Bankruptcy Exemptions
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Written by Canterbury Law Group

Federal and State Bankruptcy Exemptions

What are Bankruptcy Exemptions?

Bankruptcy exemptions are laws that allow debtors to protect certain property from being taken by creditors during the bankruptcy process. These exemptions help ensure that individuals can maintain a basic standard of living while resolving their debts. The specific exemptions available can vary by state, but they generally fall into two categories: federal exemptions and state exemptions.

Federal Bankruptcy Exemptions

The federal bankruptcy code provides a set of exemptions that apply in every state. Debtors can choose to use these exemptions instead of state exemptions if the state allows it. Some common federal exemptions include:

  1. Homestead Exemption: Protects a certain amount of equity in the debtor’s primary residence. In 2024, the federal homestead exemption is $27,900.
  2. Motor Vehicle Exemption: Protects up to $4,450 in equity in one motor vehicle.
  3. Personal Property Exemptions: Protects specific amounts of equity in personal property, such as:
    • Household goods and furnishings (up to $700 per item, with a total limit of $14,875).
    • Jewelry (up to $1,875).
    • Tools of the trade (up to $2,800).
  4. Wildcard Exemption: Allows debtors to protect any property up to a certain amount. In 2024, the federal wildcard exemption is $1,475, plus up to $13,950 of any unused portion of the homestead exemption.
  5. Retirement Accounts: Protects most tax-exempt retirement accounts, such as 401(k)s and IRAs, up to a certain limit (IRAs are capped at $1,512,350).
  6. Public Benefits: Protects Social Security, unemployment, and disability benefits.
  7. Life Insurance: Protects life insurance policies with a loan value up to $14,875.

State Bankruptcy Exemptions

Each state has its own set of bankruptcy exemptions, and some states allow debtors to choose between the state and federal exemptions. States that do not allow the use of federal exemptions require debtors to use state exemptions. Some examples of state exemptions include:

  1. Homestead Exemption: Varies widely by state. Some states, like Florida and Texas, offer unlimited homestead exemptions, while others have specific dollar limits.
  2. Motor Vehicle Exemption: Amounts vary by state. For example, California allows up to $3,325 in equity in one motor vehicle.
  3. Personal Property Exemptions: Protect specific types and amounts of personal property, such as:
    • Clothing, furniture, and appliances.
    • Tools of the trade.
  4. Wages: Many states protect a portion of the debtor’s wages from garnishment.
  5. Retirement Accounts: Most states offer exemptions for retirement accounts similar to federal protections.
  6. Public Benefits: Protects various public benefits, such as Social Security, unemployment, and disability benefits.
  7. Wildcard Exemptions: Some states offer a wildcard exemption that can be applied to any property.

Choosing Exemptions

Debtors must choose either the federal or state exemptions, depending on their state of residence. In some cases, the choice of exemptions can significantly impact the outcome of the bankruptcy case. Consulting with a bankruptcy attorney can help debtors understand which set of exemptions is more beneficial for their situation.

Arizona Exemptions

At Canterbury Law Group, our Scottsdale attorneys are renowned bankruptcy technicians. We represent clients through the entire bankruptcy process and, although all cases are unique, the end goal of bankruptcy is always a new beginning and fresh financial start.

We help clients determine eligible exemptions for their bankruptcy case. Here are some of the most common exemptions available under Arizona law (meaning that they will emerge from bankruptcy):

  • Alimony and Child Support – Alimony and child support, up to the amount needed for support. 33-1126.
  • Bank Deposit – A debtor may exempt $300 in a single bank account. Ariz. Rev. Stat. Ann. § 33–1126(8).
  • Homestead or Residential Property – Under Arizona law, debtors may exempt up to $150,000 (per debtor or married couple) of their home or other real property covered by the homestead exemption. Ariz. Rev. Stat. Ann. §§ 33–1101, 33–1103 and 33–1104.
  • Insurance Benefits – Life insurance benefits that are payable or received by a surviving spouse or child, up to $20,000.
  • Claims for the destruction of, or damage to, exempt property – Cash surrender value of life insurance policies, subject to length of ownership requirements and other exceptions.
  • Motor Vehicles – A debtor may exempt up to $6,000 in one or more motor vehicles. An elderly or disabled debtor, or an elderly or disabled spouse or dependent of the debtor, may exempt up to $12,000.
  • Pension and Retirement Benefits – Benefits from various employee pension systems are exempt. Ariz. Rev. Stat. Ann. §§ 33–1126 and 38–792.
  • Personal Property – A debtor may exempt the following personal property:
    • up to $6,000 in household furniture and appliances not covered by other exemptions
    • up to $1,000 total in bible, bicycle, sewing machine, typewriter, computer, burial plot, rifle, pistol or shotgun
    • up to $500 in clothing
    • up to $400 in musical instruments
    • up to $800 in animals
    • up to $2,000 in engagement and wedding rings
    • up to $250 in books
    • up to $150 in watch
    • wrongful death awards
    • prepaid rent or security deposit to $2,000 or 1.5 times your rent, whichever is less, in lieu of using homestead exemption.
    • all teaching materials for youth, and
    • certain professionally prescribed health aids.
  • Tools of the Trade – A debtor may exempt up to $5,000 in trade implements, which includes farming tools if the debtor’s primary income is from farming. All arms and uniforms that a debtor is legally required to keep are exempt. Library and teaching aids of a teacher.
  • Unemployment Compensation – Unemployment compensation is exempt as long it is not commingled with other funds and except for the enforcement of child support orders. Ariz. Rev. Stat. Ann. § 23–783.
  • Wages – A debtor may exempt the lesser of the following wages, per week:
    • 25% of his or her disposable earnings, or
    • earnings in excess of 30 times the federal minimum wage
    • Workers’ Compensation – A debtor may exempt up to $6,000 in one or more motor vehicles. An elderly or disabled debtor, or an elderly or disabled spouse or dependent of the debtor, may exempt up to $12,000.

