foreclosure. In the event that you are unable to complete all of your paperwork prior to a significant collection event, you can file for emergency bankruptcy, which will protect you from creditors until you have completed your forms.

What is Required for an Urgent Case?

Only a small portion of the documentation needed to complete your bankruptcy filing will be needed for an emergency bankruptcy filing. You still need to fulfill a few minimal requirements in order to file for an emergency.

Select the Appropriate Type of Bankruptcy

Most people file for bankruptcy using either the Bankruptcy Code’s Chapter 7 or Chapter 13. These two types of bankruptcy were intended for different purposes and operate very differently. Chapter 7 is mainly used by debtors to get rid of unsecured debt, like credit card and medical bills. You have to make your payments on time in order to maintain your vehicle or home in Chapter 7.

Repossessions and foreclosures are frequently stopped through emergency bankruptcy filings. Chapter 13 bankruptcy typically makes more sense in these circumstances. The Chapter 13 repayment plan is often used by debtors who are behind on their rent, mortgage, or auto payments in order to catch up on these payments.

The type of bankruptcy you’re filing must be specified when filing an emergency case. Switching to a different chapter isn’t always simple if you select the incorrect kind of case. Try to arrange a meeting with a knowledgeable bankruptcy attorney if you’re unsure which chapter to file under. When you arrange the consultation, make sure to mention that you’re in an emergency.

Verify Your Eligibility

Not everyone is qualified to file for bankruptcy under Chapter 7. To find out if you are eligible for Chapter 7 relief, you will need to pass a means test. Although completing the means test calculations prior to filing is not necessary in the event of an emergency, it is a good idea in case there is a problem with your eligibility for Chapter 7.

You should also see if you are eligible for a bankruptcy discharge if you have previously filed for bankruptcy. There are waiting periods between a previous bankruptcy discharge and a new discharge mandated by the Bankruptcy Code. Depending on the chapter you filed under previously and the chapter you are filing under now, these wait times vary. The wait periods only come into play if your prior case resulted in a discharge. A Chapter 13 plan can be used to make up missed payments even if you are not eligible for a discharge because of an earlier case.

If you have previously filed for bankruptcy, there are additional restrictions that might be applicable to the automatic stay. The automatic stay usually lasts from the time a bankruptcy case is filed until it is dismissed or discharged. The automatic stay in your new case will only last 30 days if you filed for bankruptcy within the last year and that bankruptcy was dismissed (not discharged). If you want to prolong the automatic stay past 30 days, you can file a motion. Usually, you have to file the motion along with your emergency documents.

When you file for bankruptcy, the automatic stay won’t apply if you’ve filed for bankruptcy twice or more in the previous year. To enforce the stay, you can file a motion, but you’ll need to wait for a hearing and a ruling. You will not be shielded from ongoing collection actions by filing for emergency bankruptcy if there is no automatic stay in place.

Enroll in a Credit Counseling Program

Prior to filing for bankruptcy, all applicants must finish a credit counseling program from an authorized provider. This covers last-minute bankruptcy petitions. Most suppliers provide the course over the phone, online, or both. The cost ranges from $10 to $45, depending on the provider. The course is offered once, with sessions lasting typically less than two hours. A certificate will be emailed to you by the provider once the course is finished. When submitting your emergency forms to the court, you also need to submit this certificate.

Fill out the Forms That Are NECESSARY.

In order to file for emergency bankruptcy, you need to at least fill out and submit the following forms:

Form 101, Voluntary Petition: This eight-page form asks for basic details about your name, address, type of bankruptcy, and history of bankruptcies, if any.

Social Security Number Declaration (Form 121): You will only use your complete Social Security number here in your documentation. It is hidden from creditors, attorneys, and even your trustee; only the court can view it.

An alphabetical list of all your creditors along with their mailing addresses can be found in the creditor matrix. The matrix must be submitted in a specific format to the majority of bankruptcy courts. In certain courts, the list of creditors must be submitted with a verification form. To be sure of the requirements, check with the court where your case will be filed.

Obtain Your Filing Cost

For Chapter 7 cases, the bankruptcy court charges a filing fee of $338, and for Chapter 13 cases, it charges $313. When you file your case, the fee is due. You can file a motion requesting the court to allow you to pay the filing fee in installments if you are unable to pay the entire amount. When you file your emergency case, most courts require you to pay a minimum first installment. For confirmation, check with your court.

You may petition the court to have your filing fee waived if your income is less than 150% of the federal poverty guidelines. When filing your emergency paperwork, you must also file your motion for installments or a fee waiver if you are not paying the full fee.

Put In The Case

New cases can only be filed online by bankruptcy attorneys. Since mailing your forms can cause a delay, it is best to file your paperwork in person in an emergency. To locate your bankruptcy court, use the federal court locater. Certain bankruptcy districts have restrictions on where you can file depending on the county in which you reside. To verify the residence rules and office hours, visit the website of your court. Finding out if your court has any additional requirements—such as bringing specific forms of identification or extra copies of your forms—also helps. Call the court clerk if you’re unsure.

I’ve filed for bankruptcy in an emergency. What Now?

Although filing for emergency bankruptcy will provide you with some immediate relief, your work is not over. Notifying the creditor who prompted you to file the emergency case is necessary. Additionally, you must finish and submit the last of your bankruptcy forms.

Let Your Creditor Know

Notification of your emergency filing will be mailed to each creditor in your creditor matrix by the bankruptcy court. However, it may take a few days or more for this notice to reach creditors. You should give the creditor a call directly in order to successfully halt a garnishment, lawsuit, foreclosure, repossession, or other collection action. Make contact with the creditor’s lawyer if you are familiar with them rather than contacting the creditor directly. Typically, you’ll need to provide them with your bankruptcy case number, the court you filed with, and the filing date. In case there is an issue, jot down the time and person you spoke with when you called.

Fill out the remaining bankruptcy forms and file them.

You have just 14 days from the time you file your emergency documents to the time you file the remaining bankruptcy forms. Remember, fourteen days can pass quickly, so don’t wait. The remaining forms, along with instructions, can be accessed online, just like the emergency forms. For every state, Upsolve also offers a free filing guide.

The bankruptcy court will send you a deficiency notice a few days after you file your emergency case. This does not imply that the material you have already filed is flawed. It simply indicates that you haven’t yet submitted all necessary forms. A list of the forms you still need to file and the due date for doing so will be included with your deficiency notice. To ensure that the remaining forms are received by the deadline, submit them in person.

The court has the right to dismiss your case if you fail to file the last of the bankruptcy forms by the deadline. The automatic stay is lifted upon a dismissal, allowing your creditors to resume collection efforts. You can file a motion requesting an extension from the court if you require more time to file the remaining forms. Don’t ask for more time unless you absolutely need it, as courts are frequently hesitant to grant these extensions.

Following the submission of all necessary paperwork, your case will be handled similarly to other bankruptcy cases. The date, time, and location of your creditors’ meeting, along with your trustee’s contact details, ought to be included in a notification you receive. About 30 to 45 days typically pass after the date of filing. It’s likely that you’ll receive a request for documents from your trustee, which you must submit at least seven days prior to the meeting.

What Drawbacks Come With Emergency Bankruptcy Filing?
The fact that you have so little time to prepare your bankruptcy forms is the largest disadvantage of filing an emergency case. The shapes are intricate. Documents like bank statements, tax returns, and pay stubs must be gathered. Another disadvantage is that you might run into unforeseen problems with your case when filling out your other forms, like property that isn’t exempt from fees. You don’t have much time to solve problems once you encounter them.

