March 11, 2020
Do I File For Chapter 7 Or Chapter 13 Bankruptcy
The idea of filing for bankruptcy can be an intimidating process. It can be scary when you’re unsure of the consequences of filing, how it can affect your future or which bankruptcy to file for.
Per the U.S. Bankruptcy Code, there are six chapters of different bankruptcies that an individual can file under.
Typically, these types of bankruptcies apply to debtors based on criteria that qualify them to file.
If you happen to find yourself in serious debt, you are likely to file for Chapter 7 or Chapter 13 bankruptcy.
In this blog post, we break down the basics of Chapter 7 and Chapter 13, how to know which one you qualify for and the benefits of each chapter.
Chapter 7 Bankruptcy
This type of bankruptcy, also known as liquidation, is the most common and basic type. It’s for those who are in very serious debt with limited incomes.
Chapter 7 liquidates all of your assets to pay off the debt that you are unable to pay.
The liquidation of this property is paid to creditors, clearing you of whatever debt you have accrued and are unable to pay otherwise.
However, because of a number of exemptions that may apply, a vast majority of Chapter 7 cases do not require the sale of any of your property.
This process will usually take 3 to 5 months to clear all debts, giving the debtor a fresh start and wiping their slate of unsecured debts.
Eligibility
To become eligible for liquidation under Chapter 7 bankruptcy, a debtor will either have a household income below the state’s median level, or they undergo a “means test”.
Because Chapter 7 is typically reserved for people with limited income who are unable to pay back any of their debts, the “means test” determines whether they have enough disposable income to repay some or all of those debts.
So, if the household income falls below state levels, or living expenses exceed the income, debtors become eligible for Chapter 7 liquidation.
If they have enough means (assets, property, etc.) to pay off some of their debt, or make too much income, they will be required to file for Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13, or wage earner’s plan, is a type of bankruptcy that develops a repayment plan for debtors with a regular income.
Typically completed in the span of 3 to 5 years, filing for this chapter will enable a debtor to pay off creditors through a trustee-distributed payment plan.
Unlike Chapter 7, this filing will protect your property (including nonexempt property) from repossession and your house from foreclosure.
After a debtor successfully completes the court-mandated repayment plan, unsecured debts have the potential to be dismissed.
Eligibility
To become eligible to file for Chapter 13, debtors must have a regular income and have unsecured and secured debts that are less than $394,725 and $1,184,200, respectively.
Unsecured debts are those that are not backed by or tied to any tangible collateral or asset. Medical debt and credit card debt are the most common types of unsecured debt.
Unlike unsecured debts, secured debts are borrowed with collateral. This means that a debtor took out a loan with a tangible asset as collateral.
For example, a house and a car can be collateral for a mortgage and auto loan.
Advantages and Disadvantages of Chapter 7 and Chapter 13
Filers of both Chapter 7 and Chapter 13 have the potential to be “discharged” of unsecured debts. This means that filers can be cleared of any outstanding debt that falls within the realm of each chapter, giving them a new beginning.
Chapter 7
In the case of Chapter 7, filing can quickly give debtors a fresh start, relieving them of their unpaid debts.
However, filers of liquidation bankruptcy have the potential to lose most of their nonexempt property for resale by bankruptcy trustees.
Unlike Chapter 13, Chapter 7 doesn’t give debtors a way to catch up on repayments to avoid repossession or foreclosure.
Chapter 13
Chapter 13 offers repayment plans that allow debtors to keep their property and catch up on payments for their secured debts. In most cases, filers of wage earner’s plan will be cleared of their unsecured debts.
Chapter 13’s repayment plans will keep your property protected and relieve you of unsecured debts when the payment plan is completed.
Affecting Your Credit Score
In any case, filing for either chapter of bankruptcy will lower your credit score, making it more difficult to get any kind of loan. However, applying for a loan with a discharge on your credit isn’t impossible.