Our legal team is ready to represent you in your Scottsdale business or personal bankruptcy case. Call us today to schedule your consultation. Our track record speaks for itself! 480-744-7711.

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Chapter 7 Bankruptcy Income Limits

Financial difficulties can put your resilience, patience, and even sanity to the test. All of those exams can be completed by filing for Chapter 7 bankruptcy, but filing will need passing one more test. We refer to it as the means test.

Continue reading to find out more. Please don’t hesitate to contact our knowledgeable and polite staff if you need assistance with the means test or any other aspect of your bankruptcy case.

Statistics on Individual Bankruptcies

It’s important to comprehend why the means test may be worthwhile to go through even in cases where Chapter 13 bankruptcy does not call for it before delving too far into it.

Seven out of ten individuals filing for personal bankruptcy select Chapter 7 liquidation over Chapter 13 restructuring, according to national statistics. During the one-year period ending March 31, 2012, 396,175 Chapter 13 filings were made as opposed to 958,757 Chapter 7 filings.

The explanations are rather obvious: Three to six months may pass between a Chapter 7 discharge and a five-year reorganization plan in almost all Chapter 13 cases. In addition, because to state and federal exemptions, Chapter 7 filers frequently do not lose any property.

Furthermore, you might not be able to file for Chapter 13 bankruptcy, in which case the Chapter 7 means test would need to be your backup plan. This is because Chapter 13 does not have an income ceiling; but, you might not be able to petition under Chapter 13 if your income is insufficient to cover your creditors’ reasonable debts.

Chapter 7: Maximum Income

Most likely, you’ll want to file for Chapter 7 bankruptcy unless you’re seeking to keep your property from going through foreclosure. But what happens if you have a pretty high household income? Since the bankruptcy code was redesigned in 2005, filing for Chapter 7 bankruptcy requires that an applicant’s income level be met. You can file for Chapter 7 bankruptcy protection if your income is less than the state median income for the size of your household. In Illinois, for instance, the median income for a family of four was $107,226 in July 2021.

The Means Test: What Is It?

It’s crucial to realize, meanwhile, that a household income above the state median does not always imply that a Chapter 7 is unaffordable. Instead, you can use the “means test,” a complex formula that can only be understood with the assistance of a knowledgeable bankruptcy attorney.

With the 2005 amendments to the federal bankruptcy code, the means test was instituted with the goal of guaranteeing that debtors who have the means to make at least a partial payment to creditors file under Chapter 13. The intricate mathematical formula’s final objective is to ascertain if the debtor will have enough money left over after expenses are covered to reimburse creditors.

Your Salary and the Means Examination

It should be clear to you by now that the most important consideration in the Chapter 7 means test is your income. It’s not an easy calculation, though. It is not possible to determine if you have “passed” the means test by just entering in your pay. Numerous other factors are involved as well, such as the duration of your computations, your household size, deductions, and more.

Timing of Income Calculations

The means test has been criticized in the past for being too complicated and having a unique calculation method. For instance, the computation does not use the debtor’s current income as the average. The debtor must instead calculate the average of their income over the previous six months in order to pass the means test.

This six-month period may occasionally become more difficult due to changes in your work status or job. For example, if you were unemployed for the past six months after working at a high-paying employment for five of those months, an expert attorney can assist you in accounting for that change in your means test results.

Revenue Sources

You must include sources of income other than your base wage when calculating your income for the means test. The following are some instances of revenue sources that your calculations must take into account:

Your pay
Any money from a side gig or freelance work
Income for retirement
Child support and alimony
Income from unemployment
Costs to Factor Into Your Estimate
Furthermore, the debtor’s current spending do not correspond with the amounts computed for the test. Expenses are not determined by the debtor’s actual expenses, but rather by both local and national norms. For instance, there is a nationwide figure to use, which is updated on a regular basis, for the spending categories of food, housekeeping supplies, clothes and services, personal care items and services, and miscellaneous. The only spending categories where a debtor can incorporate their actual payments in the means test computation are mortgage and auto payments.

Income and Household Size in the Means Test

Your household size will play a major role in whether or not you pass the means test. This is so because the means test income ceiling is based on the number of persons living in your household. That income ceiling will rise in proportion to the number of people living in your home.

For instance, in Missouri, a single-person household’s 2021 Chapter 7 income ceiling is $50,521. However, the cap is $89,418 if there are four people living in your home. Remember that you have passed the means test if your income is below the income limit and you are thus immediately qualified to file under Chapter 7.

It should be pretty easy to calculate the revenue limit if your household size situation is basic. To find out how the court where you will file for bankruptcy determines household size, you may need to speak with your bankruptcy attorney or trustee in more complicated scenarios involving non-resident dependents and related matters.

How to Find Out If You Qualify for Chapter 7 Bankruptcy

The amount left over, if any, after deducting expenses from income determines whether a debtor has sufficient disposable income to be eligible for a Chapter 13 filing. The assumption is that the debtor can afford to pay creditors and should file under Chapter 13 if the projected disposable income over a five-year period is more than $10,000.

A debtor is likely to be eligible for Chapter 7 bankruptcy if their disposable income for the five-year period is less than $6,000. You guessed it: an additional computation is triggered if a debtor’s disposable income is between $6,000 and $10,000.

This formula looks at the ratio of disposable income to the total amount of debt that is unsecured. The debtor will probably not be allowed to file for Chapter 7 if their estimated disposable income over a five-year period exceeds twenty-five percent of their entire amount of unsecured debt. The debtor is likely to pass the means test and be permitted to proceed with a Chapter 7 filing if the percentage is less than 25 percent.