Furthermore, even though filing for emergency bankruptcy gives you some relief, in some cases it’s only a short-term fix. For example, in Chapter 7, you have to immediately bring the payments current if you want to keep your house or vehicle. You have an extended period in Chapter 13 to make up missed payments. Regardless of the chapter you file under, you only have 30 days to bring your payments current if you filed for bankruptcy to prevent an eviction.You only submit the bare minimum of paperwork to the bankruptcy court when filing for bankruptcy emergency. When you need to halt an impending threat of collection, like a wage garnishment, foreclosure, or repossession, emergency filings can be useful. In these circumstances, you might have to file for bankruptcy quickly because you won’t have enough time to finish all the paperwork. You are protected from creditors by the automatic stay, which is activated by the emergency filing. However, you only have 14 days from the date of filing to finish all other documentation. This could be dangerous, particularly if problems arise with your case. Your case may be dismissed if the remaining forms are not submitted by the deadline.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business BankruptcyChapter 7 BankruptcyCreditor Representation, Chapter 5 ClaimsChapter 13 Bankruptcy, Business RestructuringChapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

Written by Canterbury Law Group

What Are the Chapter 7 Bankruptcy Rules?

The most common form of bankruptcy in the United States is Chapter 7. At Canterbury Law Group, we constantly work with clients to file Chapter 7, which allows individuals to extinguish all debts which are “dischargeable” under the Bankruptcy Code. In a Chapter 7, all of the debtor’s non-exempt assets on the petition date are liquidated through the priorities set forth in the bankruptcy code. At the time of filing, the bankruptcy code establishes the creation of your “debtor’s estate” which includes all “non-exempt assets.” As a Debtor you have various duties and obligations, including significant duties of co-operation, which are owed to the Bankruptcy Trustee. These obligations are designed to assist the Trustee in the administration of your bankruptcy estate.

The Scottsdale bankruptcy lawyers at Canterbury Law Group will counsel you regarding these duties, which if followed, will make your case run smoothly. Unfortunately, many debtors who are not fully informed of these obligations run the risk of not receiving a full discharge of some or all or their debt. If you’re thinking of filing Chapter 7, here are some recommendations from our lawyers:

1. Complete the Mandatory Credit Counseling – Before you can file chapter 7 bankruptcy, it is essential to complete credit counseling. It is a mandatory step before you can file and often requires paying a fee. Otherwise, your filing will not be allowed to continue.

2. File All Chapter 7 Paperwork – Complete and file all necessary paperwork in court. Make sure all of your paperwork is accurate. Determine any fees associated with your filing.

3. Meet With Your Creditors – Approximately one month after filing the petition, you will need to meet with your creditors, an arrangement made by the court. During this important meeting, your creditors will question you regarding your finances and property. Typically this meeting involves only a few people connected with the credit card companies to whom you owe your debt. Your lawyer can certainly be present to aid you through this process.

4. Attend the Personal Financial Management Instruction Course – In addition to your credit counseling course, a personal financial management course generally costs about $30 and is necessary for completing your filing of chapter 7. If you skip the money management course, you risk dismissal of your case.

Although there are a lot of rules, Chapter 7 bankruptcy rules are not as complicated to comprehend as you might think. To guarantee a successful Chapter 7 bankruptcy filing and to gain a basic understanding of the rules, continue reading.

The local court regulations and the bankruptcy laws of the United States are combined to create Chapter 7 bankruptcy rules. The Bankruptcy Code and the Bankruptcy Rules are two distinct categories of US bankruptcy laws.

There are many of them since all bankruptcy cases are covered by these laws. But do not fret! Not all of them need to be learned. It’s a good idea to be somewhat familiar with Chapter 7 bankruptcy rules if you plan to file for Chapter 7 bankruptcy to ensure that a small mistake doesn’t ruin your fresh start.

Unofficial Guideline That All Filers Should Adhere To

Being sincere is the most crucial bankruptcy rule. The bankruptcy laws grant the “honest but unfortunate debtor” a fresh start. Even if they abide by all the other guidelines to the letter, anyone attempting to conceal anything risks punishment. Because of this, it’s crucial that you submit an amendment if you discover that something is missing from your forms.

Guidelines for Chapter 7 Bankruptcy to Adhere to Before Filing

When getting ready to file your case, there are a few easy guidelines to adhere to. To be eligible to file Chapter 7, you must complete an approved credit counseling course, use the official bankruptcy forms from the U.S. Courts, and pass the means test.

A Credit Counseling Appropriate Course Must Be Taken

Everyone is required to enroll in a credit counseling course offered by an authorized credit counseling agency at some point during the six months—180 days, to be exact—before declaring bankruptcy. You cannot file for any kind of bankruptcy without it. You must also have the United States Trustee’s approval for the credit counseling organization you select for this hour-long course.

The Official Bankruptcy Forms Must Be Used

The bankruptcy courts in the United States mandated that all individuals filing for bankruptcy, regardless of location, must utilize identical bankruptcy forms. The U.S. Courts website offers the forms at no cost. The only way to ensure that any bankruptcy forms you download are the official version is to ensure that you are downloading them from a.gov website.

Furthermore, your state’s bankruptcy court might have unique local forms. These local bankruptcy forms are not a substitute for the federal ones; they must be filed in addition to them, if necessary. Required local forms can be obtained by speaking with the clerk at your local bankruptcy court or by visiting the website of your bankruptcy district.

The Means Test Must Be Passed

Chapter 7 filing is subject to income restrictions. Using a means test, the court determines whether you are within those bounds. There are mixed feelings when one fails the means test. One the one hand, your high income precludes you from filing for Chapter 7 bankruptcy. Nonetheless, your monthly income is fairly stable, even though it might not be sufficient to meet all of your creditors’ demands for payments each month. Investigate if Chapter 13 bankruptcy would be a better choice for you in this situation.

How Is the Means Test Operational?

In essence, it establishes the income thresholds for Chapter 7 bankruptcy. You pass the means test if your monthly income is currently less than the state median income. You might still pass the means test even if your income is higher than the median. In order to file for Chapter 13 bankruptcy, you must demonstrate that your disposable income (after your living expenses and income tax withholdings are subtracted) is insufficient to pay off at least 25% of your unsecured creditors.

Chapter 7: Bankruptcy Guidelines for Following Case Filing

The automatic stay, which is a feature of the bankruptcy laws, protects you from creditors as soon as your Chapter 7 case is filed. Once a bankruptcy petition is filed, the Bankruptcy Code prohibits any further collection efforts against the debtor or their assets. Wage garnishments must therefore end immediately upon the filing of a bankruptcy case.

That isn’t the only thing that occurs, though. For the individual filing for Chapter 7 bankruptcy, their creditors, and the bankruptcy trustee managing the case, there are extra regulations.

Chapter 7: Guidelines for Bankruptcy Filers

Each individual filing for bankruptcy must fulfill the Bankruptcy Code’s requirements. Following the filing of your Chapter 7 bankruptcy case, you have the following obligations:

Apply for a fee waiver or pay the court filing fee.

Your final federal income tax return should be turned in to their bankruptcy trustee.
Attend the creditors’ meeting.
Finish the second bankruptcy course, also known as financial management or debtor education.

That is, of course, the absolute minimum. Additionally, you must work with your bankruptcy trustee. This usually entails providing them with additional paperwork in advance of the creditors’ meeting, such as bank statements. At times, this entails informing the trustee if, within six months of your filing date, you are qualified to inherit something. It all depends on the circumstances surrounding your case.

Additionally, in the event that your contact information changes, you must make sure to notify the trustee and the bankruptcy court.

What Part Does the Trustee Play in This Whole Thing?

Finding non-exempt assets that can be sold to pay off unsecured creditors is the trustee’s responsibility. This entails going over tax returns, bank account statements, and bankruptcy forms, among other documents. Asset cases remain open for as long as the trustee needs to complete them, and even after the bankruptcy discharge is approved, the filer must keep collaborating with them.

Since most Chapter 7 bankruptcy filers do not possess any nonexempt property, the trustee’s duties are restricted and frequently completed prior to the debts being discharged.

Guidelines for Handling Secured Debts

Secured debts are associated with a particular item of property. One common type of secured debt in Chapter 7 proceedings is auto loans. If you possess this kind of debt, you must file a Statement of Intentions to inform the secured creditor of your plans. That’s not all, though.

There isn’t much more to do if you are returning the car. But the Chapter 7 bankruptcy rules demand that you actually follow through on any plans you may have to redeem the car or reaffirm the loan. That typically entails signing a reaffirmation agreement or submitting a motion to redeem. The automatic stay expires and the bank is free to come pick up the car whenever they choose if you don’t act within 45 days of the date of the creditors’ meeting.