If you have a bankruptcy on your credit record, you are just more likely to receive loans at a higher interest rate.
Bankruptcies stay on your credit report for a number of years. Typically, a Chapter 7 filing will remain for ten years while a Chapter 13 will remain for seven years.
Hiring A Qualified Bankruptcy Attorney
Speaking with a qualified lawyer can protect you from losing property and assets. If you’re considering filing for bankruptcy, be sure to get in touch with a professional bankruptcy lawyer to determine your best financial options.
July 26, 2019
4 Bankruptcy Mistakes That Can Affect Your Rights
If you’re experiencing financial burdens and are desperate for a solution that will help you get control over your debt, you’re not alone. Statistics from the American Bankruptcy Institute reveal that almost 12,000 people have filed for personal bankruptcy in Virginia so far in 2019. For many, bankruptcy is a viable option for moving on and getting a fresh start, as long as it’s done properly.
Unfortunately, many people make critical mistakes with the bankruptcy process if they don’t have a legal background. A Virginia bankruptcy attorney can help you steer clear of these issues, and the cost is probably more reasonable than you think – especially when compared to the consequences of errors and omissions. Some of the top mistakes you can avoid with the help of a bankruptcy lawyer include:
- Filing Under the Wrong Chapter: There are two forms of bankruptcy for individuals, and the path that’s right for you will depend on your circumstances and goals. Chapter 7 is a discharge of all debts and, though some cannot be eliminated entirely, you can emerge from the process without owing on others. This proceeding does have drawbacks, especially with respect to your credit score going forward. Chapter 13 is a debt restructuring plan, where you’ll keep making payments on your debts – but under an arrangement that you can afford.
Each approach to bankruptcy features pros and cons, with respect to your assets, your situation during the process, and your future after it concludes. One of the biggest mistakes you can make with bankruptcy is choosing the wrong chapter for filing.
- Waiting to Set Up Credit Counseling: You’ll need to consult with a bankruptcy court-approved credit counseling agency within 180 days before filing your petition under Chapter 7 or Chapter 13 of the US Bankruptcy Code. Since it’s a requirement, there’s no reason to delay setting up the consultation.
- Paying Off Debt with Savings or Retirement Accounts: Spending down your savings to pay off creditors may not be the best move, as you may be able to protect these assets in bankruptcy proceedings. Otherwise, you could be applying these amounts to late fees and interest – without even touching the past due balance. The exception might be where you could pay off your entire debt, or almost all of it, by clearing out your savings. Retirement accounts are different, especially an IRA or 401(k). By taking early distributions, you could incur are tax implications and penalties. Worse, you’ll have less for retirement later.
Schedule a Consultation with a Virginia Bankruptcy Lawyer Today
The most effective way to avoid bankruptcy mistakes is to work with a knowledgeable attorney throughout the process. For more information on our bankruptcy services, please contact Cravens & Noll PC or fill out our consultation form. We can meet with you at our offices in Richmond, Chesterfield, Henrico, or Harrisonburg. Our team has helped countless individuals in Central and Western Virginia get out of debt, and we look forward to helping you with your rights and your future.
April 15, 2019
Bankruptcy and Virginia Personal Injury Claims — What You Need to Know
If you are contemplating or have already filed for bankruptcy protection, it’s important to know how that can affect your Virginia personal injury case. If you are the plaintiff in a personal injury matter and the defendant has filed for or indicated they will file for bankruptcy, it can have a major impact on your case.
Plaintiff Files Bankruptcy
If you are the plaintiff in a personal injury matter and file for bankruptcy in Virginia while the case is pending, you are at risk for losing the right to claim your medical expenses and bills as part of your demand for damages at trial. There are instances where you can lose the right to claim them prior to trial, even if you did not include them as debts in your bankruptcy paperwork. Some bankruptcy proceedings will dismiss all debts, even if you did not specifically list them.
The ability to claim them in your personal injury case may vary based on the court your case is filed in. Some Virginia courts have allowed you to claim bills included in your bankruptcy, while others have issued rulings that says you cannot since you never had to pay them.
