Tuesday 2 October 2012

Newlyweds & Bankruptcy

If you recently got married, you now have the option to file a joint bankruptcy with your spouse to discharge your debts together. However, in some circumstances, being married can make it harder for you to qualify for Chapter 7 bankruptcy or protect all of your property. Read on to learn more about how being a newlywed can affect your bankruptcy.

Filing Jointly Can Save You Time and Money

For bankruptcy purposes, one of the main benefits of being married is the ability to file a single joint bankruptcy petition. A joint bankruptcy is normally more convenient because you get to wipe out all of your debts together in a single bankruptcy and you don’t have to attend separate hearings.

Filing jointly can also save you money because court filing fees are the same for an individual or joint bankruptcy. Further, most attorneys (if you decide to hire one) will charge a lot less for a joint bankruptcy than two individual bankruptcies because there is less work involved with a single petition. However, depending on your income, assets, and debts, filing a joint bankruptcy may not always be in your best interest (discussed below).

Being Married Can Make It More Difficult to Qualify for Chapter 7 Bankruptcy

In order to qualify for Chapter 7 bankruptcy, you must first pass a means test. The bankruptcy means test compares your income against the median income for a similar household in your state. If your income is below median, you automatically qualify. If it is above median, you have to disclose your expenses on the means test to see if you qualify. (Learn what the Chapter 7 means test is and how it works.) If you are married, you must include both you and your spouse’s income on the means test form whether you are filing an individual or joint bankruptcy. This means that even if you want to file an individual bankruptcy without your spouse, his or her income will be taken into account to determine whether you are eligible for Chapter 7 bankruptcy.

Unfortunately, the median income for a two-person household is normally not twice that of a single person household. In fact, it is usually only slightly higher. This means that even if both you and your spouse make less than the state median for a single person, you may have trouble qualifying for Chapter 7 bankruptcy on your combined income. As a result, being married can make it harder for you to qualify for Chapter 7 bankruptcy even if you could have qualified individually prior to marriage. Example. Brian and Susan just got married. Brian makes $30,000 and Susan makes $35,000 per year. Their state’s median income for a single person household is $40,000 and $55,000 for a two-person household. Prior to being married, both Brian and Susan could have qualified for Chapter 7 bankruptcy because their individual income is below the state median for a single person. However, since their combined income of $65,000 is above the median for a two-person household, they do not automatically qualify (whether filing jointly or individually) and must disclose their expenses on the means test form to see if they pass.

Being Married Can Make It Harder to Protect All Your Property

Exemptions allow you to keep a certain amount of property in Chapter 7 bankruptcy. If you are married and filing a joint bankruptcy, certain states allow you to double the amount of your exemptions to take into account the fact that two people usually have more property than a single person.

However, in some states, married couples are not allowed to double their exemptions when filing a joint bankruptcy. This means that you may not be able to exempt all property you own between you and your spouse if you file a joint bankruptcy and share the exemption amounts. As a result, if you can’t double your exemptions, it may be in your best interest to file separately and exempt your assets individually. However, exemption law is complex and varies by state so consider talking to a local attorney about your options before filing.

What If Only Your Spouse Has Debt?

Being married doesn’t mean you have to file for bankruptcy together. If only one spouse has debt, then usually there is no need for the other spouse to file for bankruptcy. As we discussed, the nonfiling spouse’s income still needs to be disclosed in the bankruptcy. But he or she will not be part of the bankruptcy filing and does not need to attend any hearings.

Further, the nonfiling spouse’s separate (not jointly owned) property will not be part of the bankruptcy. However, keep in mind that if you live in a community property state, you usually must disclose all assets owned by your nonfiling spouse in your bankruptcy for the trustee to decide if they are community property and part of the bankruptcy estate.

Can I File for Bankruptcy If I Am Unemployed?

There is no requirement that you have to be employed in order to file for bankruptcy. In fact, job loss is one of the most common reasons people file for bankruptcy. However, being unemployed can still affect the outcome and success of your bankruptcy filing. This depends on whether you are filing a Chapter 7 or Chapter 13 bankruptcy. Read on to learn more about how being unemployed can affect your bankruptcy.