Chapter 7: Rules for Creditors in Bankruptcy

The most significant of these is the previously mentioned automatic stay found in the Bankruptcy Code. In addition, if creditors wish to object to anything in your case, they must submit their objections by a specific date. Unsecured creditors frequently take no action at all in no-asset cases. Credit card debt, personal loans, the majority of tax debt, and student loans are examples of unsecured debt.

Having a trusted legal team on your side is critical during bankruptcy. Call Canterbury Law Group today to schedule your consultation. 480-744-7711.

Written by Canterbury Law Group

Is Filing for Bankruptcy Bad?

Is Filing for Bankruptcy Bad?

We are committed to providing accurate content that helps you make informed money decisions. Our partners have not commissioned or endorsed this content. Read our editorial guidelines here


Bankruptcy is a legal option that can provide relief for people who can no longer keep up with their debts. While this route can alleviate an excessive financial burden, there are pros and cons of filing for bankruptcy. For instance, while it can provide you with a fresh start, it can make it difficult to be eligible for new forms of credit down the road.


The decision to file for bankruptcy should be considered carefully, weighing not only the benefits and the potential relief it can bring but also the drawbacks. So, what are the pros and cons of filing for bankruptcy?


There are a lot of misconceptions about what it means to file for bankruptcy, which can lead to unnecessary stigma.


For instance, there is a commonly held belief that those who file for bankruptcy are irresponsible when it comes to managing money. In reality, the high cost of medical expenses is one of the leading causes of bankruptcies.


Other misconceptions are that if you file for bankruptcy, you can lose all of your belongings or never be eligible for credit again. Neither of these statements is true. Your assets are often protected by federal or state exemption laws — though you may have to sell some of your belongings in a Chapter 7 case — and many bankruptcy filers are able to secure forms of credit again.


There are six types of bankruptcy, but the average consumer will usually file one of two:


  • Chapter 7: This is the most common form of bankruptcy for individuals. With this method, valuable assets are liquidated to settle debts. Chapter 7 is typically split into asset cases and no-asset cases; if you are determined to be a no-asset filer, you won’t have to give up your belongings. Chapter 7 bankruptcy can stay on your credit report for up to 10 years, starting on the filing date.
  • Chapter 13: This is the second most common form of bankruptcy that individuals file. With Chapter 13 bankruptcy, a three-to-five-year repayment plan is created. This form of bankruptcy can stay on your credit profile for up to seven years.
  • The type of bankruptcy you qualify for may depend on your income and the value of your assets. For example, to see if you qualify for Chapter 7 bankruptcy, you’ll have to take a means test to determine your eligibility. If you’re not eligible for Chapter 7, you may have to file for Chapter 13.


 Filing bankruptcy: The Good

While it shouldn’t be undertaken lightly, bankruptcy can be a much-needed life raft for consumers who are drowning in debt. Here’s a look at some of the benefits of filing for bankruptcy.


  You’re granted an automatic stay

The instant you file, you are protected under a provision in bankruptcy law called the automatic stay. Creditors cannot pursue payment of your debts or take other actions against you until the bankruptcy is discharged or a repayment plan has been finalized.


  You’ll get relief from dealing with multiple creditors

Filing bankruptcy can mitigate the pressure and overwhelming nature of handling numerous creditors. In fact, you may experience immediate relief once your debts are discharged and you no longer have to repay some or all of your financial obligations.


  You’ll receive a court-appointed representative

Once you file your petition for bankruptcy, you’ll be assigned a trustee who will see your case through to discharge. They will operate on your behalf throughout the process, including handling all communication between you and your creditors, and in the case of Chapter 13 bankruptcy, they will be the one to receive and process your payments.


  Bankruptcy can prevent further legal action

One of the largest benefits of bankruptcy is that you could be legally cleared of responsibility for your debt. On top of that, it could potentially prevent any future legal trouble related to the nonpayment of that debt. Keep in mind that not all debts are dischargeable, but most forms of unsecured consumer debt can be wiped out in bankruptcy.


  You may be able to keep some assets

In Chapter 13 bankruptcy, you are likely to be able to keep your assets as you repay your debts, but even when your assets are liquidated under Chapter 7, some valuables may be protected by federal or state exemption laws, depending on where you live.


  Some back taxes can be addressed

Filing bankruptcy can be an effective way to deal with back taxes, especially in a situation in which wages are being garnished. While most tax debts cannot be dismissed in bankruptcy, some older tax debts can be discharged. To be eligible, your tax debts must be at least 3 years old and must be income taxes. Fraud penalties and payroll taxes are never eligible for discharge.


  Bankruptcy may prevent home foreclosure or car repossession

Chapter 13 bankruptcy can be a tool to delay or stop a foreclosure or car repossession. You may also be able to keep your vehicle if it is covered under exemption laws.


For example, a federal exemption allows you to have up to $4,450 in equity for your vehicle. If your vehicle is worth $4,000, for example, you may be able to keep the car because it falls under a federal exemption.


  Your debts may be settled for less than what you owe

Your creditors will be forced to accept whatever payment is determined in your bankruptcy case, which sometimes means receiving no payment at all. If you qualify for a Chapter 7 bankruptcy, you could have all of your unsecured debts dismissed, including credit card debt, personal loans and medical debt.


However, Chapter 13 bankruptcy can be trickier because you may have to repay some of those debts over the course of three to five years.


  Some debts will be completely written off

Once your bankruptcy case is closed, any debts that are discharged are gone for good. Your creditors cannot come back and try to collect on any debts that were dismissed during bankruptcy.


  Bankruptcy could potentially increase your credit score

It’s no secret that bankruptcy can hurt your credit. But if your credit score wasn’t great before you filed for bankruptcy, you could potentially see an increase after your debts are discharged. Debt elimination could help lower your credit utilization ratio, which is one of the factors that determine your credit score.


  You can take on new credit after your debts are discharged

The process of rebuilding your credit after bankruptcy can start immediately after your debts are discharged. In some cases, individuals are approved for credit cards almost immediately after they receive their discharge order. You will face some limitations as you attempt to take on new credit, however, especially since your credit score is likely to be low. A good place to start may be a secured credit card.


  You’ll get a fresh start

Bankruptcy can potentially provide you with a much-needed clean slate to begin rebuilding your financial life. This new start can help consumers reestablish their credit and build healthy habits around money.


 Filing bankruptcy: The Bad 

Of course, filing bankruptcy also comes with many drawbacks. Given the complex nature of the process, we recommend contacting an experienced bankruptcy attorney to assist with your case.


  You could lose assets of value

Depending on which type of bankruptcy you qualify for, your income, the equity in your assets and other factors, you may lose your home, your car and other valuable items. Your trustee may be required to sell these items to repay your creditors.


  Bankruptcy can be expensive

You’ll need to cover the costs of bankruptcy, including service and court fees. The average Chapter 7 bankruptcy case costs between $1,000 and $1,750 in out-of-pocket costs, while the average Chapter 13 bankruptcy costs around $3,300.


  Federal student loans are exempt from bankruptcy

In most cases, federal student loans are not dischargeable; there are some exceptions, but they are rare. Instead, if you’re struggling to keep up with your federal student loan payments, you may have to look into forbearance, deferment or income-based payment plans.


  You may still be responsible for some debts

While most debts can be discharged, there are some debts you will still be responsible for repaying. Besides federal student loans, certain other liabilities are not dischargeable, including taxes, alimony, child support, court orders and debts incurred through illegal activity.


  If you have joint accounts, the other party is still responsible

Creditors can demand payment from the nonbankrupt debtor or any cosigners you have. This is an important factor to consider before adding a co-applicant to a credit application, and you’ll want to be sure your co-borrower understands this as well.


  You could face criminal charges if you aren’t honest

The information you provide when filing for bankruptcy will be scrutinized. If you provide inconsistent or false information, you could face legal action. It is in your best interest to be completely honest about the assets you own and any income you receive.


  Bankruptcy is a long process

A Chapter 7 bankruptcy moves pretty quickly and typically discharges within a few months after filing. A Chapter 13 bankruptcy, however, is a much longer process since you’ll have to follow a three-to-five-year payment plan before your case is discharged.