If I Pass the Means Test, What Happens?

Good news! You can proceed with filing for Chapter 7 bankruptcy if you pass the means test. That does not mean that the work is done, though. While it usually takes less time than Chapter 13, the Chapter 7 procedure is more involved and can take many months. A reputable Chapter 7 attorney can assist you in keeping things going forward.

If I Don’t Pass the Means Test, What Happens?

Don’t give up if you don’t pass the means test. It’s possible that you can still file for Chapter 13 bankruptcy. Additionally, you can recalculate the means test results to check if you pass in the event that your income or financial circumstances alter. You can “retake” the means test as much as you’d like because it’s just a calculation that you do. Additionally, you can file for bankruptcy under Chapter 7 after passing it.

Chapter 7 Means Test: Required Forms

The forms used in Chapter 7 are test functions, which are worksheets that assist you in performing proper calculations. These are the forms that you must complete and submit with your bankruptcy.

The forms you’ll need are as follows:

Form 122A-1. The “Chapter 7 Statement of Your Current Monthly Income” is the name of this form. All this paper does is assist you in determining whether your income is less than the state median income. You have passed the means test if it is less than the median. This implies that you are not eligible to use the other two forms on this list.
Form 122A-2. If your salary exceeds the state median, you must complete out this form, which is called the “Chapter 7 Means Test Calculation.” This form will be used to calculate your take-home pay after deducting permitted costs. This will assist in determining if Chapter 7 or Chapter 13 may be appropriate for you.
Form 122A-1Supp. Ascertaining your genuine exemption from the means test is made easier with the use of the “Statement of Exemption from Presumption of Abuse Under § 707(b)(2).” For example, the means test may not be required of certain military personnel.

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Low Cost Bankruptcy

Low Cost Bankruptcy

Low Cost Bankruptcy

Finding low-cost bankruptcy options can be challenging, but there are some resources and strategies that individuals facing financial difficulties can consider. Here are some potential avenues for low-cost bankruptcy:

1. Legal Aid Organizations

  1. Legal Aid Societies: Many communities have legal aid societies or organizations that provide free or low-cost legal assistance to low-income individuals. These organizations may offer bankruptcy services or referrals to affordable legal representation.

2. Pro Bono Services

  1. Pro Bono Attorneys: Some attorneys offer pro bono (free) or reduced-fee services to clients who cannot afford traditional legal representation. Contacting local bar associations or legal aid organizations may help connect individuals with attorneys willing to take on bankruptcy cases pro bono or at reduced rates.

3. Bankruptcy Clinics and Workshops

  1. Bankruptcy Clinics: Some law schools and nonprofit organizations host bankruptcy clinics or workshops where individuals can receive basic legal advice and assistance with filing bankruptcy forms. These clinics are often staffed by law students, attorneys, or volunteers and may offer services at reduced rates or for free.

4. Self-Help Resources

  1. Bankruptcy Forms: The United States Courts website provides free access to bankruptcy forms and instructions, allowing individuals to file for bankruptcy pro se (without an attorney). While filing pro se can be challenging, it may be a cost-effective option for individuals with straightforward bankruptcy cases and limited financial resources.

5. Fee Waivers

  1. Court Filing Fees: Some individuals may qualify for a waiver of the court filing fees associated with bankruptcy if they meet certain income criteria. Contacting the bankruptcy court or consulting with a legal aid organization can help determine eligibility for fee waivers.

6. Payment Plans

  1. Attorney Payment Plans: Some attorneys may offer payment plans or flexible payment options to clients who cannot afford to pay their entire legal fee upfront. Individuals should inquire about payment arrangements when consulting with potential bankruptcy attorneys.

7. Consider Chapter 7 Bankruptcy

  1. Chapter 7 vs. Chapter 13: Chapter 7 bankruptcy typically involves fewer legal fees and administrative costs compared to Chapter 13 bankruptcy, as it does not require the debtor to create and adhere to a repayment plan. Depending on the individual’s financial situation, Chapter 7 bankruptcy may be a more affordable option.

Conclusion

While bankruptcy can be a complex legal process, individuals facing financial hardship may be able to find low-cost or free resources to help them navigate the bankruptcy process. Exploring options such as legal aid organizations, pro bono services, bankruptcy clinics, and self-help resources can provide individuals with the assistance they need to seek relief from overwhelming debt without incurring significant legal fees. It’s essential to research available resources and options carefully and to seek guidance from qualified professionals when considering bankruptcy.

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Debts that Remain After a Chapter 13 Discharge

Debts that Remain After a Chapter 13 Discharge

In a Chapter 13 bankruptcy, the debtor creates a repayment plan to gradually pay off their debts over a period of three to five years. Once the repayment plan is successfully completed, any remaining qualifying debts are typically discharged, providing the debtor with a fresh financial start. However, certain types of debts may remain after a Chapter 13 discharge. Here are some common examples:

1. Non-Dischargeable Debts

  1. Priority Debts:
    • Certain debts are considered priority debts and are not dischargeable in bankruptcy. These may include:
      • Domestic support obligations (child support, alimony)
      • Certain tax debts
      • Government fines and penalties
  2. Secured Debts Not Paid Off:
    • If the debtor’s repayment plan did not fully pay off the outstanding balance on secured debts (debts secured by collateral, such as a mortgage or car loan), the remaining balance may survive the Chapter 13 discharge.
    • However, the debtor may have options to address these remaining secured debts, such as negotiating with the creditor or entering into a reaffirmation agreement.