How Does Being Unemployed Affect Your Bankruptcy?

The answer depends on if you are filing a Chapter 7 or Chapter 13 bankruptcy. Being unemployed usually makes the bankruptcy process easier, especially in a Chapter 7. However, if you are filing a Chapter 13, it may create problems in getting your case approved if you cannot afford your repayment plan.

Chapter 7 Bankruptcy

Chapter 7 is designed to wipe out unsecured debts such as credit cards and medical bills for low income debtors with little or no assets. In most cases, creditors don’t receive anything because debtors don’t have any non-exempt property that can be taken and sold. (To learn more, see our Chapter 7 Bankruptcy area.) Since debts are wiped out without paying anything to creditors in majority of Chapter 7 cases, debtors must pass a means test to qualify for a Chapter 7. The means test compares your household income against your state’s median income for a similar household.

If your income is below the median, you qualify automatically. If you are above median, you must show that you have no disposable income because you have high allowable expenses. Most unemployed debtors have no income or they collect unemployment benefits which are normally well below Chapter 7 income limits. So being unemployed usually makes it easier for you to qualify for a Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, debtors pay back all or a portion of their debts through a three to five year repayment plan. Chapter 13 also allows debtors to catch up on mortgage arrears, get rid of their second mortgage, cram down car loans, or pay back nondischargeable debts such as domestic support or certain taxes. These benefits are not available through a Chapter 7.

As a result, Chapter 13 is used not only by debtors who don't qualify for a Chapter 7 but also by those who choose to file a Chapter 13 instead of Chapter 7 to take advantage of these additional benefits. Since you are required to make monthly plan payments to the bankruptcy trustee, Chapter 13 is generally for debtors with regular income.

However, if you are unemployed, you can still file for Chapter 13 bankruptcy. Many unemployed debtors collect unemployment benefits, social security, or have other sources of income such as rental income which can be used to fund their plan. If you can show that you have enough income coming in from sources other than employment to afford your plan, then your case will likely get approved by the court. If you have no income, the court will dismiss your case unless you can prove that you are able to afford your bankruptcy plan. If you find a job during bankruptcy, you will usually be required to notify the trustee or the court and provide further documentation.

Multiple Bankruptcy Filings: When Can You File Again?

If you have filed for bankruptcy in the past, you may be wondering how soon you can file for bankruptcy again. Read on to learn about the time limitations for receiving a bankruptcy discharge after you have previously filed for, and received a discharge in, Chapter 7 or Chapter 13 bankruptcy.

Time Limits Apply to Discharges, Not to Filing

Technically, bankruptcy law does not set any minimum time that you to wait before you can file for bankruptcy again. However, there is a catch. If you file too soon after you have received a discharge of your debts in a prior case, you cannot receive another discharge. Since this generally makes the second bankruptcy filing a waste of time and money, it is important to know the time frames that apply to receiving a second discharge.

Filing Under the Same Bankruptcy Chapter: Chapter 7 v. Chapter 13

If you are filing under the same bankruptcy chapter, the time frames are different depending on whether you are filing for successive Chapter 7 or Chapter 13 cases.

Successive Chapter 7 Cases

If you received your first discharge under a Chapter 7, you cannot receive a second discharge in any Chapter 7 case that is filed within eight years from the date that the first case was filed.

Successive Chapter 13 Cases

If you received your first discharge under Chapter 13, you cannot receive a second discharge in any Chapter 13 case that is filed within two years from the date that the first case was filed.

This can get tricky if you file your second Chapter 13 case between two and six years from the first Chapter 13 and the court refuses to confirm your Chapter 13 plan in the second case. Normally, if your plan is not confirmed you could convert to a Chapter 7 case. But in this situation, the rules for receiving a Chapter 7 discharge after a Chapter 13 discharge would kick in (see below) and prevent you from getting a discharge in the converted case.

Filing Under Different Chapters: The Order Matters

If the second bankruptcy case you want to file is under a chapter that is different from the chapter you received your first discharge under, the order determines the time frame.