  You could lose your business

If you own a business and the trustee in your case determines it has value, you could be forced to sell it. In some instances, the trustee may operate the business until the sale is complete.


  You may face eviction

If you rent your home and are behind on your payments, you could be forced to leave the property once the bankruptcy is discharged. However, if you are current on your rent payments, it is uncommon to be evicted over a bankruptcy filing.


  You’re likely to have trouble renting in the future

You could experience difficulty renting a home after declaring bankruptcy, as some landlords or management companies may automatically reject prospective tenants who have a bankruptcy in their credit history.


  Bankruptcy can impact your job or career

Bankruptcy may disqualify you from holding certain positions, though it’s rare for this to happen. Filing for bankruptcy is most likely to cause trouble for those who work with money, including jobs in accounting or payroll. When you apply for a new job, a potential employer could see your bankruptcy filing during a credit check for employment since it’s public record.


  Your bankruptcy will be made public

Bankruptcies are publicly reported, so people you know could potentially discover that you filed. This includes if someone runs a background check on you for employment or housing.


  Your trustee may continue to administer your assets after discharge

Depending on the specifics of your case, the trustee may pursue the sale and distribution of your assets after your debts have been discharged. This can include any assets and income acquired within 180 days of the discharge, such as an inheritance or divorce settlement.


  Your credit score is likely to drop

Depending on your credit score before filing, you could see a significant drop. If you had a good credit score before you filed for bankruptcy, you may see a pretty big drop. However, if your score is already low, there may not be much of an impact on your credit score.


  You’ll experience difficulty gaining future credit

Your bankruptcy will follow you for quite some time. Chapter 13 can stay on your credit report for up to seven years, while Chapter 7 can remain for up to 10 years. If you apply for a form of credit and the lender runs a credit inquiry, it will be able to see your bankruptcy and may not approve your funding request.


  You’ll receive high interest rates and low credit limits

Even though you may qualify for new credit after filing for bankruptcy, it may come at a premium. You’re more likely to be charged high interest rates, as creditors may see you as a risky borrower, and you may only be eligible for low amounts of credit.


  You’ll have to wait to purchase a home

Before you can qualify for a mortgage, you’ll have to wait anywhere from one to four years, depending on the type of mortgage. If you file for Chapter 7 and plan to apply for a conventional mortgage, the waiting period is four years. With a Chapter 13 bankruptcy, you’ll have to wait two years from your discharge date.


  Your car insurance premiums will go up

Car insurance companies use an industry-specific credit report based on your credit file, so if you need to secure auto insurance after filing bankruptcy, your rates will likely be impacted.


  Bankruptcy stays on your credit report for up to 10 years

Your bankruptcy will remain on your credit report for up to 10 years from the date of discharge. While the impact will lessen over time, it can play a factor in any financial moves that require credit inquiries.


  It doesn’t address the cause of your financial trouble

While bankruptcy can be a solution in certain circumstances, it doesn’t fix what led to the problem in the first place. Without a solid plan in place, you could repeat your mistakes and end up needing to file bankruptcy a second time.


  It cannot be undone

Bankruptcy is final. You cannot change your mind once your case is finalized. This is why it’s important to fully understand what you’re signing up for when you decide to file for bankruptcy. Credit counseling — which is required when filing for bankruptcy — can help you determine whether it’s the right move for you.




Written by Canterbury Law Group

Types Of Bankruptcy

The Chapter 7 income limits were added in 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Since Chapter 7 bankruptcy doesn’t involve a repayment plan of any kind, Congress worried about an abuse of the bankruptcy process by filers who could afford to pay their debts.

The Chapter 7 income limits were added in 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Since Chapter 7 bankruptcy doesn’t involve a repayment plan of any kind, Congress worried about an abuse of the bankruptcy process by filers who could afford to pay their debts. 

To prevent this, Congress added a credit counseling requirement for anyone filing any type of bankruptcy and set income limits for Chapter 7 relief. The bankruptcy means test calculation determines whether someone can afford to pay a portion of their consumer debts as part of a Chapter 13 bankruptcy. 

The Chapter 7 Income Limits and the Bankruptcy Means Test

The bankruptcy means test is a calculation laid out in the Bankruptcy Code. The starting point for this calculation is your state’s median household income. Median income can be part of the Chapter 7 income limits. If your household income is less than the median household income for the same household size of the state you’re filing in, you make less than the income limit. This means you pass the Chapter 7 means test and qualify for Chapter 7 bankruptcy. 

If your household income is greater than the median, you may still qualify for Chapter 7 bankruptcy if your household expenses under the means test calculation don’t leave you with any disposable income. More on that in Part 2, below. 

Part 1: Comparing Your Household Income to the Median Income 

The first part of the means test compares your average income to the median household income for the same household size in your state. 

Determining the Median Income for Your Household Size

The income limit for your state and household size is based on data from the Census Bureau, and it changes multiple times per year.

To find the most up-to-date information, go to the means testing page from the United States Trustee (UST) and choose the current option in the drop-down menu titled “Data Required for Completing the 122A Forms and the 122C Forms.” This will bring you to a new page on the Justice Department’s website that provides a link titled “Median Family Income Based on State/Territory and Family Size” provided by the Census Bureau. From there, you can pull up a table showing median incomes by household size, for each state.

Calculating Your Current Monthly Income

Your current monthly income under the means test is based on your monthly income in the six months before your bankruptcy filing. This doesn’t include the month your bankruptcy case is filed in. For example, if you file for Chapter 7 bankruptcy in July, calculate your current monthly income based on how much you earned from January 1 to June 30. 

Step 1: Add up all income from the last six months.

Your monthly income is calculated by adding up all countable gross income you received in the six-month period you’re using for your means test. Gross income is not the same as your take-home income. Gross income is the amount you make before taxes and other deductions are taken out. 

Countable income includes income from wages, alimony, child support, rental income, and any other money you receive on a regular basis. Social Security income (SSI or SSDI) is not added when calculating your current monthly income. If your only source of household income is SSI or SSDI, you pass the Chapter 7 means test without having to do any math. 

Step 2: Divide the result by six.

Once it’s all added together, divide the total by six. The result is your current monthly income under the bankruptcy means test. If your income fluctuates each month, your current monthly income under the means test may surprise you. Remember, it’s an average taken over the last six months. 

If you received significant overtime pay, income from extra gigs, or a bonus during the six months, your average monthly income will be higher than what you’re actually earning now. Similarly, if you were out of work for four out of the last six months before finding a new job, your average income under the means test will be much lower than what you’re making now.  

Step 3: Use your current monthly income to determine your annual income.

Take your current monthly income as calculated and multiply it by 12. This is your annual income according to the means test calculation. Compare that number to the annual income for your household size in your state. 

If your annual income is less than the median, you pass the Chapter 7 means test. If your income is greater than the median household income, you’ve failed the first part of the means test. But you may still be eligible to file Chapter 7 bankruptcy based on the second part of the means test.

Part 2: Comparing Your Current Monthly Income to Your Household Expenses

The second part of the means test calculation determines whether you have any money left over after paying your monthly living expenses. If the answer is yes, you have disposable income. If you have a high disposable income, the Bankruptcy Code requires that you use it to pay down your debts in a Chapter 13 bankruptcy before you can get a bankruptcy discharge. 

Only Certain Expenses Are Considered

This is where things get very technical, as only some types of monthly expenses are taken into consideration. So hiring a bankruptcy lawyer can be useful. The purpose of this part of the test is to determine whether your income is enough to cover your living expenses and repayment of your debts. A bankruptcy lawyer can give you legal advice on what’s an allowed monthly expense and what isn’t. 

Expenses Are Forward-Looking

Your average monthly income is calculated by looking at the past. Your expenses, on the other hand, are forward-looking and based on your actual monthly expenses. If your old healthcare plan cost $600/month but you were able to switch to a cheaper plan for $300/month, the means test calculation will show this as a $300 monthly expense. 