2. Debts Excluded from Discharge

  1. Certain Tax Debts:
    • While some tax debts may be dischargeable in Chapter 13 bankruptcy, others, such as recent income tax debts or tax debts associated with fraud, may not be dischargeable.
    • Debts resulting from tax liens may also survive the discharge if not fully paid off during the bankruptcy process.
  2. Student Loans:
    • Student loan debts are generally not dischargeable in bankruptcy unless the debtor can demonstrate undue hardship, which is a challenging standard to meet.
    • While the discharge does not eliminate student loan debt, the debtor may still benefit from the restructuring of other debts through the Chapter 13 repayment plan.
  3. Certain Debts Incurred Through Fraud or Willful Injury:
    • Debts resulting from fraud, embezzlement, or willful and malicious injury to another person or property are typically not dischargeable in bankruptcy.

3. Debts Not Included in the Bankruptcy Filing

  1. Post-Petition Debts:
    • Debts incurred after the Chapter 13 bankruptcy filing are not included in the bankruptcy case and are not subject to the discharge.
    • Any new debts accrued during the repayment plan period or after the completion of the plan will remain the debtor’s responsibility.

While Chapter 13 bankruptcy can provide relief from many types of debts, certain debts may survive the discharge. It’s essential for debtors to understand which debts are dischargeable and which are not before filing for bankruptcy. Consulting with a qualified bankruptcy attorney can provide personalized guidance based on the debtor’s specific financial situation and goals.

Filing for bankruptcy can affect certain types of tax debt, but it does not automatically make all tax obligations disappear. The treatment of tax debt in bankruptcy depends on the type of tax, the specific circumstances, and the chapter of bankruptcy you file.

General Rules:

  • Tax debt is treated differently than other debts in bankruptcy. In most cases, it’s considered a “priority debt,” meaning it gets higher priority for repayment compared to other unsecured debts.
  • Discharging (eliminating) your tax debt through bankruptcy is generally difficult. You’ll need to meet specific criteria and exceptions.

Here’s a General Overview:

  1. Chapter 7 Bankruptcy:
    • In a Chapter 7 bankruptcy, your non-exempt assets may be liquidated to pay off creditors, but certain debts, including some tax debts, may be discharged. However, not all tax debts are dischargeable. To be dischargeable in Chapter 7, the tax debt must meet specific criteria, including that it is income tax debt, the tax return was filed on time, and the tax assessment is at least three years old.
  2. Chapter 13 Bankruptcy:
    • Chapter 13 bankruptcy involves a repayment plan over three to five years. While you won’t necessarily eliminate tax debt in a Chapter 13 case, you may be able to include tax debt in your repayment plan, allowing you to pay it back over time. This can provide a structured way to address tax arrears.
  3. Priority Tax Debt:
    • Some tax debts are considered priority debts and may not be dischargeable in bankruptcy. Priority tax debts include recent income tax debts, certain payroll taxes, and taxes associated with fraud. Priority tax debts are generally not dischargeable, but a Chapter 13 plan can help you manage the repayment.
  4. Tax Liens:
    • Bankruptcy may not remove tax liens. While the personal obligation to pay the tax debt may be discharged, a tax lien secured by property may survive bankruptcy. The IRS or state taxing authority may still have a claim on your property, and you may need to address the lien separately.
  5. Professional Advice:
    • It’s crucial to consult with a tax attorney or bankruptcy attorney to assess your specific tax situation. They can provide guidance on the dischargeability of tax debt based on the applicable bankruptcy laws and help you navigate the complexities of the process.

In summary, while bankruptcy can address certain tax debts, not all tax obligations are dischargeable, and the treatment of tax debt in bankruptcy can be complex. Seeking professional advice is essential to understand how bankruptcy may impact your specific tax situation and to explore the available options for managing tax debt.

Important points to remember:

  • Consulting a bankruptcy attorney and a tax professional is crucial before making any decisions. They can assess your specific situation and advise you on the best course of action.
  • Bankruptcy shouldn’t be seen as a way to avoid paying your taxes. It should only be considered as a last resort after exploring other options like payment plans or negotiating with the IRS.
  • Filing for bankruptcy has long-term implications, including a negative impact on your credit score and potential difficulties obtaining credit in the future.

Here are some additional resources that you might find helpful:

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Filing for Bankruptcy a Second Time

Filing for bankruptcy a second time, often referred to as a repeat or multiple bankruptcy filing, is possible under certain circumstances, but it comes with additional challenges and considerations compared to a first-time filing. Here’s what you need to know:

Chapter 7 Bankruptcy

Waiting Period:

  • Eight-Year Rule: If you previously filed for Chapter 7 bankruptcy and received a discharge, you must wait eight years from the date of the first filing before you can file for Chapter 7 bankruptcy again and receive another discharge.
  • Chapter 13 to Chapter 7: If you filed for Chapter 13 bankruptcy and want to switch to Chapter 7, you typically must wait six years from the date of filing for Chapter 13.

Consequences:

  • Impact on Discharge: If you file for Chapter 7 bankruptcy before the eight-year waiting period elapses, you won’t receive a discharge of your debts. Instead, your case may be dismissed, and creditors can resume collection efforts.
  • Complexity of Case: The court may scrutinize your second bankruptcy filing more closely, particularly if it’s filed shortly after the first one. You may need to demonstrate a significant change in circumstances to justify the need for another bankruptcy.

Chapter 13 Bankruptcy

Waiting Period:

  • Two-Year Rule: If you previously received a discharge in a Chapter 13 bankruptcy, you must wait two years from the date of the first filing to receive another discharge in Chapter 13.
  • Four-Year Rule: If you previously received a discharge in a Chapter 7 bankruptcy, you must wait four years from the date of the Chapter 7 discharge before filing for Chapter 13 bankruptcy and receiving another discharge.

Consequences:

  • Modification of Repayment Plan: If you filed for Chapter 13 bankruptcy before and are seeking another discharge, the court may scrutinize your repayment plan to ensure that creditors are receiving a fair distribution of payments.
  • Increased Oversight: The court may closely monitor your compliance with the repayment plan, particularly if you’ve filed for Chapter 13 bankruptcy multiple times.

