FAQs
What property do debtors have to give up in chapter 7? What about tax refunds and lawsuits?
If a debtor is behind in house or car payments, can chapter 7 stop a foreclosure or repossession from taking place?
What is a reaffirmation agreement, and how does it work?
Can a chapter 7 debtor make payments on a discharged debt without a reaffirmation agreement?
What can be done if a debtor falls behind in payments after obtaining a chapter 7 discharge? Can another bankruptcy case be filed?
Are all debts that were incurred before the bankruptcy discharged in chapter 7?
Can I do anything about debts I owe to my former spouse?
How does chapter 13 work? Who can file a chapter 13 case?
If a debtor is behind in house or car payments, can chapter 13 stop a foreclosure or repossession from taking place?
What can be done if a debtor falls behind in payments after filing a chapter 13 case?
I am behind in my child support, is this a problem?
How can I rebuild my credit after Bankruptcy?
What will this Bankruptcy cost me?
In a chapter 7 bankruptcy, debtors give up certain property that they own at the time they file the bankruptcy case. This property is sold by a trustee, who uses the proceeds to pay creditors. The debtors receive their discharge shortly after the case is filed. In this way, chapter 7 debtors are allowed to keep the money that they earn after filing the bankruptcy case, as well as most other property that they obtain after the filing. You can file a chapter 7 only if you are not required to file a chapter 13 owing to the "Means Test". In general, you can file a chapter 7 if you make
less than $42,000 or your family of four makes less than $75,000. Even if you make more than that, you still might be eligible to file a chapter 7 case if you are unable to pay at least 10% of your debt or $10,000 over a period of 5 years in a chapter 13 case. It's more complex than this but this explanation covers enough cases to give you an idea
What property do debtors have to give up in chapter 7? What about tax refunds and lawsuits?
Debtors in chapter 7 are required to give up “nonexempt” property that they own at the time of the filing; they are allowed to keep both “exempt” property that they own at the time of filing and any property that they receive a right to own after the bankruptcy filing. Exempt property is property that, according to the law, is necessary for the debtors’ support and the support of their dependents. The law that determines what property is exempt varies from state to state. If all of a debtor’s property is exempt, then the debtor does not have to give up any property in chapter 7, but may still obtain a discharge.
As long as a debtor has a right to payment at the time of the bankruptcy filing—from a tax refund, a lawsuit, or some other source—that right to payment is property that must be given to the chapter 7 trustee unless it is exempt, even though the debtor has not yet received any money. Thus, a debtor may have to turn over a tax refund to the trustee that is received after the bankruptcy is filed, and a debtor may not be entitled to the settlement of a personal injury action that is entered into after the bankruptcy is filed.
back to top
If a debtor is behind in house or car payments, can chapter 7 stop a foreclosure or repossession from taking place?
Whenever any bankruptcy case is filed, the creditors are stopped from taking action to collect the debts that were owed at the time of the bankruptcy. This feature of bankruptcy is called the “automatic stay.” The automatic stay stops a foreclosure or repossession from going forward. However, no bankruptcy filing allows a debtor to keep property that is security for a loan without making payments on the loan. For example, debtors with home mortgages and car loans, cannot keep their homes and cars without making payments. As soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession. Moreover, if the debtor is not current on payments, creditors may ask the court to terminate the automatic stay while the bankruptcy is still pending, and, in chapter 7, creditors are usually able to terminate the automatic stay. In order to keep property that is security for a loan, a debtor often must enter into a “reaffirmation agreement” with the creditor who holds the lien on that property.
We may find out that you are entitled to sue your mortgage lender for a variety of reasons. In this instance, we might recommend that you try to keep your house under a chapter 13 plan.
back to top
What is a reaffirmation agreement, and how does it work?
A reaffirmation agreement is an agreement by a debtor and a creditor about how to treat a particular debt that would otherwise be discharged in the debtor’s bankruptcy. Usually, the debt is secured by collateral that the creditor could repossess or foreclose on. In the reaffirmation agreement, the debtor agrees to pay some or all of the debt, usually, according to schedule. In exchange, the creditor agrees not to repossess or foreclose on collateral that secures the debt, as long as the debtor makes the agreed-upon payments. A valid reaffirmation agreement puts the debtor under a legal obligation to pay back the entire amount agreed upon, even if this is more than the value of the collateral that the debtor is keeping. So if the debtor defaults on the payments required under the reaffirmation agreement, the creditor can repossess or foreclose, and then seek a personal judgment against the debtor if the sale of the collateral does not satisfy the debt.