Paycheck Deductions

Paycheck deductions for income taxes, Social Security, health insurance, disability insurance, term life insurance, and health savings account expenses are considered allowed monthly expenses. The same is true for deductions you didn’t really have a choice over that are required as part of your employment. Examples include mandatory retirement contributions, union dues, and uniform costs. 

Wage Garnishments

While it’s probably an involuntary deduction, wage garnishments aren’t automatically allowed as an expense in the means test calculation. If the wage garnishment is the result of a lawsuit filed by a credit card company for an unsecured debt, the automatic stay stops that garnishment once you file your petition for bankruptcy relief. And since the unsecured debt will be discharged, it’s not going to be an expense for you going forward. 

The only exceptions are garnishment orders in place to make monthly payments for ongoing child support or alimony obligations. These domestic support obligations aren’t dischargeable and will continue to be deducted from the filer’s paycheck. They are an allowed monthly expense. 

Regular Living Expenses Are Based on National Standards

To make sure things are as fair as possible to everyone filing bankruptcy, there are limits to the amounts for regular living expenses. To account for regional differences, some of these expenses are based on national standards, while others are based on local standards. Monthly expense allowances under these standards vary by household size and are broken down as follows:

National Standards

  • Food (groceries and eating out)
  • Clothing and services (think dry cleaning)
  • Housekeeping supplies
  • Personal care (haircuts)
  • Healthcare expenses

Local Standards

  • Utilities and housing maintenance
  • Mortgage or rent expenses
  • Transportation expenses, including public transportation
  • Vehicle operating costs

Actual Necessary Expenses

These are expenses that you actually pay every month that aren’t already accounted for in the local or national standards. If the United States Trustee in your district picks your case for an audit, you’ll be required to show documentation that you’re making these monthly payments. 

They include the following: 

  • Term life insurance for yourself
  • Education for employment that is a condition of your employment
  • Expenses incurred for the health or welfare of physically or mentally challenged child
  • Child care expenses, like babysitting, daycare, and preschool
  • Medical bills exceeding the national standards for healthcare expenses
  • Certain insurance premiums
  • Charitable contributions (up to 15% of gross income) 

Ongoing Debt Payments: Secured and Priority Debts

If you have a car or house that you plan on keeping after filing bankruptcy, you’ll also keep the monthly payment on your car loan or mortgage. You can deduct the monthly payments for these secured debts, at least to the extent that they exceed the local and national standards. 

If you owe a tax debt that won’t be eliminated in your bankruptcy case, you’re able to deduct a monthly payment toward this priority debt as well. 

What’s Left After Allowed Monthly Expenses Determines Chapter 7 Eligibility

When you subtract your allowed living expenses from your monthly income, if the number is negative you don’t exceed the Chapter 7 income limits. You pass the means test and can proceed with filing for bankruptcy relief under Chapter 7.

If the result is a positive number, you have disposable monthly income because your income exceeds the allowed expenses. In this case, you may not qualify for Chapter 7, but you can file Chapter 13. Keep in mind that Chapter 7 and Chapter 13 provide different types of debt relief, and there are pros and cons to each.

If your disposable monthly income is less than a certain amount (adjusted every three years) when multiplied by 60, you meet the income limits. The means test calculation has determined that you don’t have the ability to repay a meaningful amount of your unsecured debts and you qualify for Chapter 7 bankruptcy. If you exceed the limit, it’s assumed that filing a Chapter 7 would be an abuse of the bankruptcy process. Chapter 7 bankruptcy relief may still be possible, but only if special circumstances exist. 

Not Everyone Is Subject to the Chapter 7 Income Limits

If the majority of your debt is business debto or if you’re part of the military, you may be excpeted from the Chapter 7 income limits.

Exception for Non-Consumer Debt: If more than 50% of your debt is considered non-consumer debt, you’re automatically exempt from the means test calculation. Non-consumer debt is also called business debt because it’s incurred with a business or profit motive. If you’re not sure if you have business debt, consider speaking to a bankruptcy attorney about your situation and the types of debt you have. 

Exception for Qualifying Service Members and Veterans: Disabled veterans, reservists called to active duty, and members of the national guard don’t have to count compensation connected to their service as part of the bankruptcy means test. This protection was recently expanded when the HAVEN Act was passed by Congress.

Anyone who qualifies for one of these exceptions to the bankruptcy income limits has to file a Statement of Exemption from Presumption of Abuse Under § 707(b)(2) instead of their bankruptcy means test form. This form lets the bankruptcy court know that you’re not subject to the income limits. 

Let’s Summarize…

The means test is one of the most complicated bankruptcy forms. If the bankruptcy means test shows that your household income is less than the median household in your state, you pass the Chapter 7 means test. If your average income exceeds the median income, you may still be eligible for Chapter 7 bankruptcy based on the extended means test calculation. 



Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business BankruptcyChapter 7 BankruptcyCreditor Representation, Chapter 5 ClaimsChapter 13 Bankruptcy, Business RestructuringChapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

Written by Canterbury Law Group

Bankruptcy Filing Fees and Costs

Below is a summary of filing fees for bankruptcy, the price of required credit counseling, and if you qualify for fee waivers or installment payments.

You have to pay filing fees and expenses for credit and debt counseling when you file for bankruptcy. You may be eligible for a fee waiver or be able to pay in installments if you are unable to pay the filing fee.

You can find a summary of what needs to be paid, when, and how to be eligible for installment payments or a fee waiver in this article.

Bankruptcy Petition Fees: Chapter 7 and Chapter 13 Filing Fees

The total amount of fees you have to pay in order to file for bankruptcy is as follows, as of December 1, 2020:

For Chapter 7, $338
For Chapter 11, $1,738
Chapter 12: $278; Chapter 13: $313
Periodically, the bankruptcy court raises these fees. The U.S. Courts fee webpage has the most recent fees available.

Chapter 7: Installments and Waivers of Filing Fees

The filing fee is usually due at the time your bankruptcy petition is filed. There are two exclusions from Chapter 7 bankruptcy, though. Asking the court to waive the fee completely or allow you to pay it in installments is an option.

Application for Installments of the Chapter 7 Filing Fee

You file Form 103A Application for Individuals to Pay the Filing Fee in Installments to request permission from the court to pay your filing fee over time. You must indicate on the form that you are unable to pay the fee in full and that you will make no more than four payments within 120 days of the petition’s filing.

Request for Waiver of Chapter 7 Filing Fee

If the court waives the fee, you are not required to pay it. If you are eligible for a fee waiver, you

must be unable to make payments in installments and have an income that is less than 150% of the federal poverty threshold (official poverty line estimates are available from your bankruptcy court).
Fill out Form 103B, Application to Have the Chapter 7 Filing Fee Waived, and send it in to request a fee waiver. In many cases, the judge will approve the application without requiring you to appear in person, but you may still be required to appear in court so the judge can question you.

See how to make changes to bankruptcy forms.

In Chapter 13, there are no fee waivers or installment payments.

Fee waivers and installment payments are generally not available to Chapter 13 filers because they must have sufficient funds to support a repayment plan for three to five years following filing for bankruptcy. When submitting the case, budget for the cost.

Extra Fees Associated with Bankruptcy Filing

Credit counseling from an authorized provider must be completed no later than six months prior to filing for bankruptcy under Chapter 7 or Chapter 13. To get your bankruptcy discharge (the order that eliminates qualifying debt), you have to complete a debtor education course after filing your case.

For the necessary counseling, the majority of approved credit counseling providers charge $15 to $30, but you might not be required to pay anything. In accordance with the law, agencies must offer counseling regardless of your financial situation, so please inform the agency if this is not possible for you.

Additionally, the debtor education classes run about $35. You can request that the provider waive the fee or let you pay a smaller amount if you are unable to pay the full amount.

How to Pay Your Attorney Fees in Bankruptcy

Since many bankruptcy attorneys charge as little as $100 to begin, finding a way to pay Chapter 13 bankruptcy fees is not too difficult; the remaining amount can be rolled into your Chapter 13 repayment plan. You can pay your Chapter 13 fees gradually with this method.

You must pay your attorney in full before filing for Chapter 7 bankruptcy. For what reason? because legal fees are eliminated in Chapter 7 bankruptcy. Your attorney won’t get paid if you don’t make the entire payment.