Chapter 13, Then Chapter 7

If your first discharge was granted under Chapter 13, you cannot receive a discharge under any Chapter 7 case that is filed within six years from the date that the Chapter 13 was filed. The only exceptions to the six-year waiting period are:

if you paid all unsecured creditors in full in the Chapter 13, or
if you paid at least 70% of the claims in the Chapter 13 and the plan was proposed in good faith and was your best effort.

Chapter 7, Then Chapter 13

If your first discharge was granted under Chapter 7, you cannot receive a discharge under any Chapter 13 case that is filed within four years from the date that the Chapter 7 was filed.

This can get tricky if you file your second case (the Chapter 13) between four and eight years after the Chapter 7 case and the court does not confirm your Chapter 13 plan. Normally, if your Chapter 13 plan is not confirmed, you could convert the case to a Chapter 7 bankruptcy. However, in this situation, the rules for successive Chapter 7 discharges would kick in, preventing you from getting a discharge in the converted case. In this case, it might make sense to simply dismiss the Chapter 13 case.

When a Second Filing Might be Beneficial Even Without a Discharge In some circumstances, you might still benefit from filing a Chapter 13 case immediately after getting a Chapter 7 discharge (this is commonly referred to as a Chapter 20 bankruptcy), even though you cannot get a Chapter 13 discharge. For example, perhaps you want the protection of the bankruptcy court while you pay a tax debt through a Chapter 13 plan. Whether you can get any benefit from a "Chapter 20" depends on your personal circumstances and the case law in your area. It would be wise to consult an experienced bankruptcy lawyer in your area for advice on this subject.

What If You Didn’t Receive a Discharge in the First Case?

If you didn’t receive a discharge in the first bankruptcy case, in most cases, you can file bankruptcy again without any limits on the second discharge.

If the First Case Was Dismissed

Unless the court orders otherwise, you can file again if your bankruptcy case was dismissed. A 180-day waiting period may apply if your case was dismissed for failure to obey a court order, failure to appear in the case, or you voluntarily dismissed the case after a creditor filed a motion for relief from the bankruptcy stay. There may, however, be different rules in effect with regard to the bankruptcy stay.

If Your Discharge Was Denied

If your discharge was denied in your first case, you may be able to file again, but you will probably not be entitled to a discharge of the debts from your first case. This is another special circumstance where you would be wise to seek the advice of an experienced bankruptcy lawyer.

Are You Eligible for Chapter 13 Bankruptcy?

For many debtors, Chapter 13 bankruptcy is a good option. But not everyone is eligible for Chapter 13 bankruptcy. Learn who can and cannot file for Chapter 13 bankruptcy.

Businesses Can't File for Chapter 13 Bankruptcy

A business, even a sole proprietorship, cannot file for Chapter 13 bankruptcy in the name of that business. Businesses are steered toward Chapter 11 bankruptcy when they need help reorganizing their debts.

If you own a business, however, you can file for Chapter 13 bankruptcy as an individual. You can include in your Chapter 13 bankruptcy case business-related debts for which you are personally liable. There is one exception to this rule: Stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy case, even if they want to discharge only personal (nonbusiness) debts.

You Must Have Sufficient Disposable Income

In order to qualify for Chapter 13, you will have to show the bankruptcy court that you will have enough income, after subtracting certain allowed expenses and required payments on secured debts (such as a car loan or mortgage), to meet your repayment obligations. Your plan must pay back certain debts in full, or the judge will not confirm (approve) it and allow you to proceed.

You can use the income from the following sources to fund a Chapter 13 plan:

regular wages or salary
income from self-employment
wages from seasonal work
commissions from sales or other work
pension payments
Social Security benefits
disability or workers' compensation benefits
unemployment benefits, strike benefits, and the like
public benefits (welfare payments)
child support or alimony you receive
royalties and rents, and proceeds from selling property, especially if selling property is your primary business.

If you are married, your income does not necessarily have to be "yours." A nonworking spouse can file alone and use money from a working spouse as a source of income. And an unemployed spouse can file jointly with a working spouse.