Defendant Files Bankruptcy
If the defendant in your lawsuit has filed for bankruptcy and he or she is at fault for the accident, it can definitely impact your case. The important determining factor is whether the bankruptcy is filed while your personal injury case is pending or after it’s concluded.
If he or she files before the personal injury matter is concluded, you will be listed as a creditor and therefore must stop attempts at collecting any money until the bankruptcy matter is concluded. This is something that could take years in some instances.
There is a way to proceed with your case if you agree to only seek recovery through insurance coverage the defendant has. The downside of this is the insurance company no longer has to worry about protecting their insured, so they may offer less money since there is no personal exposure.
If the bankruptcy filing takes place after your personal injury matter is concluded, there is a chance you lose the opportunity to collect any money. The insurance company would pay the amount of a verdict up to the insured’s limits, leaving the defendant on the hook for the remaining amount. If the judgment is for a large amount, it could be discharged in the bankruptcy. There are some situations, like a verdict related to a drunk driving accident, that are not eligible for being discharged.
Retaining a Virginia Attorney
If you have questions regarding bankruptcy filings and personal injury claims, it’s important to speak to a Virginia attorney who has experience in both areas. Please contact the team of Cravens & Noll PC at 804-330-9220. We have five different offices conveniently located in Central and Western Virginia. Our firm represents both individuals and businesses for a variety of legal matters, including personal injury and bankruptcy. Let one of our knowledgeable attorneys help resolve all your legal needs.
November 16, 2018
How Will Filling for Bankruptcy Impact My Future?
If you or your family is in serious financial trouble filing for bankruptcy may be a necessary step to reach a brighter financial future.
Your current situation may just be leading you no where financially. Making minimum payments on multiple debts probably means you will never catch up and pay them off. Filing for bankruptcy may enable you to get a fresh financial start, pay what you need to pay and move on. If you live in the Richmond, Chesterfield, Henrico and Harrisonburg areas Cravens & Noll may be able to help.
If you have a chronic medical condition that’s causing you pain and limiting your ability to function, as much as you may not like going to the doctor, it may be the only way to turn your health around.
It’s the same with finances. You’re in financial trouble but you may fear filing for bankruptcy will hurt you for the rest of your life. It’s just not true and it may be the step you need to get your financial health back on track.
You may fear filing for bankruptcy protection will prevent you from reestablishing your credit.
For many of our clients bankruptcy is the first, essential step to financial freedom. In the future you may have access to credit from reputable lenders you simply can’t get now. Re-building your credit may be easier if you file for bankruptcy than if you don’t.
A bankruptcy filing stays on your credit report for ten years and it may do some damage to your credit score initially but it will probably benefit you in the long run because,
- Defaults will stop. After your debts are discharged, they are no longer listed as delinquent or in default on your credit report.
- You may appear to be a better risk for creditors. Chapter 7 bankruptcy protection can only be sought every eight years. Since this option will be foreclosed for a time many creditors will see you as a better risk.
- Start your new, post-bankruptcy, financial life by building small. Creditors may see you as a good risk and will offer you credit cards and other types of credit with modest limits. By accepting a few of these credit lines and keeping your payments current, you can start with small, manageable steps to rebuild your credit. Your limits should increase and better rates should be offered over time.
- Keep these credit cards and lines of credit active and regularly paid. Use them once a month instead of using cash or check for less expensive items. Pay your $12 lunch bill with your credit card then make an electronic payment for the $12 when you get back home.
- Build an emergency reserve as best you can. This way if your income is interrupted or there’s an unexpected, high bill for medical care or home or auto repair, you’ll be able to handle it while being able to maintain your other payments.
- Stay away from predatory-lending scams and payday loans. Predatory lenders target bankruptcy filers and charge them exorbitant fees for borrowing money. Payday loans allow consumers postdate a check for the amount of the loan plus the fees for taking it. You could end up paying as much as 400% interest with a payday loan.