To file for Chapter 7, how do you obtain the necessary funds? Most Chapter 7 filers divert their payments intended for bill cancellation during bankruptcy to pay their attorney. The funds will be borrowed by others from friends and relatives.

But there are other approaches. If you are unable to pay for a bankruptcy attorney, you can find out more information here about your options.

Written by Canterbury Law Group

How Bankruptcy Can Help With Foreclosure

How Much Does It Cost To File For Bankruptcy

When confronted with foreclosure, many debtors file for bankruptcy—and with reason. By filing for bankruptcy, a debtor can obtain what is known as an automatic stay. During the bankruptcy case, the stay serves as an injunction, or bar, prohibiting creditors from attempting to collect debts or enforce liens.

In some instances, a debtor is not entitled to the automatic stay, or the lender successfully petitions the court to lift the automatic stay. Whether you file for Chapter 7 or Chapter 13 bankruptcy determines whether the foreclosure process is halted temporarily or permanently.

The Process of Foreclosure

When you purchase a home, you agree that if you fall behind on your monthly payments (default on the loan), the lender has the right to sell the property at auction and apply the proceeds to your loan balance. Prior to the house being auctioned, the lender must follow the foreclosure procedures outlined in federal and state law.

After the federal and state waiting periods for homeowners to catch up on arrearages or apply for a loss mitigation program (such as a mortgage modification) have expired, the lender may proceed with foreclosure in accordance with state foreclosure laws.

A lender may foreclose in one of two ways, depending on state law:

Foreclosure through the courts. All states permit lenders to foreclose through a “judicial” process that begins with the bank filing a court lawsuit. The homeowner has the option of responding to and defending the suit. The case will be litigated, and if the bank prevails, the court will order the home sold at auction.

Foreclosure without judicial intervention. Certain states permit lenders to use a streamlined “nonjudicial” foreclosure procedure that entails following state-mandated steps. The bank is frequently required to allow the homeowner time to bring the account current. Additionally, the lender must notify the owner of the sale date and, in some cases, publish the sale date via newspaper advertisement or public posting. Following completion of the steps, the lender may sell the home at auction without first obtaining court approval.

As long as the foreclosure sale has not occurred, filing for bankruptcy will halt either type of foreclosure process.

Can Bankruptcy Help With Foreclosure?

Yes, bankruptcy can help with foreclosure. In fact, it’s one of the most effective ways to stop a foreclosure and save your home.

When you file for bankruptcy, an automatic stay goes into effect immediately. This stay stops all creditors from taking any collection action against you, including foreclosure proceedings. This means that your lender cannot continue with the foreclosure process until the bankruptcy case is resolved.

There are two main types of bankruptcy that homeowners can file for: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy: Chapter 7 bankruptcy is a liquidation bankruptcy, which means that your non-exempt assets will be sold to repay your creditors. However, your home is exempt from liquidation in most states, so you may be able to keep your home even if you file for Chapter 7 bankruptcy.

Chapter 13 bankruptcy: Chapter 13 bankruptcy is a reorganization bankruptcy, which means that you will create a repayment plan to pay back your creditors over a period of 3-5 years. If you are able to successfully complete your Chapter 13 repayment plan, you will be able to keep your home and eliminate any remaining debt.

Whether Chapter 7 or Chapter 13 bankruptcy is the best option for you will depend on your individual circumstances. It is important to speak with a bankruptcy attorney to discuss your options and get advice on how to best proceed.

Here are some of the benefits of filing for bankruptcy to stop foreclosure:

  • It can stop the foreclosure process immediately.
  • It can give you time to get on your feet financially and catch up on your mortgage payments.
  • It may allow you to keep your home, even if you are behind on your mortgage payments.
  • It can eliminate other debt, such as credit card debt and medical debt, which can make it easier to afford your mortgage payments.

However, it is important to note that bankruptcy is a serious financial decision and should not be taken lightly. Filing for bankruptcy will have a negative impact on your credit score and can make it difficult to obtain new loans in the future.

When the Automatic Stay Is Inapplicable

The stay is automatically triggered upon filing for Chapter 7 or Chapter 13 bankruptcy. There is no additional action required to bring the automatic stay into effect. (For more information, see Bankruptcy’s Automatic Stay.)

There are, however, two exceptions to the automatic stay that prohibit debtors from interfering with a creditor’s right to foreclose by filing and dismissing successive bankruptcy cases. The following are the rules.

Within the last year, one previous bankruptcy case was dismissed. The automatic stay is only in effect for 30 days following your bankruptcy filing.

Two or more previously dismissed bankruptcy cases within the last year. The automatic stay is not invoked at all.

Debtors who qualify for the automatic stay exceptions may petition the bankruptcy court to impose the automatic stay and halt the foreclosure. To prevail, the debtor must establish beyond a reasonable doubt (a relatively high standard) that the previous bankruptcy cases were not filed in bad faith.

The automatic stay exceptions for repeat or serial filers do not apply if you initially filed for bankruptcy under Chapter 7 but then converted to Chapter 13 after the means test determined that your income was too high to qualify for Chapter 7.

How the Automatic Stay Can Aid in Foreclosure Prevention

The automatic stay extends the time period available to attempt to resolve a pending foreclosure. The options for dealing with an impending foreclosure are largely dependent on whether you file for Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy under Chapter 7

Chapter 7 bankruptcy does not include a mechanism to assist you in catching up on payments and retaining your home. Therefore, if you’re falling behind and wish to remain in your home, this is probably not the chapter for you. However, there are additional advantages.

When you file for bankruptcy under Chapter 7, all of your property becomes part of the bankruptcy estate. The Chapter 7 trustee appointed to your case will liquidate (sell) your assets and make any necessary payments to creditors. The automatic stay allows the trustee to sell property that would have been foreclosed on otherwise if there is a potential benefit to the estate (the property must have sufficient equity).

Depending on your circumstances, the stay may also be beneficial to you:

If the property is your primary residence, the stay may provide you with additional time to secure alternative housing or negotiate a loan modification with the lender.

You may be entitled to a portion of the proceeds if the trustee sells the property for a sufficient price. After resolving any mortgages or other valid liens, the trustee must reimburse you for your homestead exemption before resolving any other creditors. Additionally, you are entitled to excess proceeds if the property sells for a price sufficient to pay off all of your creditors.

Bankruptcy under Chapter 13

The automatic stay in Chapter 13 bankruptcy may provide you with time to catch up on any mortgage arrears and remain in your home. You’ll repay debts (some in full, some in part) over a three- to five-year period—including delinquent mortgage payments.

To make Chapter 13 restructuring effective, you must have sufficient income to cover current mortgage payments and make payments on arrearages that accrued prior to filing bankruptcy. Once the court approves a Chapter 13 repayment plan that includes mortgage arrears, the lender is prohibited from foreclosing. However, if you fall behind on mortgage or arrearage payments following the approval of your plan, the lender will be able to proceed with the foreclosure.

Removal of the Automatic Stay

A lender may file a motion with the bankruptcy court requesting that the automatic stay be lifted (terminated) and the lender be permitted to proceed with foreclosure. You have the right to respond, and if you do, the bankruptcy court will hold a hearing before deciding whether to lift the stay. If the court lifts the stay, the lender may resume foreclosure efforts, unless the bankruptcy court orders otherwise.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business BankruptcyChapter 7 BankruptcyCreditor RepresentationChapter 5 ClaimsChapter 13 Bankruptcy, Business RestructuringChapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

Senior Citizens & Bankruptcy
Written by Canterbury Law Group

Senior Citizens & Bankruptcy

Bankruptcy is not always a good option for senior citizens who are having financial difficulties.

Older Americans filing for bankruptcy are not unusual when inflation and health care costs are rising. Furthermore, even though seniors have some benefits over other debtors, filing for bankruptcy is not the best option for people who stand to lose a lot of property. Learn more about other typical problems that senior citizens face when filing for bankruptcy by reading on.

One simple method to eliminate debt and increase the amount of money available to pay monthly bills is to file for bankruptcy. Still, a lot of seniors don’t feel comfortable declaring bankruptcy, and it’s not always a good idea or even necessary.