Your Debts Must Not Be Too High

You do not qualify for Chapter 13 bankruptcy if your secured debts exceed $1,010,650. (This amount is periodically adjusted for inflation.) A debt is secured if you stand to lose specific property if you don't make your payments to the creditor. Home loans and car loans are the most common examples of secured debts. But a debt might also be secured if a creditor -- such as the IRS -- has filed a lien (notice of claim) against your property.

In addition, for you to be eligible for Chapter 13 bankruptcy, your unsecured debts cannot exceed $336,900. (This amount is also periodically adjusted for inflation.) An unsecured debt doesn't give the creditor a right to take a particular piece of property. Most debts are unsecured, including credit card debts, medical and legal bills, back utility bills, and department store charges.

You Must Be Current on Your Income Tax Filings

To file for Chapter 13, you will have to submit proof that you filed your federal and state income tax returns for the four tax years prior to your bankruptcy filing date. If you need some time to get current on your filings, the court can postpone the proceedings. Ultimately, however, if you don't produce your returns or transcripts of the returns for those four years, your Chapter 13 case will be dismissed.

Can I Keep Cash in Chapter 7 Bankruptcy?

You can keep cash when you file for Chapter 7 bankruptcy, but only if the cash qualifies as an exempt asset. Read on to learn how bankruptcy exemptions can protect your cash if you file for Chapter 7 bankruptcy.

Cash That May Be Exempt

Examples of cash or assets readily converted to cash which may be exempt, depending on the exemptions available to you, include:

wages (learn more about protecting wages in bankruptcy)
IRAs or other exempt retirement accounts or benefits
unemployment benefits
public assistance
cash or bank balances covered by wildcard or personal property exemptions
cash in a bank account owned by a husband and wife when only one spouse files for bankruptcy and the non-filing spouse does not owe the debt
social security proceeds (even if the funds have been received and are held in a bank account as long as they can be traced back to their source), and
personal injury proceeds.

Cash That Is Not Exempt

As a general rule, cash that represents proceeds from an exempt asset that is sold before you file for bankruptcy generally loses its exempt character. For example, if you are entitled to a $2,500 motor vehicle exemption and you sell your car prior to filing for bankruptcy, the sale proceeds cannot be claimed as exempt under the motor vehicle exemption.

Exception. Social Security proceeds are an exception to this rule, as they retain their exempt status as long as they can be traced back to their source.

Your Pension in Bankruptcy

With few exceptions, your pension is safe when you file for bankruptcy. The current bankruptcy law contains broad protection for pensions and other retirement plans. The bankruptcy law identifies each type of plan by the Internal Revenue Code (IRC) section which qualifies it for tax treatment as a pension or other retirement plan. Your plan administrator should be able to provide you with documentation to tell you what section of the Internal Revenue Code your plan is qualified under.

Under the current bankruptcy law, certain retirement plans have been designated as “excluded” from the bankruptcy estate, which means you get to keep them. Because they are not part of the bankruptcy estate, these types of plans do not come under the control of the bankruptcy trustee so there is not, technically, a need to claim them as exempt. However, you still must disclose your interest in these accounts on your bankruptcy schedules and many attorneys choose to list them under your "exempt" property as well.

These accounts include:

educational Individual Retirement Accounts (IRA) under IRC 530(1)(b), subject to certain limitations
pension and retirement plans qualified under the Employee Retirement Income Security Act of 1974 (ERISA)
government retirement plans under IRC 414(d)
deferred compensation plans under IRC 567, and
tax deferred annuity plans under IRC 403(b).

If a retirement plan is exempt under the exemption system you choose to use, you get to keep it. When you file for bankruptcy, you are required to choose whether you are claiming federal or state exemptions. While the particular set of exemptions you use will determine whether your plan is exempt, most plans will qualify for an exemption under both state and federal exemptions.