However, in order for a reaffirmation agreement to be valid, several requirements must be met, including the following:
- the agreement has to be entered into before the debtor receives a discharge;
- the agreement has to be filed with the court;
- if the debtor is represented by an attorney, the attorney has to certify that it will not create a serious problem for the debtor; and
- if the debtor is not represented by an attorney, the bankruptcy court has to make a finding that the reaffirmation agreement does not create a serious problem for the debtor.
The agreement must be voluntary; no one can force either the debtor or a creditor to enter into a reaffirmation.
Finally, debtors are given the right to change their minds: a debtor may cancel any reaffirmation agreement within 60 days after the agreement is filed with the court, or any time before discharge, whichever is later.
If any of the requirements for a reaffirmation have not been complied with, the agreement may not be binding. In that event, the debtor would have no personal obligation to make payments under the agreement.
back to top
Can a chapter 7 debtor make payments on a discharged debt without a reaffirmation agreement?
Yes. Even though a debt has been discharged, the debtor can still make a voluntary payment of the debt. This often happens, for example, with debts that are owed to family members or friends. But the key to this kind of payment is that it must be entirely voluntary; the debtor has no legal obligation to pay a discharged debt, and the creditors can take no action to pressure or persuade the debtor into making payments.
back to top
What can be done if a debtor falls behind in payments after obtaining a chapter 7 discharge? Can another bankruptcy case be filed?
The discharge in a chapter 7 case only covers the debts that were incurred before the case was filed. The bills that a debtor incurs after the case is filed are not discharged. The hope is that, after their old debts are canceled by the discharge, debtors will be able to pay their new obligations as they become due. But unexpected circumstances, such as illness or loss of employment, may again put debtors in a situation where they cannot pay their bills. In this situation, a debtor could file another chapter 7 case, but there might not be a right to discharge. After a debtor receives a discharge in a chapter 7 case, the debtor only has the right to receive a discharge in a later chapter 7 case if the later case is filed at least eightyears after the first case was filed. However, even during this eight-year “waiting” period, debtors may still be able to obtain relief in chapter 13. You may be able to get a discharge in chapter 13 if you file the case more than 4 years after you obtained a discharge in your last chapter 7 case. You may be able to get the benefit of the “automatic stay” in a chapter 13 case if you file it more than 2 years after you filed your last chapter 7 case.
back to top
Are all debts that were incurred before the bankruptcy discharged in chapter 7?
No. There are a number of types of debts that are excepted from the discharge given in chapter 7. Among the most common are debts for certain taxes, fraudulently incurred credit card debt, family support obligations (including child support and alimony), and most student loans. A debtor with debts of these kinds can still receive a discharge of other debts, but after the bankruptcy the “excepted” debts will still be owing (less any payments made through the bankruptcy itself). Additionally, chapter 7 debtors who engage in certain misconduct connected with the bankruptcy (like failing to disclose assets) may be denied a discharge entirely. However, many of the debts that are excepted from discharge in chapter 7 (fraudulent credit card debt, for example) may be discharged through chapter 13. Other types of debt (family support and student loans, for example) are excepted from discharge in chapter 13 as well as chapter 7.
Can I do anything about debts I owe to my former spouse?
Domestic Support Obligations are not dischargeable in bankruptcy. Even property settlements are not dischargeable in chapter 7 bankruptcy cases.
How does chapter 13 work? Who can file a chapter 13 case?
Debtors in chapter 13 keep all of their property, whether or not it is exempt, but they make regular payments on their debts out of the money that they earn after filing the bankruptcy case. These payments must be at least as much as would have been paid to creditors in a chapter 7 case. The payments are made to a trustee, who distributes the payments to the creditors. The payments are made in regular installments, according to a plan that the debtor draws up (usually with the help of an attorney). The plans last either until the debts are paid in full or until the end of a three- to five-year period. The debtor receives a discharge at the end of the plan. Some kinds of debts that are not discharged in chapter 7 cases—for example, debts arising from fraudulent use of a credit card—may be discharged in chapter 13.