For seniors, filing for bankruptcy is questionable in the following two scenarios:

There is nothing that a creditor can seize from you. The items required to keep a house, like furniture, a small car, Social Security money, and numerous retirement accounts, cannot be taken by creditors. Since these items comprise the entirety of what many seniors own, many of them are “judgment proof,” meaning that declaring bankruptcy is not required. Nevertheless, some impervious to judgment will file to block creditor calls and get rid of the anxiety associated with losing money from a bank account. (See Also: What Is a Levy on a Bank Account?)
You are too wealthy to gain anything from filing for bankruptcy. In situations where your assets and earnings aren’t shielded from creditors, declaring bankruptcy might not be the best course of action. It’s likely that you would forfeit the property in Chapter 7. Because you have to pay for any property that you are not entitled to protect (but can keep), you would have to make a large Chapter 13 repayment plan payment in Chapter 13.

Discover the benefits and drawbacks of declaring bankruptcy for your financial situation.

Choosing the Right Time for a Senior to File for Bankruptcy
Bankruptcy isn’t always required or even advantageous, but for some seniors, it can be effective. Consider the following questions for yourself:

Do you have the kind of debt that Chapter 7 allows you to discharge?
Would you like a Chapter 13 repayment plan to help you catch up on unpaid mortgage or auto loans?
Can you protect all or most of your property with an exemption?
Will you be able to pay off enough debt to justify filing if you have to give up (or pay for) some property?
Will you have to pay on a monthly basis under Chapter 13 or is your income low enough to pass the Chapter 7 means test?
Other matters that seniors should contemplate are as follows:

Paying off credit card debt and medical debt. These are the two categories of debt that are most easily discharged in bankruptcy. Actually, qualifying debt can be eliminated in a matter of months by filing for Chapter 7 bankruptcy. But keep in mind that the creditor probably won’t be able to collect these bills anyway if you’re judgment proof.

Keeping your home’s equity safe can be difficult. Significant equity is held by many seniors in their homes. A certain amount of equity is protected by the homestead exemption, though the exact amount varies based on state laws. In order to settle debts with creditors, the trustee in Chapter 7 will seize nonexempt property, including home equity. (See the Homestead Exemption in Bankruptcy for further information.)

Safeguarding retirement funds. Nearly all tax-exempt retirement accounts, such as profit-sharing, 403(b)s, defined-benefit plans, and 401(k)s, are exempt in bankruptcy under federal bankruptcy law. To a certain extent, IRAs and Roth IRAs are also protected. You should consult a bankruptcy lawyer to confirm whether bankruptcy protection is available for your retirement. (See Your Retirement Plan in Bankruptcy for more information, including the current IRA limits.)

Safeguarding Social Security income. Your Social Security benefits are exempt (you can keep them) in bankruptcy, but only if the money stays in a different account. Your creditors cannot seize your benefits outside of bankruptcy. They become unprotected once they are mixed in with other money. Also, when completing the bankruptcy means test, your Social Security benefits are not taken into account as income for qualifying purposes. However, your Social Security income needs to be included in your bankruptcy budget and could still be used against you if your budget indicates that you have a sizable monthly disposable income. See Is Social Security Income Included in the Chapter 7 Means Test for additional information.

After they are taken out, retirement funds are not secured. Getting paid from your retirement account can also be difficult. When you file for bankruptcy, your retirement withdrawals are considered income for qualifying purposes and like cash for exemption purposes (most states don’t offer a significant cash exemption). A creditor may obtain these funds through a bank levy since, once withdrawn, they are no longer protected. Additionally, Social Security funds lose their protected status if they are combined with withdrawn retirement funds in the same account. Once more, keeping Social Security money in a different account is the best course of action.)

Written by Canterbury Law Group

Understanding Bankruptcy Reorganization Plans

Creditor Objection to Chapter 13 Plan

Discover the four chapters that enable debt restructuring for bankruptcy filers.

There are two bankruptcy systems available to assist people and businesses with astronomical debt. The first option, Chapter 7 liquidation bankruptcy, is for people who lack the resources to pay their debts. The second system offers a way for people and companies with some disposable income—but not enough—to manageably restructure their debt. In essence, a reorganization plan is the budget that a debtor who files for bankruptcy (debtor) proposes to use to pay creditors.

The Four Reorganization Bankruptcy Chapters Depending on the specific situation, debtors may elect to reorganize under Chapter 9, 11, 12, or 13. According to filing frequency, a summary of each is displayed.

Individuals and Couples in Chapter 13

This chapter permits individuals who are single or married to contribute their discretionary income—the sum left over after covering living expenses—to a plan for a period of three to five years, but not businesses other than sole proprietorships.

Your plan will last 60 months if your family’s income is higher than the median income for your state. When income is below the median, 36 payments are necessary; however, if necessary, you can propose a plan that spreads out the required payments over 60 months. (Click on Means Testing Information on the U.S. Trustee website to view the median income for your state.)

What Happens to Debts During the Plan Period?

Some debts are given a higher priority under bankruptcy law, and the debtor is required to pay them in full over the course of a three- to five-year plan. These are some examples of priority claims:

Recent income tax debts, past-due alimony and child support obligations, as well as overdue payments on secured debts like house notes (you don’t have to pay off the entire mortgage within the plan, but you must make progress toward it).

The majority of your other debts, including credit cards and medical expenses, will be classified as general unsecured debts and won’t necessarily receive any payment. Only if you have extra cash after paying all of your higher priority claims will they receive something. Even then, the unpaid claims may only receive pennies on the dollar. At the conclusion of the case, the outstanding debt is discharged.

Making a Secured Debt More Affordable Through the Plan

The ability of a Chapter 13 plan to cram down (reduce) a secured debt that isn’t a mortgage on your home or a recently bought car is another intriguing feature. You can propose to pay just the asset’s value plus interest that is one or two points above prime if the collateral (the asset used to secure the debt) is worth less than what you owe. This can help you save thousands of dollars if you have high-interest loans that are in default.

Regrettably, not all secured loans are crammed down. It is not available for home mortgages or auto loans that are less than 2.5 years old at the time your case is filed. Additionally, for high-value property like vacation rentals, you must be able to pay off the entire cram down sum over the course of the plan, which is something many people are unable to do.

Although you cannot cram down your home mortgage, you may be able to remove a junior mortgage through a Chapter 13 plan if the value of your property has fallen too low to pay off your primary mortgage. (This was frequently used during the housing crisis; however, due to rising property values, its availability is constrained.)

Chapter 11: Organizations and People

The best-known benefit of Chapter 11 bankruptcy is that it helps keep big businesses from going out of business. Due to the costs associated with filing a Chapter 11 case, small businesses use it less frequently, and occasionally, individuals whose debt balances exceed the Chapter 13 debt limitations will do so.

In many Chapter 11 cases, creditors actively collaborate with the debtor to assess the debtor’s financial situation and choose the most effective strategy for paying off the debt. Renegotiating loan terms is just one aspect of this collaboration, though it is a significant part of the overall strategy.

The parties carefully examine a number of aspects of the business during the initial months of a Chapter 11 case. Choosing to carry out one or more of the following actions is possible:

Change the leadership, sell off underperforming assets, or restructure the business to be more productive.
The debtor then suggests a strategy for repaying its obligations. Not only must the bankruptcy court approve a Chapter 11 plan, but also the creditors who are owed the most money. A creditor (or the trustee, if one has been appointed) may offer a plan that will be put to a vote by the creditor body in the absence of a confirmable plan from the debtor. Once a plan is approved, the debtor can take years to implement its provisions.

Operation of Farms and Fishing in Chapter 12

You’ll probably decide to file for Chapter 12 bankruptcy if farming or fishing is your main business. While Chapter 12 bankruptcy offers more flexibility due to its recognition of the seasonal nature of the farming and fishing industries, Chapter 13 bankruptcy cases follow a similar procedural framework.

A plan lasting between three and five years must be proposed by the Chapter 12 debtor within 90 days of filing the case. The Chapter 12 plan may permit one-time payments during certain seasons as opposed to the monthly payments mandated by Chapter 13 bankruptcy. Almost any secured debt, including mortgages on homes and farmland, may be crammed down under the plan, and the modified secured debt payments may go beyond the five-year plan limit.