Considerations for Multiple Bankruptcy Filings

  1. Financial Management: Before considering a second bankruptcy filing, explore other options for managing your debts, such as debt consolidation, negotiation with creditors, or credit counseling.
  2. Legal Advice: Consult with a qualified bankruptcy attorney to assess your financial situation and explore the best course of action. They can provide guidance on whether bankruptcy is the most suitable option and help you navigate the process.
  3. Long-Term Financial Planning: Consider the long-term impact of a repeat bankruptcy filing on your credit score, financial stability, and ability to obtain credit in the future.
  4. Addressing Underlying Issues: Evaluate the reasons for your financial difficulties and take steps to address any underlying issues, such as overspending, job loss, or medical expenses, to prevent future financial crises.

While it’s possible to file for bankruptcy multiple times, doing so comes with additional challenges and consequences compared to a first-time filing. Before pursuing another bankruptcy, explore alternative solutions and seek professional advice to make an informed decision based on your individual circumstances and long-term financial goals.

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Pros and Cons of Chapter 13 Bankruptcy

Chapter 13 bankruptcy offers individuals an opportunity to restructure their debts and create a manageable repayment plan, allowing them to retain their assets while gradually paying off creditors. Like any financial decision, Chapter 13 bankruptcy has its advantages and disadvantages. Let’s explore the pros and cons:

Pros of Chapter 13 Bankruptcy

  1. Debt Repayment Plan:
    • Structured Plan: Chapter 13 allows individuals to create a structured repayment plan to pay off their debts over a period of three to five years.
    • Retain Assets: Unlike Chapter 7 bankruptcy, Chapter 13 allows individuals to keep their assets while repaying creditors, including homes and vehicles.
  2. Protection from Creditors:
    • Automatic Stay: Filing for Chapter 13 triggers an automatic stay, halting all collection actions, including foreclosure, repossession, wage garnishment, and creditor harassment.
    • Debt Discharge: Upon successful completion of the repayment plan, remaining qualifying debts may be discharged, providing a fresh start.
  3. Flexible Payment Terms:
    • Tailored Repayment Plan: The repayment plan is based on the individual’s income, expenses, and debt obligations, making it more manageable.
    • Potential Reduction of Debt: Some unsecured debts may be reduced or paid off for less than the full amount owed, depending on the individual’s income and assets.
  4. Credit Score Recovery:
    • Shorter Impact: While Chapter 13 bankruptcy remains on your credit report for seven years, its impact on credit scores is generally less severe and shorter-lived compared to Chapter 7 bankruptcy.
    • Opportunity to Rebuild Credit: Making consistent, on-time payments towards the repayment plan can demonstrate responsible financial behavior and contribute to credit score improvement over time.
  5. Protection for Co-Signers:
    • Co-Signer Protection: Co-signers on loans are protected from collection actions while the debtor is under the protection of the bankruptcy court.

Cons of Chapter 13 Bankruptcy

  1. Longer Repayment Period:
    • Extended Timeline: Chapter 13 bankruptcy requires a commitment to a repayment plan for three to five years, which may feel burdensome for some individuals.
  2. Strict Eligibility Requirements:
    • Debt Limits: There are debt limits for filing Chapter 13 bankruptcy. If your debt exceeds the specified limits, you may not qualify for Chapter 13 and may need to consider alternatives.
    • Stable Income Requirement: Individuals must have a stable income to support the repayment plan. Unstable income or inability to meet plan payments may result in dismissal of the case.
  3. Impact on Credit Score:
    • Remains on Credit Report: Chapter 13 bankruptcy remains on your credit report for seven years, which can affect your ability to obtain credit or loans during that time.
    • Credit Restrictions: Some creditors may be hesitant to extend credit to individuals with a Chapter 13 bankruptcy on their record, and if they do, it may come with higher interest rates.
  4. Potential Loss of Discharge:
    • Failure to Complete Plan: If you fail to adhere to the terms of the repayment plan, your case may be dismissed, and you may not receive a discharge of your debts.
  5. Limited Debt Discharge:
    • Non-Dischargeable Debts: Some debts, such as certain tax obligations, student loans, and child support payments, are typically not dischargeable in Chapter 13 bankruptcy.
  6. Court Oversight:
    • Ongoing Oversight: The bankruptcy court supervises the repayment plan, requiring regular payments and compliance with court orders, which may feel intrusive to some individuals.

Chapter 13 bankruptcy can be a valuable tool for individuals struggling with debt, providing a structured framework for debt repayment while protecting assets from creditors. However, it’s essential to weigh the pros and cons carefully and consider alternatives before proceeding with Chapter 13 bankruptcy. Consulting with a qualified bankruptcy attorney can provide personalized guidance based on your financial situation and goals.

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Can You Clear Medical Debt in Bankruptcy?

Can You Clear Medical Debt in Bankruptcy?

Yes, medical debt can be discharged in bankruptcy. Here’s a detailed overview of how this works:

Types of Bankruptcy

There are primarily two types of bankruptcy filings that individuals use to discharge debt: Chapter 7 and Chapter 13.

  1. Chapter 7 Bankruptcy:
    • Liquidation Bankruptcy: This type of bankruptcy involves the liquidation of a debtor’s non-exempt assets to pay off creditors. However, many personal assets are often exempt, allowing individuals to keep essential property.
    • Discharge of Debts: Most unsecured debts, including medical debt, are discharged under Chapter 7. This means that once the bankruptcy process is complete, the debtor is no longer legally obligated to pay these debts.
    • Eligibility: To qualify for Chapter 7, debtors must pass a means test, which assesses their income and expenses to determine if they have the means to repay a portion of their debts.
  2. Chapter 13 Bankruptcy:
    • Reorganization Bankruptcy: This type involves creating a repayment plan to pay off a portion of the debts over a period (typically three to five years). The remaining unpaid debt is discharged at the end of the repayment period.
    • Repayment Plan: Under Chapter 13, the debtor proposes a repayment plan to the court, detailing how they will pay off their debts. Medical debts are included in this plan and are treated as unsecured debts.
    • Eligibility: Chapter 13 is available to individuals with a regular income who can commit to a repayment plan.