A chapter 13 case can be filed by most consumer debtors. There are two principal requirements: First, the debtor must have regular income, although this need not be from a job—regular benefit payments or rental income could qualify. Second, the debtor must not have excessive debt. Chapter 13 is available only to debtors who do not owe more than $ 1,010,650.00 in secured debt (like home mortgages and auto loans), and more than $ 336,900 in unsecured debt (like most credit card debt). These figures are adjusted annually as of April 1 and these figures were accurate as of April 1, 2007.
Debtors who make above the median income for their locality are expected to file a chapter 13 case and pay their disposable income towards their unsecured debts for a period of 5 years pursuant to the “means test”. If an above-median income wage-earner has to spend too much money on secured debt or other debt permitted as a deduction by the Bankruptcy Code, such an above-median income wage-earner might still be permitted to file a chapter 7 case.
If a debtor is behind in house or car payments, can chapter 13 stop a foreclosure or repossession from taking place?
Yes. Unlike chapter 7, where the debtor can usually stop a foreclosure or repossession only if the creditor agrees to a reaffirmation, a debtor in chapter 13 can provide for car and mortgage payments in the chapter 13 plan, and the creditor can be required to accept these payments instead of proceeding with foreclosure or repossession.
What can be done if a debtor falls behind in payments after filing a chapter 13 case?
Debtors who have unexpected financial problems in a chapter 13 case should immediately consult with their attorneys. It is often possible to deal with changed circumstances by amending the chapter 13 plan. Also, it is sometimes possible to add to the plan debts that were incurred after the chapter 13 case is filed, so that they will be discharged with other debts at the completion of the plan. Finally, even after the plan is completed and the debtor receives a discharge in chapter 13, if unexpected circumstances arise that again make it impossible for the debtor to deal with new bills, the debtor may be able to file another bankruptcy case.
If you get a chapter 13 discharge, you are cannot get a discharge under chapter 7 for six years. You also cannot get a discharge under chapter 13 for a period of four years after you obtained a discharge under chapter 7 or two years after you obtained a discharge under chapter 13.
Under BAPCPA, debtors must be current with all past and present Domestic Support Obligations. Otherwise, their chapter 13 case will be dismissed, leaving the debtor stuck not only with Domestic Support Obligations but also with all other creditors' claims. State courts will enforce wage deductions for creditors' claims and also whatever support obligations have been ordered by the divorce court. A debtor then could easily find more than 50% of his or her disposable income forcibly deducted from each paycheck.
I am behind in my child support, is this a problem?
You must maintain all Domestic Support Obligations, whether to your children or your ex-spouse, current to be eligible for chapter 13 relief. You cannot, in any event, modify, change, or otherwise affect your Domestic Support Obligations in bankruptcy court. Any relief which you may need because of your changed circumstances must be ordered by the divorce court.
What is the “Means Test”?
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a means (income) test, which is applied to Chapter 7 bankruptcy petitions, if the debtor is an individual with primarily consumer debts. The test will determine if the debtor is eligible for Chapter 7 or must file under Chapter 13 for relief.
Here's how the test works:
- Your current monthly income (CMI) equals the average monthly gross income that you (in a joint filing, you and your spouse) received from all sources. This includes any amounts paid by any other entity on a regular basis for the household expenses of you, your spouse (in joint filings), and/or your dependents, over a six-month period immediately preceding the bankruptcy filing. Social Security benefits, and payments to victims of war crimes, crimes against humanity, and terrorism may be excluded.
- Median income is determined by figures as published by the U. S. Bureau of Statistics, adjusted for family size.
- The expenses which might be deducted, generally include:
Living expenses, determined under the IRS National Standards for Allowable Living Expenses, based on family size and gross monthly income--an additional 5 percent of the National Standards food and clothing categories is allowed if you can demonstrate that this additional amount is reasonable and necessary.