Many states provide their own exemptions for pensions and other retirement plans, including special protections for state employee retirement plans. You need to check the law in your state for those details. But even when you claim state exemptions, you can claim most pensions and other retirement plans as exempt under the federal bankruptcy law as well. This is still considered electing state exemptions. These exemptions include:

qualified pension, profit sharing and stock bonus plans under IRC 401, including employee stock ownership plans
qualified annuity plans under IRC 403
Individual Retirement Accounts (IRA) under IRC 408, up to a value of $1,171,650.00
Roth IRAs under IRC 408A, up to a value of $1,171,650.00
retirement plans for controlled groups such as churches, partnerships, proprietorships and governments, under IRC 414
eligible deferred compensation plans under IRC 457, and
retirement plans established and maintained by tax-exempt organizations under IRC 501(a)

If you are electing federal exemptions or you do not qualify for state exemptions, the exemptions are even more expansive. In addition to claiming the plans identified above as exempt, you are entitled to claim an exemption for any right to receive payments under any stock bonus, pension, profit sharing, annuity or similar plan or contract on account of illness, disability, age, or length of service to the extent reasonably necessary for your support or the support of your dependants. Limitations may apply if you were employed by someone close to you, such as a relative, at the time the plan was created.

Plans that may not qualify for an exemption include:

Employee Stock Purchase Plans (ESPP)
plans that were improperly funded
plans that do not qualify as retirement plans under any identified section of the tax code
an IRA inherited by someone other than a spouse (this depends on the case law in your area, check with a lawyer)
plans that have not received a favorable determination from the Internal Revenue Service and are not in substantial compliance with any of the identified tax code sections, and
plan funds that have been rolled-over or transferred into a new fund in a way that is not in compliance with the tax code.

The California Homestead Exemption

A homestead exemption protects equity in your home from creditors. Here you’ll find specific information about the homestead exemption in California.

If you file for bankruptcy in California and are eligible to use California’s bankruptcy exemptions, you can choose from two exemption systems, often called System 1 and System 2.

In California’s System 1, single homeowners who are not disabled may exempt up to $75,000 of the equity in their home or other property covered by the homestead exemption. You may exempt up to $100,000 if you live with a family member; $175,000 if you are 65 or older, or physically or mentally disabled; $175,000 if 55 or older, single, and earn a gross annual income under $15,000 or are married and earn a gross annual income under $20,000 and creditors seek to force the sale of your home. If you are married but separated, you may claim the homestead exemption in community property occupied by your spouse.

In California’s System 2, homeowners can exempt up to $22,075 of the equity in their home.

Some states allow married couples filing joint bankruptcy petitions to double the amount of the homestead exemption. California, however, does not allow married couples to double the homestead exemption amount.

In California System 1 the homestead exemption applies to real or personal property where you reside, including a mobile home, boat, stock cooperative, community apartment, planned development, or condominium. In System 1, the homestead exemption also applies to proceeds from a forced sale of your home received six months prior to bankruptcy.

In California System 2 the homestead exemption applies to real or personal property that the debtor or a dependent of the debtor uses as a residence, including a cooperative, or a burial plot for the debtor or dependent of the debtor.

California Auto Exemption: Can I Keep My Car if I File for Bankruptcy in California?

The California motor vehicle exemption helps determine whether you can keep your car, truck, van, or other vehicle if you file for Chapter 7 bankruptcy. Here you’ll find information about the California car exemption: how much it is, what types of vehicles it covers, how it works for married couples, how to find the applicable statute, and more.

California’s motor vehicle exemption plays a large role in determining whether or not the bankruptcy trustee can take your vehicle to repay your unsecured creditors. If the equity in your car is less than California’s car exemption, then the trustee cannot sell it. If the equity in your car is significantly more than the applicable exemption amount, the trustee is likely to sell your car to repay your unsecured creditors. For details, see The Motor Vehicle Exemption: Can You Keep Your Car in Chapter 7 Bankruptcy?

Keep in mind that even if your car is safe from the bankruptcy trustee, the lender may be able to repossess your car during or after bankruptcy.

The Amount of California’s Motor Vehicle Exemption

California has two sets of exemptions that can be used in bankruptcy – called System 1 and System 2. You can choose whichever system works best for you. In California’s Exemption System 1, you can exempt up to $2,725 of the equity in your car or other vehicle. In California’s Exemption System 2, you can exempt up to $3,525 in car equity.