Impact on Medical Debt

  • Dischargeable Debt: Medical debt is considered unsecured debt, similar to credit card debt, and is generally dischargeable in both Chapter 7 and Chapter 13 bankruptcy.
  • Collection Efforts: Filing for bankruptcy triggers an automatic stay, which halts all collection efforts, including those related to medical debt. Creditors cannot pursue collection activities while the bankruptcy case is active.

Process of Filing for Bankruptcy

  1. Credit Counseling: Individuals must complete a credit counseling course from an approved provider before filing for bankruptcy.
  2. Filing the Petition: The debtor files a bankruptcy petition with the court, including detailed information about their debts, assets, income, and expenses.
  3. Automatic Stay: Upon filing, the automatic stay goes into effect, providing immediate relief from debt collection efforts.
  4. Meeting of Creditors: A meeting (called a 341 meeting) is held where creditors can ask questions about the debtor’s financial situation.
  5. Discharge: If the court approves the bankruptcy filing, the medical debts, along with other qualifying debts, are discharged.

Considerations and Consequences

  • Credit Impact: Filing for bankruptcy significantly impacts the debtor’s credit score and remains on their credit report for seven to ten years, depending on the type of bankruptcy.
  • Legal and Filing Fees: There are costs associated with filing for bankruptcy, including attorney fees and court filing fees.
  • Long-Term Financial Health: While bankruptcy can provide relief from overwhelming debt, it also requires careful financial planning and discipline to rebuild credit and financial health.

Medical debt can be cleared through bankruptcy, providing a viable solution for individuals struggling with overwhelming healthcare-related expenses. Chapter 7 and Chapter 13 bankruptcy offer different approaches to discharging medical debt, each with its own eligibility requirements and processes. Consulting with a bankruptcy attorney can help individuals understand their options and navigate the legal complexities of the bankruptcy process.

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Written by Canterbury Law Group

Can Bankruptcy Stop Wage Garnishment?

Can Bankruptcy Stop Wage Garnishment?

Yes, filing for bankruptcy can often stop wage garnishment. When you file for bankruptcy, an automatic stay goes into effect, which immediately stops most creditors from continuing collection efforts, including wage garnishment. The automatic stay prohibits creditors from pursuing or continuing with collection actions, including wage garnishment, lawsuits, foreclosure, repossession, and harassing phone calls.

Here’s how bankruptcy affects wage garnishment under each chapter:

  1. Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, the automatic stay stops wage garnishment as soon as the bankruptcy case is filed. However, if the wage garnishment is for certain types of debts, such as child support, alimony, or certain taxes, it may continue even after filing for Chapter 7 bankruptcy.
  2. Chapter 13 Bankruptcy: In Chapter 13 bankruptcy, the automatic stay also stops wage garnishment immediately upon filing. Additionally, Chapter 13 bankruptcy allows debtors to propose a repayment plan to catch up on past due debts, including those subject to wage garnishment, over a three to five-year period. As long as the debtor makes timely payments under the Chapter 13 plan, wage garnishment will be halted.

It’s important to note that while bankruptcy can stop wage garnishment, it may not eliminate the underlying debt. Certain types of debts, such as child support, alimony, student loans, and some taxes, are generally not dischargeable in bankruptcy and may continue to be collected even after filing.

Additionally, filing for bankruptcy has long-term financial consequences and should be carefully considered. It’s advisable to consult with a bankruptcy attorney to discuss your specific financial situation, understand your options, and determine whether bankruptcy is the right solution for you.

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Sample Cease Communications Letter To Creditor

Sample Cease Communications Letter To Creditor

Here’s a sample cease communications letter to a creditor:

[Your Name] [Your Address] [City, State, Zip Code] [Your Email Address] [Your Phone Number] [Date]

[Creditor’s Name] [Creditors’ Address] [City, State, Zip Code]

Subject: Cease Communication Request

Dear [Creditor’s Name],

I am writing to request that you cease all communications with me regarding the debt associated with account [Account Number]. Pursuant to the Fair Debt Collection Practices Act (FDCPA), 15 USC § 1692c(c), I am exercising my right to request that you cease all communications with me, my family members, and any third parties regarding this debt.

Please be advised that I am aware of my rights under the FDCPA and will take appropriate action to enforce them if necessary. I expect your compliance with this request immediately.

Please confirm in writing that you have received this letter and will cease all communications with me regarding this debt. Any further communication from your company after receipt of this letter will be considered a violation of the FDCPA.

Thank you for your prompt attention to this matter.

Sincerely, [Your Name]

It’s important to send this letter via certified mail with return receipt requested to have documentation of the creditor’s receipt. Additionally, keep a copy of the letter and the mailing receipt for your records. If the creditor continues to contact you after receiving the letter, you may want to consult with a consumer rights attorney or file a complaint with the Consumer Financial Protection Bureau (CFPB).

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What Happens to My Car During Bankruptcy?
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Written by Canterbury Law Group

Can You Keep Your Car After Filing Bankruptcy?