The IRS Local Standards Housing and Utilities Allowable Living Expenses for your state and county--you may be granted an additional expense allowance for actual home energy expenses if you can document the expenses and demonstrate that they are reasonable and necessary
The IRS Allowable Living Expenses for Transportation for your area
The actual amounts of other necessary expenses, including:
- Charitable contributions not to exceed 15 percent of your gross income
- Child care
- Care for elderly, invalid, or handicapped members of your immediate family who cannot pay for these expenses themselves
- Elementary or secondary school expenses for each dependent child under 18 years old, to a maximum of $1,500 per child per year
- Health insurance, disability insurance, and health savings account expenses
- Federal, state, and local tax payments, including FICA and Medicare Secured debt payments (e.g., home mortgage, car payments
- Administrative expenses if you're eligible to file Chapter 13
It is possible that other deductions might be possible since many provisions of chapter 13 are not clear and have been subject to differing interpretations in the courts.
Further information is available at:
http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm
The answer to this question depends on several factors. If you moved to your current location within the past two years, we have to consider where you moved from to figure out what you can keep.
Otherwise, the laws of Illinois determine what you can keep if you live in Illinois and the laws of Wisconsin and the federal exemptions in the Bankruptcy Code determine what you can keep if you live in Wisconsin.
Illinois
Illinois law has been amended to allow you to protect much more of your property than in the past. Illinois exemptions will apply to you only if you have lived in Illinois more than 730 days. Otherwise, we will have to use the exemptions from the state where you used to live. These may be more or less than what you would have had available to you in Illinois. In addition, some assets which might be exempt under Illinois law will not be exempt in all cases in bankruptcy.
For example, if you file a bankruptcy, you may protect and keep, among other things:
- Equity in your house - $15,000 for each owner not to exceed $30,000 for the house as a whole
- Equity in your house if you hold title as tenants by the entireties 100% exempt (unless you have joint debts)
- Personal property in general - $4,000 per person, $8,000 per married couple
- Equity in one motor vehicle - $2,400 per person – may add unused portion of personal property general exemption
- Cash surrender value of whole life insurance for the benefit of your spouse or dependents – 100%
- Death benefit of life insurance on the life of your spouse or dependents – 100%
- Personal injury claim - $15,000
- Wrongful death claim – 100%
- Workers compensation claim – 100%
- Reasonably necessary clothing – 100%
- Tools of trade - $1,400
- Unpaid wages, bonuses or commissions – 85%
- Welfare benefits received or to be received – 100%
- Alimony or child support – 100%
- Value of a retirement plan, IRA, 401k or similar plan, limited to $1 million unless equitable considerations require a greater exemption
Assets which are exempt might be utilized by a bankruptcy trustee or claimed in divorce proceedings to satisfy Domestic Support Obligations, such as child support or alimony arrearages or certain non-dischargeable taxes.
Wisconsin
If you live in Wisconsin, we can select either the exemptions allowed under the Wisconsin Statutes or the exemptions allowed under the Bankruptcy Code, depending upon which set of exemptions is most favorable to you. If you have lived in Wisconsin less than 730 days, we will have to use the exemptions of the state where you used to live and these exemptions may be more or less favorable to you than the exemptions available to you as a Wisconsin resident.
For example, if you file a bankruptcy, you may keep, under the Wisconsin Statues, among other things:
- Homestead - $40,000 in equity in your house for each owner
- Cemetery lot - 100% of interest
- Business or farm property - $7,500 in aggregate value for business or farm property for each spouse
- Child support and maintenance to the extent reasonable and necessary
- Consumer goods $5,000 in value for consumer goods, subject to $10,000 limitation for husband and wife
- Disability, fire and pension fund benefits – 100% exempt
- Motor vehicle - $1,200 for each of husband and wife in a vehicle
- Unused personal property exemption may be added to specific exemption which may be claimed on a car.
- Life insurance claims – unlimited to the extent reasonable and necessary.
- Pension plans, 401k plans, IRA plans. 100% exempt
- Personal injury claims $25,000
- Wrongful death claims – 100%
- Federal disability benefits – 100%
- Fire and casualty proceeds for otherwise exempt property within two years of receipt
- Qualified retirement plans – 100%
- Bank accounts for personal use - $1,000
- College savings accounts – 100%
- Workers compensation claims – 100%
If Federal Exemptions are more favorable to you, we can elect to use these for you. We are not allowed to “pick and choose” between Wisconsin and Federal exemptions
The principal federal exemptions are as follows:
- Homestead - $20,200 per person, $40,400 per couple
- Motor vehicle $3,225 per person, $6,450 per couple
- Household goods and apparel $10,775 per person, $21,550 per couple
- Jewelry $1,350 per person, $2,700 per couple
- All other property $1,075 per person, $2,150 per couple. Unused “Homestead” exemption may be applied.