If you find yourself in a financial hole, you need to stop digging deeper and start thinking about whether bankruptcy might be right for you.
We want you to have the information you need to make sound decisions as you fight your way out of debilitating debt. If you live in the Richmond, Chesterfield, Henrico and Harrisonburg areas call us at 804-330-9220 or contact us online to schedule an initial consultation.
May 2, 2017
Virginia Warrants in Debt, Garnishment
Civil Judgments in Virginia: Winning Half of the Battle
In Virginia, Warrants in Debt are used to attempt to recover money that is owed. A Warrant in Debt is filed in General District Court, and must not request more than $25,000.00 in damages. If you have a valid, enforceable contract with a debtor, and the debtor fails to pay you in a timely fashion, then you can sue that person/business for monetary damages. Filing a warrant-in debt is the first step in the process of being paid.
Most plaintiffs do not realize that getting a judgment against the debtor is only one part of the equation before being paid. A judgment is a piece of paper, signed by the judge, which states that the debtor owes you money.
There are ways to get money from a debtor, including garnishment and liens. However, to garnish a debtor’s wages from employment, the creditor (person to whom money is owed) must know where the debtor works. Once a debtor’s wages start being garnished, some debtors will decide to work somewhere else, hoping that the garnishment does not follow them to their next employment. When a debtor changes employment, the creditor must again try to find out where the debtor is employed if he wants to continue garnishing the debtor’s wages.
As evidenced by the previous paragraph, there is a lot more to recovering money than simply getting a judgment against a debtor. There’s a colloquialism that “you can’t squeeze blood out of a turnip.” It means that a person cannot get something from nothing. If the debtor does not have a job, or property, or other financial resources, then a judgment might be all that you get. Part of deciding to sue someone for money is contemplating how you will get that money.
June 24, 2016
Bankruptcy in Virginia
There are essentially two kinds of individual bankruptcies, Chapter 7 and Chapter 13. Chapter 7 Bankruptcies are a liquidation of all of your debts. It essentially wipes the sleight clean. In order to determine whether or not you qualify for a Chapter 7 Bankruptcy we evaluate your case in a consultation. The first thing we examine is whether you qualify under the Means test.
The means test essentially is the average household income, per household size, per the area you live in as set out by the IRS. It is adjusted quarterly by the IRS to keep up with changing economic times and inflation. If you are below the means test threshold then you may qualify for a Chapter 7 Bankruptcy. If you are above the means it is presumed that the filing of a Chapter 7 would be an abuse of the Bankruptcy system. There are exceptions to this rule, however I would say in about 95% of all cases this holds true.
The second thing we examine is do you have any equity in any property. If you have equity in property, let’s say a house, then filing a Chapter 7 would cause the trustee to take this property, sell it and pay off your individual creditors with the proceeds. The Bankruptcy Code as well as the Code of Virginia provide us with many exemptions to protect your property and in most cases you do not risk loss of any of your property.
The third prong that we examine is what is your income to expense ratio. If your expenses exceed your income then you may file a Chapter 7 Bankruptcy, however if your income greatly exceeds your expenses you cannot file a Chapter 13.
It is also important to know the ramifications of filing the Bankruptcy. The largest of which is the effect it has on your credit. Most people who are in the position to do a Chapter 7 already don’t have good credit, but filing will plummet your score even further. A Chapter 7 Bankruptcy will affect your credit on average for about 5-7 years. It is not that you will not be able to buy anything or that you will not be able to get any loans, you just will get much worse interest rates than the average consumer.
The positive of the Chapter 7 Bankruptcy is that it will clear your unsecured debt. Basically the only debts that are not dischargeable are taxes, student loans, support obligations, and court fines fees or costs. Pretty much all other debt can be discharged through the bankruptcy. This will clear your debt, stop those pesky debt collectors and allow you a renewed lease on life.