Whether you can keep your car after filing bankruptcy depends on several factors, particularly the type of bankruptcy you file, the value of your car, and the exemptions available in your state. Here’s a breakdown:

Types of Bankruptcy:

  • Chapter 7 Bankruptcy: This type aims to liquidate non-exempt assets to pay creditors. Whether you keep your car depends on:
    • Car Value vs. Exemption: If your car’s value falls below the motor vehicle exemption allowed in your state, you can likely keep it. This exemption protects a certain value of your car from being sold by the bankruptcy trustee to pay creditors.
    • Car Loan: If you have a car loan, keeping the car requires either:
      • Reaffirmation: You agree to continue making payments under the original loan terms. This can be risky as you lose the protection of bankruptcy if you default on payments later.
      • Redemption: You pay the car’s current value to the lender to keep the car and own it free and clear.
  • Chapter 13 Bankruptcy: This type involves creating a repayment plan to repay creditors over 3-5 years. You generally keep your car as long as you stay current on your car loan payments and other plan payments.

Here are some additional points to consider:

  • Equity: The difference between your car’s value and your loan balance is your equity. If your equity exceeds the exemption, the trustee may sell the car and use the proceeds to pay creditors in a Chapter 7 case.
  • State Exemptions: Each state has different bankruptcy exemptions, so it’s crucial to research the specific exemption amount for your state’s motor vehicles. You can find this information online, through legal resources, or by consulting with a bankruptcy attorney.

What Happens to Your Car in Chapter 7 Bankruptcy?

In Chapter 7 bankruptcy, the fate of your car depends on various factors, including the equity you have in the vehicle, whether you’re behind on payments, and the exemptions available to protect assets in your state. Here’s what typically happens to your car in Chapter 7 bankruptcy:

  1. Equity and Exemptions: If your car has significant equity (the value of the car exceeds any outstanding loans or liens), it may be at risk of being sold by the bankruptcy trustee to repay your creditors. However, many states offer exemptions that allow you to protect a certain amount of equity in your car. If the equity in your car is within the exemption limit, you may be able to keep your car.
  2. Secured Debt: If you have a car loan, it’s considered a secured debt, meaning the loan is secured by the vehicle itself. In Chapter 7 bankruptcy, you have the option to reaffirm the debt, redeem the car by paying its current value in a lump sum, or surrender the car to the lender. Reaffirming the debt means you agree to continue making payments on the car loan and retain ownership of the vehicle.
  3. Vehicle Exemption: In many states, there’s a specific exemption called the motor vehicle exemption, which allows you to exempt a certain amount of equity in your car from being used to repay creditors in bankruptcy. If the equity in your car falls within the exemption limit, you can typically keep your car.
  4. Loan Arrears: If you’re behind on car payments and want to keep the car, you may have the option to catch up on missed payments through a reaffirmation agreement or a repayment plan approved by the court.
  5. Nonexempt Equity: If the equity in your car exceeds the exemption limit and you’re unable to protect it, the bankruptcy trustee may sell the car, use the proceeds to pay off your creditors, and distribute any remaining funds to you.
  6. Leased Cars: If you’re leasing a car and want to keep it, you may have the option to assume the lease and continue making payments. However, you’ll need to continue making payments on time to retain possession of the leased vehicle.

What Happens to Your Car in Chapter 13 Bankruptcy?

In Chapter 13 bankruptcy, the fate of your car can be different compared to Chapter 7 bankruptcy due to the structure of the repayment plan. Here’s what typically happens to your car in Chapter 13 bankruptcy:

  1. Automatic Stay: Like Chapter 7 bankruptcy, filing for Chapter 13 bankruptcy triggers an automatic stay, which temporarily halts creditor collection actions, including repossession of your car.
  2. Repayment Plan: In Chapter 13 bankruptcy, you propose a repayment plan to the court to repay all or a portion of your debts over three to five years. Your car loan is included in this plan.
  3. Cure Arrears: If you’re behind on car payments, your Chapter 13 repayment plan allows you to catch up on missed payments (arrears) over the plan’s duration. This allows you to keep your car while repaying what you owe.
  4. Valuation and Treatment: The value of your car is determined based on its fair market value, not the amount owed on the loan. If the value of your car is less than the amount owed (negative equity), you may have the option to cram down the loan to the car’s fair market value, potentially reducing the principal balance and interest rate.
  5. Interest Rate: In some cases, Chapter 13 bankruptcy allows you to reduce the interest rate on your car loan, making monthly payments more affordable.
  6. Reaffirmation: You may have the option to reaffirm your car loan during Chapter 13 bankruptcy, meaning you agree to continue making payments on the loan and retain ownership of the vehicle. However, reaffirmation is subject to court approval and may not always be necessary or advisable.
  7. Surrender or Redeem: If you’re unable to afford the car payments or no longer want to keep the car, you may have the option to surrender the vehicle to the lender or redeem it by paying its current value in a lump sum.
  8. Completion of Plan: Once you successfully complete your Chapter 13 repayment plan, any remaining balances on your car loan and other unsecured debts may be discharged, allowing you to retain ownership of your car free and clear of debt.

How is Debt Managed in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, debt is managed differently compared to Chapter 13 bankruptcy. Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the sale of nonexempt assets to repay creditors and the discharge of qualifying debts. Here’s how debt is managed in Chapter 7 bankruptcy:

  1. Automatic Stay: Upon filing for Chapter 7 bankruptcy, an automatic stay goes into effect, which temporarily halts creditor collection actions, including foreclosure, repossession, wage garnishment, and debt collection lawsuits.
  2. Liquidation of Assets: In Chapter 7 bankruptcy, a bankruptcy trustee is appointed to oversee the liquidation of nonexempt assets. Nonexempt assets are those not protected by exemptions under federal or state law. The trustee sells these assets and distributes the proceeds to creditors. However, many states have exemptions that allow debtors to protect certain assets from liquidation, such as a primary residence, personal belongings, and retirement accounts.
  3. Debt Discharge: Certain types of debts may be discharged (eliminated) in Chapter 7 bankruptcy, meaning you’re no longer legally obligated to repay them. Qualifying debts typically include unsecured debts such as credit card debt, medical bills, personal loans, and certain types of loans. However, certain debts, such as child support, alimony, most student loans, and certain tax debts, are generally not dischargeable in Chapter 7 bankruptcy.
  4. Exempt Property: In Chapter 7 bankruptcy, debtors are allowed to keep (“exempt”) certain property up to a certain value, as determined by federal or state exemption laws. Exempt property typically includes necessities such as clothing, household furnishings, tools of the trade, and a primary residence up to a specified equity limit.
  5. Means Test: To qualify for Chapter 7 bankruptcy, debtors must pass a means test, which evaluates their income and expenses to determine if they have enough disposable income to repay their debts through a Chapter 13 repayment plan. If a debtor’s income exceeds the median income for their state or if they fail the means test, they may be required to file for Chapter 13 bankruptcy instead.
  6. Debt Counseling: Before receiving a discharge in Chapter 7 bankruptcy, debtors are required to complete credit counseling from a court-approved agency. Additionally, debtors must complete a financial management course after filing for bankruptcy.
  7. Discharge of Debts: Once the bankruptcy process is complete and any required courses are finished, qualifying debts are discharged, providing debtors with a fresh financial start. However, it’s important to note that not all debts may be discharged, and certain obligations, such as child support, alimony, and certain tax debts, may survive bankruptcy.

How is Debt Managed in Chapter 13 Bankruptcy?

In Chapter 13 bankruptcy, debt is managed through a court-approved repayment plan. Unlike Chapter 7 bankruptcy, where certain assets may be sold to pay off creditors, Chapter 13 allows individuals with regular income to reorganize their debts and create a plan to repay all or a portion of their debts over a period of three to five years. Here’s how debt is managed in Chapter 13 bankruptcy:

  1. Filing and Plan Proposal: To initiate Chapter 13 bankruptcy, you must file a petition with the bankruptcy court and propose a repayment plan outlining how you will repay your debts over the plan’s duration. The plan typically prioritizes certain types of debts, such as priority debts (e.g., taxes, domestic support obligations), secured debts (e.g., mortgages, car loans), and unsecured debts (e.g., credit card debt, medical bills).
  2. Automatic Stay: Upon filing for Chapter 13 bankruptcy, an automatic stay goes into effect, which temporarily halts creditor collection actions, including foreclosure, repossession, wage garnishment, and debt collection lawsuits.
  3. Plan Confirmation: After filing the repayment plan, the bankruptcy trustee and creditors have an opportunity to review and object to the plan. If no objections are raised, or if objections are resolved, the bankruptcy court holds a confirmation hearing to approve the plan. Once the court confirms the plan, it becomes binding on both the debtor and creditors.
  4. Payment to Trustee: Under the Chapter 13 repayment plan, you make regular payments to the bankruptcy trustee, who then distributes the funds to creditors according to the terms of the plan. The trustee’s role is to oversee the administration of the bankruptcy estate, ensure compliance with the plan, and facilitate payments to creditors.
  5. Debt Repayment: During the plan’s duration, you make monthly payments to the trustee based on your disposable income and ability to repay debts. The trustee allocates these payments to creditors according to the plan’s terms. Secured debts, such as mortgages and car loans, are typically paid in full or brought current through the plan, while unsecured debts may receive partial repayment based on available funds.
  6. Completion of Plan: Once you successfully complete the Chapter 13 repayment plan, any remaining balances on eligible debts may be discharged, meaning you’re no longer legally obligated to repay them. However, certain debts, such as student loans, domestic support obligations, and certain tax debts, may not be dischargeable in Chapter 13 bankruptcy.

Overall, Chapter 13 bankruptcy provides individuals with a structured framework to repay their debts over time while retaining their assets and avoiding liquidation. It’s essential to work with an experienced bankruptcy attorney to navigate the Chapter 13 process, develop a feasible repayment plan, and achieve your financial goals.

How Does Bankruptcy Affect Credit?

Bankruptcy can have a significant impact on an individual’s credit score and creditworthiness. Here are some ways in which bankruptcy can affect credit:

  1. Credit Score: Filing for bankruptcy typically results in a significant drop in credit score. The extent of the drop depends on various factors, including the individual’s credit history, the type of bankruptcy filed (Chapter 7 or Chapter 13), and the amount of debt discharged.
  2. Credit Report: Bankruptcy remains on a credit report for a certain period, depending on the type of bankruptcy filed. Chapter 7 bankruptcy remains on a credit report for ten years from the filing date, while Chapter 13 bankruptcy remains for seven years from the filing date.
  3. Credit Availability: After filing for bankruptcy, individuals may find it challenging to obtain new lines of credit or loans. Lenders may view them as high-risk borrowers and may offer credit with higher interest rates and less favorable terms.
  4. Credit Card Accounts: Credit card accounts included in a bankruptcy filing are typically closed by the creditor. This can reduce the individual’s available credit and further impact their credit utilization ratio.
  5. Rebuilding Credit: While bankruptcy can have a negative impact on credit, it is not permanent. With responsible financial management and timely payments, individuals can begin rebuilding their credit over time. This may involve obtaining secured credit cards, making on-time payments, keeping credit utilization low, and avoiding new debt.
  6. Credit Counseling Requirement: Before receiving a bankruptcy discharge, individuals are required to complete credit counseling from a court-approved agency. This counseling may provide valuable financial education and help individuals develop strategies for managing credit responsibly in the future.
  7. Employment and Housing: While not directly related to credit, it’s worth noting that some employers and landlords may check credit reports as part of the application process. A bankruptcy filing could potentially impact employment opportunities or housing options, although this varies depending on the employer or landlord’s policies.
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