If you are using California’s System 2 and your car equity is more than $3,525, you may be able to cover the extra equity by using a wildcard exemption. California’s System 2 wildcard exemption allows you to exempt up to $1,175 of any property. You can also apply any unused portion of the homestead or burial plot exemption (which is $22,075) to any other property, including your car. California’s System 1 does not have a wildcard exemption.

Some states allow married couples filing a joint bankruptcy petition to double the listed exemption amounts. California’s System 1 does not allow married couples to double the motor vehicle exemption. California’s System 2 does not allow married couples to double any exemption – which means you can’t double the motor vehicle or wildcard exemptions.

The Motor Vehicle Exemption in Bankruptcy

If you file for bankruptcy, motor vehicle exemptions protect a certain amount of equity in your car, truck, van, motorcyle, or other automobile. If all of your equity is covered by a car exemption, the trustee cannot take your car in a Chapter 7 bankruptcy. If some equity remains unprotected by an exemption, you may lose it. Motor vehicle exemptions play a role in Chapter 13 bankruptcy as well the value of your nonexempt property (including car equity that is not protected by a motor vehicle exemption) determines the minimum amount you must repay your unsecured creditors through your Chapter 13 plan.

Keep in mind that even if all of the equity in your car, van, motorcycle, or other automobile is exempt in Chapter 7 bankruptcy, you still might lose the car to the lender of your car loan.

The overview articles below explain how the motor vehicle exemption works in bankruptcy and other factors that determine if you can keep your car or not. Then, click on your state's motor vehicle exemption article to find out the amount of car equity your state exempts (if any), whether you can use the federal motor vehicle exemption, how to find your state's motor vehicle exemption law, and more.

Bankruptcy Exemptions

Bankruptcy exemptions play a big role in both Chapter 7 and Chapter 13 bankruptcy. In Chapter 7 bankruptcy, exemptions help determine how much of your property you get to keep. In Chapter 13 bankruptcy, exemptions help keep your plan payments low. Read on to learn more about bankruptcy exemptions and how they work.

Filing bankruptcy does not mean that you have to give up all of your property. Through exemptions, you can keep a certain amount of your assets safe in bankruptcy. Many exemptions protect specific types of property, such as a motor vehicle or your wedding ring. Sometimes an exemption protects the entire value of the asset. Other times, an exemption protects up to a certain dollar amount of an asset. Some exemptions, called "wildcard exemptions," can be applied towards any property you own. If you can exempt an asset, then you don’t have to worry about it being taken or affecting your bankruptcy.

A Chapter 7 is a liquidation bankruptcy where the appointed trustee is looking to sell off your assets to pay your creditors. However, the bankruptcy trustee cannot sell any property you are able to exempt. This is how bankruptcy exemptions help you to protect your assets in a Chapter 7 bankruptcy. For example, if your state has a $5,000 motor vehicle exemption and you only have one car worth $4,000, then you can keep it.

A Chapter 13 bankruptcy allows you to keep all your property and reorganize your debts. However, the amount you must pay certain creditors still depends on how much property you can exempt. The value of any nonexempt assets must be paid to your nonpriority unsecured creditors (such as credit card issuers) in your bankruptcy. So in a Chapter 13, exemptions help keep your plan payments low by reducing the amount you are required to pay creditors.

When Chapter 13 Might Be Better Than Chapter 7

Even if you are eligible for Chapter 7 bankruptcy, there are some situations when filing for Chapter 13 may be more advantageous than filing for Chapter 7.

You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.

You have a tax obligation, student loan, or other debt that cannot be discharged in Chapter 7. You can include these debts in your Chapter 13 plan and pay them off over time.

You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. This might be the case if creditors are coming after you, or if you simply require the formal structure and deadlines the Chapter 13 process provides in order to follow through on your good intentions.

You have nonexempt property that you want to keep. When you file for Chapter 7 bankruptcy, you get to keep only exempt property, property that is protected from creditors under state or federal law. You have to give your nonexempt property to the bankruptcy trustee, who can sell it and distribute the proceeds to your creditors. In Chapter 13, you don't have to give up any property. Instead, you repay your debts out of your income. So, if you have nonexempt property that you can't bear to part with, Chapter 13 might be the better choice.