- Tools $2,025 per person, $4,050 per couple
- Life Insurance Cash Surrender Value $10,775 per person and $21,550 per couple
- Personal injury claims $20.200 per person, $40,400 per couple
- Qualified pension plans - unlimited
Assets which are exempt might be utilized by a bankruptcy trustee or claimed in divorce proceedings to satisfy Domestic Support Obligations, such as child support or alimony arrearages or certain non-dischargeable taxes.
How can I rebuild my credit after Bankruptcy?
You can rebuild your credit immediately upon filing your bankruptcy case. It will take time but you will be successful.
First, set up a budget with your post-bankruptcy credit counseling. We can also help you with this.
Second, pay your bills as agreed and on time. Start with your mortgage, car payments and rent.
Third, get a debit card, not a credit card.
Later, get a credit card with a small $500 limit. Pay it on time, in full, every month. Use it only as a matter of convenience and never for the purpose of extensions of long term credit.
In time, order a new credit report. Make sure that it is accurate in all respects.
Still later, apply for a loan for a long term debt, such as a car, a house, or maybe an appliance or computer. Pay it on time, in full, as agreed.
When you are ready, see us and we will direct you to ethical mortgage brokers who will help you finance your house and to ethical bankers who will assist you with automobile, student or other loans that you might need.
What will this Bankruptcy cost me?
It depends on the type of case you have and the complexity of your case. Every person is different and every person’s case is unique. In general, the simplest chapter 7 case might cost as little as $1,000 plus costs of $374. The typical chapter 13 case costs $3,500 plus costs of $333.
Lakelaw has established a highly competitive base fee (more than the $1,000 mentioned for the simplest cases).
Lakelaw also maintains a “menu” for services you might require and will require additional fees.
For example, those with income in excess of the national median income must submit a detailed means test analysis to the Court with their bankruptcy papers. This takes us time and requires us to charge an additional fee which applies to your case whether you file under chapter 7 or chapter 13.
If you seek to reaffirm secured debt, we must analyze your ability to pay and so we charge a modest additional fee for each reaffirmation agreement.
If you seek to avoid liens or are involved in highly contested or contentious issues, there could be additional fees.
Chapter 13 cases require several court appearances and the preparation of a plan, so theses cases cost more than chapter 7 cases
If your case is very simple, we reduce our fee from the “base fee” to take into account your circumstances and the fact that we will spend less time on your case.
Some cases lead to litigation or contested matters which are not included in the general flat fee for a chapter 7 or chapter 13 case. In these instances, we would enter into a separate agreement and ask you to pay our standard hourly rates.
Lakelaw offers installment payment plans for chapter 7 cases but all fees and costs must be paid in full before filing. You will pay moderate amount of the fee for your chapter 13 case before filing but some of the fee may be paid after filing from plan payments.
No matter what kind of case you have, Lakelaw will always tell you the anticipated fee structure after our first meeting after discussing your financial situation with you. We will always offer you our “Attorney-Client Agreement of Rights and Responsibilities” so that you will clearly understand our responsibilities to you and your responsibilities to us.
Lakelaw is not the cheapest but we are by no means the most expensive. We don’t spend on radio or television advertising so that we can spend more time with you, our valued client. We feel you will be hard pressed to find a better value than you will get from Lakelaw. You will not find more experienced, capable and dedicated consumer bankruptcy attorneys anywhere.
Consider bankruptcy if:
You cannot pay your debts as they come due.
Your wages are being garnished.
Your bank accounts have been attached.
Judgment liens have been entered against your property.
You are being sued on credit card debts
You are being sued on medical debts
You have been notified that you are in default of your mortgage and facing foreclosure.
If you cannot pay for your necessities from one pay check to the next.
If you are considering pay-day loans or car title loans.
If you are unable to sleep or work because you are worried about your debt.
If you are getting harassing telephone calls at work or at home.
If you are considering bankruptcy, don't wait until the last minute. There are no "last minute" bankruptcy cases any more. It will take a while, maybe as long as 60 days to prepare for filing a bankruptcy petition.