Chapter 9: Local Government

Municipalities and other governmental entities like utilities and taxing districts are the only ones permitted to file for bankruptcy under Chapter 9. Chapter 9 bankruptcy plans and the procedure for approving them are comparable to Chapter 11 plans. In a Chapter 9 case, creditors cannot make a plan proposal; however, both taxpayers and creditors may object to a plan.

Written by Canterbury Law Group

Bankruptcy Exemptions:

How Do Bankruptcy Exemptions Work

Exemptions from bankruptcy play an important role in both Chapter 7 and Chapter 13 bankruptcy. Exemptions are used in Chapter 7 bankruptcy to determine how much of your property you get to keep. Exemptions in Chapter 13 bankruptcy help you keep your plan payments modest. Learn more about bankruptcy exemptions and how they work by reading on.

What Are the Different Types of Bankruptcy Exemptions?

Exemptions allow you to keep a specific amount of assets, such as a cheap car, professional tools, clothing, and a retirement account, safe in bankruptcy. You don’t have to worry about the bankruptcy trustee appointed to your case taking an asset and selling it for the benefit of your creditors if you can exclude it.

Many exclusions cover specific property kinds up to a certain dollar value, such as a car or furnishings. An exemption can sometimes protect the asset’s total worth. Some exemptions, known as “wildcard exemptions,” can be used on any of your properties.

Is it okay if I keep my baseball cards? Jewelry? Pets?

The goal of bankruptcy is to give you a fresh start, not to take away all of your possessions. You’ll probably be able to protect other items as well, such as religious literature, a seat in a building of worship, or a burial plot, in addition to the fundamentals. Chickens and feed are even exempt in some states. However, you should not make the mistake of assuming that everything will be well.

  • Items of high value. There are no exemptions for boats, collections, pricey artwork, or holiday homes. Instead of filing for bankruptcy, owners with such valuable assets often sell the property and pay off their debts.
  • Jewelry. Many states provide protection for wedding rings up to a certain value. Don’t expect to preserve your Rolex, diamond necklace, or antique broach collection, though.
  • Pets. The dog or cat you rescued from the shelter is unlikely to fall into the trustee’s hands. Why? It’s not that you’ll have a specific exemption to protect it; rather, the trustee would have to pay more to sell it than it’s worth in most circumstances. However, if you own a valuable show dog or a racehorse with high breeding costs, you may be forced to sell it or pay for it in bankruptcy.

Exemptions: What Are They and How Do They Work?

Whether you’re filing a Chapter 7 or Chapter 13 bankruptcy, exemptions play a significant role.

Bankruptcy under Chapter 7

A liquidation bankruptcy is one in which the appointed trustee sells your nonexempt assets to satisfy your creditors. Because the bankruptcy trustee cannot sell exempt property, exemptions assist you protect your assets in Chapter 7 bankruptcy. If your state offers a $5,000 motor vehicle exemption and you only own one automobile worth $4,000, for example, you can keep it. See Exemptions in Chapter 7 Bankruptcy for more details.

Bankruptcy under Chapter 13

You can keep all of your property and rearrange your debts with a Chapter 13 bankruptcy (which can mean paying less on some of them). The amount you must pay specific creditors, however, is still determined by how much property you can exclude. Unsecured creditors who are not priority (such as credit card companies) must be paid an amount equal to your nonexempt assets. Exemptions assist keep your Chapter 13 bankruptcy plan payments modest by lowering the amount you must pay creditors. See Exemptions in Chapter 13 Bankruptcy for more details.

Bankruptcy Exemptions at the State and Federal Level

There are bankruptcy exemptions in each state. A series of exemptions is also provided by federal law. (See The Federal Bankruptcy Exemptions for further information.) Some states force you to use their exemptions, while others allow you to choose between their exemptions and the federal system (you cannot mix and match the two).

The state exemption rules you’ll be able to use will be determined by where you lived in the previous two years (called the “domicile requirements.”). Read Which Exemptions Can You Use In Bankruptcy? for more information on the distinctions between state and federal exemptions and domicile requirements.

Nonbankruptcy Exemptions in the United States

In addition to state and federal bankruptcy exemptions, there are a number of federal nonbankruptcy exemptions. These exemptions work in a similar way to bankruptcy exemptions in terms of preserving your assets. Nonbankruptcy exemptions from the federal government are only available if you use your state’s exemptions (you cannot combine the federal bankruptcy and nonbankruptcy exemptions). You can use nonbankruptcy exemptions in addition to state exemptions if you are using state exemptions. See The Federal Nonbankruptcy Exemptions for further details.

If You File for Bankruptcy, What Can You Keep?

The purpose of bankruptcy isn’t to strip you of all of your belongings—it’s to give you a fresh start. Most people can keep the basic items needed to work and live.

However, if you’re considering filing for bankruptcy, you might be wondering, “Can I keep my baseball cards? Jewelry? Pets? The simple answer is that it depends.

You’ll likely be able to protect other things, like religious texts, a seat in a house of worship, or a burial plot. Some states even exempt chickens and feed. But you shouldn’t assume that everything will be safe.

  • Luxury items. Exemptions for yachts, collections, expensive artwork, and vacation homes don’t exist. Owners of such valuable assets often sell the property and pay off debt instead of filing for bankruptcy.
  • Jewelry. Many states protect wedding rings up to a particular dollar amount. However, don’t count on keeping a Rolex, diamond necklace, or antique broach collection.
  • Pets. The dog or cat you rescued from the shelter is probably safe from the trustee’s clutches. Why? It’s not that you’ll have a specific exemption to protect it, but rather that in most cases, it would cost more for the trustee to sell it than what it would be worth. If, however, you own an expensive show dog or a racehorse that fetches sizeable breeding fees, you might have to turn it over—or pay for it—in bankruptcy.

Find out what you can protect by reviewing your state’s exemptions.

How Do Bankruptcy Exemptions Work?

Exemptions always protect the same amount of property regardless of the chapter filed. However, what happens to “nonexempt” property you can’t protect with a bankruptcy exemption will depend on whether you file for Chapter 7 or Chapter 13 bankruptcy.

Chapter 7 Bankruptcy and Exempt Assets

Chapter 7 bankruptcy is a liquidation bankruptcy where the appointed trustee sells your nonexempt assets to pay your creditors. Exemptions help you protect your assets in Chapter 7 bankruptcy because the bankruptcy trustee can’t sell exempt property.

For example, suppose your state has a $5,000 motor vehicle exemption, and you have one car worth $4,000. In that case, the exemption will cover all of the car’s equity, and you can keep it. For more information about keeping a car in Chapter 7 and other property, see Exemptions in Chapter 7 Bankruptcy.

Chapter 13 Bankruptcy and Exempt Assets

A Chapter 13 bankruptcy allows you to keep all your property while paying some or all of your debt in a three- to five-year Chapter 13 repayment plan. But this benefit comes at a cost. You’ll have to pay nonexempt creditors for the property you can’t protect with an exemption.

Nonpriority unsecured creditors, such as credit card issuers, must receive at least as much as the value of the property you can’t exempt. So in Chapter 13 bankruptcy, being able to exempt all or most of your property helps keep your monthly plan payment low.

Learn more about exemptions in Chapter 13 bankruptcy.

State and Federal Bankruptcy Exemptions

Each state has a set of bankruptcy exemptions, and federal law provides a federal bankruptcy exemption set, too. Some states require you to use the state exemptions, while others allow you to choose the state or the federal bankruptcy exemption set. But you must choose one or the other–you can’t mix and match exemptions from two sets.

The state’s exemption laws you’ll qualify to use will depend on where you lived during the last two years, called the “domicile requirements.” For more information about the differences between state and federal exemptions and domicile requirements, read Which Exemptions Can You Use In Bankruptcy?

Federal Nonbankruptcy Exemptions

A second set of federal exemptions called “federal nonbankruptcy exemptions” can be used along with your state’s exemptions. For more information, see The Federal Nonbankruptcy Exemptions.

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