You have a codebtor on a personal debt. If you file for Chapter 7 bankruptcy, your codebtor will still be on the hook -- and your creditor will undoubtedly go after the codebtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your codebtor alone, as long as you keep up with your bankruptcy plan payments.

Effects of Chapter 7 Bankruptcy

If you plan to file for bankruptcy, you may be worried about what affect it might have on your job. Will your employer find out about your Chapter 7 or Chapter 13 bankruptcy? Can you be fired because of the bankruptcy? And what if you are applying for a job, can a potential employer deny you a job because you filed for bankruptcy?

Although in some cases your employer will find out about your bankruptcy filing (especially with Chapter 13 bankruptcies), rest assured that in most situations your bankruptcy won't affect your current employment. However, it might come into play if you are applying for a non-government job.

No employer government or private may fire you because you filed for bankruptcy. Nor may an employer discriminate against you in other terms and conditions of employment for example, by reducing your salary, demoting you, or taking away responsibilities because of your bankruptcy.

However, if there are other valid reasons for taking these actions, the fact that you filed for bankruptcy won’t protect you. In other words, an employer who wants to take negative action against you can do so provided there are other valid reasons to explain the action -- such as tardiness, dishonesty, or incompetence. But if you are fired shortly after your bankruptcy is brought to your employer’s attention, you might have a case against the employer for illegal discrimination because of your bankruptcy.

In practice, employers rarely find out about a Chapter 7 bankruptcy filing. However, if a creditor has sued you, obtained a judgement, and started garnishing your wages, your employer will get the news. The bankruptcy will stop the wage garnishment, and your employer will be notified about it. In such a situation, your employer (or at least the payroll department) already knew you were having financial problems and will probably welcome the bankruptcy as a way for you to take affirmative steps to put your problems behind you.

If you file for Chapter 13 bankruptcy, your employer is likely to learn of your bankruptcy case. If you have a regular job with regular income, the bankruptcy judge may order your Chapter 13 payments to be automatically deducted from your wages and sent to the bankruptcy court. (This is called an “income deduction order.”) In effect, your employer will be pressed into service as a sort of collection agency, to make sure you honor your Chapter 13 plan.

Post-Bankruptcy Discrimination: Is It Legal?

If you file for bankruptcy, can federal agencies, private businesses, landlords, employers, or other entities discriminate against you solely because of your bankruptcy filing? The answer depends on whether the entity is part of the government or private.

Federal, state, and local governmental units can’t legally discriminate against you because you filed for bankruptcy. However, the rules are more lax when it comes to private businesses and entities.

No Discrimination by Government Agencies

Governmental units may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant on the basis of your bankruptcy. Judges interpreting this law have ruled that the government cannot:

deny or terminate public benefits
deny or evict you from public housing
deny or refuse to renew your state liquor license
exclude you from participating in a state home mortgage finance program
withhold your college transcript
deny you a driver’s license
deny you a contract, such as a contract for a construction project, or exclude you from participating in a government-guaranteed student loan program.

In general, once any government-related debt has been discharged, all acts against you that arise out of that debt must also end. If, for example, you lost your driver’s license because you didn’t pay a civil court judgment that resulted from a car accident, you must be granted a license once the debt is discharged. If the debt isn’t discharged, however, you can still be denied your license until you pay up.

Discrimination by Private Entities

Prohibitions against private discrimination aren’t nearly as broad as prohibitions against government discrimination. Private employers may not fire you or punish you because you filed for bankruptcy, although they can refuse to hire you. Other forms of discrimination in the private sector, however, such as denying you rental housing, a surety bond, or withholding a college transcript, are legal. The best way to confront this type of discrimination is to build a solid credit history after bankruptcy.

If a potential landlord does a credit check, sees your bankruptcy, and refuses to rent to you, there’s not much you can do except try to show that you’ll pay your rent and be a responsible tenant. You probably will need to go apartment hunting with a “renter’s résumé” that shows you in the best possible light. Be ready to offer a cosigner, find roommates, offer to pay more rent, or even pay several months’ rent up front in cash.

