The Virginia bankruptcy attorneys at The Law Offices of Lewis and Associates, P.C. provide comprehensive legal services to individuals and businesses who are considering filing for bankruptcy during these uncertain times. The lawyers at Lewis & Associates are prepared to work hard so that you understand your rights and responsibilities, and to protect those rights throughout the Chapter 7 or Chapter 13 bankruptcy process.
The following information will hopefully answer some basic questions about the Chapter 7 and Chapter 13 bankruptcy filing process. Of course, if you have any questions or are considering retaining our Firm to assist you, please contact us to set up a free consultation in a completely confidential setting.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a liquidation proceeding. The process of filing bankruptcy involves liquidating the debtor’s property to pay creditors in order to wipe out the debts owed, so that the debtor can receive a fresh start. However, the debtor can retain certain property that is specifically “exempt.” A trustee (appointed by the court) gathers and sells your non-exempt property and uses the proceeds from the sale to pay your creditors. At the conclusion of the bankruptcy process, the debtor’s unsecured debts are discharged, meaning the debtor ceases to be liable for those particular debts. The right to a discharge is not absolute, however, and some types of debts are not discharged (and liens on property are not extinguished).
Broadly speaking, there are four general steps which need to be taken in order to achieve a successful discharge of your debts under Chapter 7 of the Bankruptcy Code. First, the debtor must ascertain whether he or she is eligible for filing Chapter 7 bankruptcy. If so, then the debtor must file a petition for bankruptcy. The third step is for the debtor to attend a meeting of creditors. Lastly, the debtor is granted a fresh start by receiving a discharge of his or her debts.
Step 1: Eligibility for Chapter 7 Bankruptcy
All debtors must qualify for Chapter 7 bankruptcy by demonstrating that they are financially unable to pay their obligations. Accordingly, debtors will need to send us copies of all payroll stubs or other evidence of their income for the six months prior to filing the petition. This process is known as the Chapter 7 “Means Test.”
If, based on Census Bureau statistics, your income is below the median income for families in Virginia, you are eligible to file for bankruptcy under Chapter 7. If you make more than the median income for families in Virginia, your income over the past six months is considered, along with mortgage and car payments, back taxes and child support due, and school expenses up to $1,650 per year. You will not be eligible for a Chapter 7 bankruptcy if, after deducting these amounts, and the living expenses provided in the Internal Revenue Service’s national collection standards, you can still pay at least $6,000 ($100/month) to unsecured creditors over five years. If you cannot qualify for a Chapter 7 bankruptcy, you could still be eligible to file a Chapter 13 bankruptcy.
In Virginia, for cases filed after March 15, 2009, the median income for a single wage earner is $49,689; for a family of two, it is $65,342; for three, $73,191; and for four, $85,769. Add $6,900 for each individual in excess of four. These numbers are subject to change on a yearly basis.
Step 2: Filing a Petition for Bankruptcy
A bankruptcy case is commenced when the debtor files a petition. The debtor must also file a statement of assets and liabilities, as well as schedules listing his or her creditors, the amount and type of their claim; the source, amount, and the frequency of your income; a list of all of your property; and a detailed list of your monthly living expenses. The filing fee for Chapter 7 is $299. If the debtor’s income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may waive the requirement that the fees be paid.
Before a debtor can file for Chapter 7 Bankruptcy, they must first take a pre-filing Debtor Education Course. Lewis & Associates can arrange this course through our office. The counseling can be done from the privacy of your own home via the internet and generally takes less than an hour to complete. A certificate verifying completion of the course is then issued and must be filed with the petition.
Among the schedules that an individual debtor files is a listing of “exempt” property. The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. Under Virginia law, the debtor can generally keep the following items (meaning they are exempt from liquidation):
- Your home, if you do not have more than $5,000 in equity in the house ($10,000 if householder is age 65 years or older).
- One motor vehicle, if you do not have more than $2,000 in equity
- Wedding and engagement rings
- Family portraits and heirlooms, up to $5,000 in total value
- The family Bible
- A burial plot and any pre-need funeral contract, up to $5,000 in total value
- Clothes, up to $1,000 in value
- Household furnishings, including beds, dressers, rugs, appliances, sewing machines, pots and pans for cooking, plates and eating utensils, up to $5,000 in total value
- Professionally prescribed health aids
- Tools, books and instruments of your trade, including motor vehicles, up to $10,000 in total value
- Farmers’ equipment, including a pair of plow animals with gear; a wagon or cart; a tractor, up to $3,000 in value; two plows, one drag, one harvest cradle, one pitchfork, one rake and two iron wedges; fertilizer and fertilizer material, up to $1,000 in value
- Military uniforms, arms and equipment required by law or regulations
- Personal injury and wrongful death causes of action and proceeds
- ERISA-qualified pension benefits, to the same extent permitted under Federal bankruptcy law
- Public employee pensions
- Industrial sick benefit insurance
- Group life insurance benefits
- Cooperative life insurance benefits
- Burial society benefits
- Fraternal benefit societies benefits
- AFDC and aid to the blind, aged and disabled
- Crime victims’, unemployment and workers’ compensation
- Disabled veterans are entitled to a special exemption, up to $2,000
- At least 75% of your earned but unpaid wages
The court appointed trustee takes control of any property which is not exempt. From the liquidation of your non-exempt property, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims, according to the priority of the claims (with claims that are “secured” by property being paid first). Any wages you earn after you file the case are yours, beyond the reach of creditors who had claims on the date you filed for bankruptcy.