Differences between Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 is a liquidation bankruptcy designed to wipe out your general unsecured debts such as credit cards and medical bills. To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. If you make too much money, you may be required to file a Chapter 13 bankruptcy (discussed below). When you file for Chapter 7 bankruptcy, a trustee is appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 7 trustee’s job is to sell your nonexempt property to pay back your creditors. If you don’t have any nonexempt assets, your creditors receive nothing. As a result, Chapter 7 bankruptcy is typically for low income debtors with little or no assets who want to get rid of their unsecured debts.

Chapter 13 is a reorganization bankruptcy designed for debtors with regular income who can pay back at least a portion of their debts through a repayment plan. If you make too much money to qualify for Chapter 7 bankruptcy, you may have no choice but to file a Chapter 13 case. However, many debtors choose to file for Chapter 13 bankruptcy because it offers many benefits that Chapter 7 bankruptcy does not (such as the ability to catch up on missed mortgage payments or strip wholly unsecured junior liens from your house). In Chapter 13 bankruptcy, you get to keep all of your property (including nonexempt assets). In exchange, you pay back all or a portion of your debts through a repayment plan (the amount you must pay back depends on your income, expenses, and types of debt). For this reason, Chapter 13 is commonly referred to as a reorganization bankruptcy. Typically, Chapter 13 bankruptcy is for debtors who can afford to make monthly payments to get caught up on missed mortgage or car payments or pay off nondischargeable debts such as alimony or child support arrears.

People with high incomes

Under the new rules, the first step in figuring out whether you can file for Chapter 7 bankruptcy is to measure your "current monthly income" against the median income for a family of your size in your state. Your "current monthly income" is your average income over the last six months before you file. If your income is less than or equal to the median, the law presumes that you are eligible for Chapter 7 bankruptcy (assuming you meet the other Chapter 7 eligibility criteria listed below). If your income is more than the median, however, you must pass "the means test" another requirement of the new law -- in order to file for Chapter 7 bankruptcy. For more information, see The Means Test & Other Chapter 7 Eligibility Issues.

If you don't pass the means test, you are limited to using Chapter 13 bankruptcy, which requires you to make monthly payments over a three- to five-year period according to a strict budget monitored by the court. Most people who file for bankruptcy prefer Chapter 7, which requires no repayment. However, Chapter 13 bankruptcy is still the best way to handle specific types of problems, like curing a default on a mortgage

Eligibility for Chapter 7 Bankruptcy

In order to be eligible for Chapter 7 bankruptcy, you must meet several criteria. Your income cannot be over a certain amount, and if it is, you must pass the "means test." In addition, the court will dismiss your case if you have filed a previous bankruptcy within a certain period of time, or if the court believes you are cheating your creditors. This article explains the situations in which you won't be eligible to file for Chapter 7 bankruptcy.

Prior to 2005, the bankruptcy judge had the power to dismiss a Chapter 7 bankruptcy case if he or she thought the debtor had sufficient disposable income to fund a Chapter 13 repayment plan. There were no hard and fast rules dictating when a judge should dismiss a case on these grounds -- it depended on the facts of the case and the attitude of the judge.

Now, however, there are clear criteria that dictate who will be allowed to stay in Chapter 7 bankruptcy -- and who will be forced to use Chapter 13 bankruptcy if they want to file. Disabled veterans whose debts were incurred during active duty and people whose debts come primarily from the operation of a business get a fast pass to Chapter 7 bankruptcy.

The Chapter 7 Means Test

The purpose of the means test is to figure out whether you have enough disposable income to make payments on a Chapter 13 plan. To find out whether you pass the means test, you subtract certain allowed expenses and debt payments from your current monthly income. If the income that's left over after these calculations is below a certain amount, you can file for Chapter 7.

If you're looking for an easy way to determine your eligibility under the means test, use this online means test calculator, created by the applicable income and expense standards for your state, county, and region to determine your eligibility.

Monday 1 October 2012

Benefits of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a good option for debtors who need a fresh start financially. Many assets such as equity in your house, wedding rings and vehicles may be protected under Chapter 7. Once you file, your debt is liquidated, and you will finally be able to begin rebuilding your life and your credit.

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