As soon as you file for bankruptcy an “automatic stay” prevents your creditors from collecting or trying to collect on your debts. As long as the automatic stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments.
Anyone you owe – or anyone who wants to continue collection proceedings during the bankruptcy process – must show the bankruptcy judge, after a hearing, that there is “cause” to be allowed to continue with collection action (for instance, by showing that the property might deteriorate in value during the bankruptcy process).
Step 3: 341 Meeting of Creditors
Usually between twenty and forty days after you file your petition for Chapter 7 bankruptcy, the trustee will hold the first meeting of creditors, also called a “341 meeting.” Attending the 341 meeting is mandatory for the debtor. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting and answer questions. During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions. The debtor must answer questions regarding the debtor’s financial affairs and property. The debtor is questioned by the trustee in order to ensure that the debtor knows of the potential consequences of obtaining a discharge in bankruptcy.
Creditors and the trustee have a sixty day period from the 341 meeting in which they can challenge the debtor’s right to a discharge or – or whether a particular debt can be discharged – by filing an adversary proceeding. Unless an action to deny the debtor a discharge is filed, the order providing for the discharge of debts is issued by the court shortly after the sixty day period expires.
Debtors must complete a course of financial education from an approved provider in order to get their discharge. The class is generally several hours and is available online from several providers. Failure to get the class and file the certificate of completion of that class can result in the case being closed without entry of a discharge. The court may charge a new filing fee to reopen the case, file the certificate and enter the discharge.
Step 4: Discharge
The discharge is how you, as the debtor, get a fresh start in life. A discharge releases individual debtors from personal liability for most debts, while preventing the creditors owed those debts from taking any collection actions against the debtor.
A debtor receives a discharge for most of his or her debts in a Chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. The discharge, however, does not wipe away all debts. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. The debtor will continue to be liable for these types of debts to the extent that they are not paid in the Chapter 7 case.
Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as a car), he or she may decide to “reaffirm” the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt.
Chapter 13 Bankruptcy
Navigating the proper filing of a Chapter 13 petition can be complicated, and the assistance of experienced Virginia bankruptcy attorneys helps to ensure that the entire process goes smoothly. At Lewis & Associates, we begin by helping you ascertain whether Chapter 13 bankruptcy is right for you. This involves discussing alternatives to bankruptcy so that the decision you do end up making is fully informed. If you choose to pursue Chapter 13 bankruptcy, our Virginia bankruptcy attorneys will work with you to gather all the appropriate information and complete all the necessary forms for the Chapter 13 petition, and to help you devise a preliminary repayment plan.
In a Chapter 13 bankruptcy filing, the debtor provides creditors with a proposed repayment plan, detailing how the debtor intends to pay off his or her obligations. The bankruptcy code generally allows the debtor three to five years to pay off the debt. If the creditors (and the bankruptcy court) approve the plan, the debtor makes regular payments to the bankruptcy trustee and the trustee pays the creditors in accordance with plan provisions. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay. Essentially, a trustee gets the money left over every month following your reasonable expenses.
Many people who file Chapter 13 bankruptcies have:
- Mortgages or other loans they would like to bring current, so they do not lose their homes or other property
- Taxes, child support or student loans that can’t be wiped out by Chapter 7 bankruptcy
- Moral convictions that debts should be paid no matter how long it takes.
For a Chapter 13 bankruptcy, you will need stable earnings which allow you to have disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities). You must have no more than $1,010,650 in secured debt (debt involving property that your creditor might take if you do not make your payments) and $336,900 in unsecured debt.
The filing of the Chapter 13 petition must be accompanied by a proposed payment plan extending over three to five years. The proposed payment plan must provide for the payment of all “priority claims,” such as taxes, in full. The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and flexibility. The proposed plan is distributed to creditors, who have the right to object to the plan if it is unreasonable. If the plan is approved, you can keep all your assets during the period of the plan. You make monthly payments to the bankruptcy trustee, who distributes the funds to the creditors according to the plan. If the plan is completed as approved, your unpaid debts are “discharged.”
In a Chapter 13 bankruptcy case, a debtor must first file a petition with the bankruptcy court in the jurisdiction where that debtor resides or has resided for the greater part of the last 180 days. The petition must include the following information:
- List of all creditors and the amount of debt due to each creditor
- List of all monthly living expenses, including food, clothing, shelter, utilities, taxes, and medical expenses
- The source, amount, and nature of the debtor’s income
- List of all the debtor’s property (both real property and personal assets)
In addition to the petition, debtors must also file the following documents with the court:
- A schedule of assets and liabilities
- A schedule of current income and expenditures
- A statement of financial affairs
- A schedule of executory contracts and unexpired leases
- Certificate of credit counseling
- Copy of any debt repayment plan developed
- Evidence of payment from employers received within 60 days prior to filing
- Statement of monthly net income
- Record of any interest the debtor has in federal or state qualified education and tuition accounts
- Document detailing any anticipated increases in income or expenses after filing for bankruptcy