Bankruptcy Information

General Bankruptcy Information
The OBPC Difference
Chapter 7 Bankruptcy
Chapter 11 Bankruptcy
Chapter 13 Bankruptcy
What can I Keep?
Non-Bankruptcy Alternatives
Frequently Asked Questions
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Bankruptcy Information  

Frequently Asked Questions

What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy, also known as "liquidation", is a legal process by which most unsecured debts can be discharged, or wiped out. Chapter 7 Bankruptcy is known as liquidation because any non-exempt assets the Debtor has may be liquidated by the trustee-sold for the benefit of creditors. Many Chapter 7 Bankruptcy Debtors have no non-exempt assets, and so there is no liquidation, and unsecured debts are simply discharged. There are, however, certain unsecured debts that are not dischargeable in Chapter 7 Bankruptcy.

Can I File Chapter 7 Bankruptcy?
To file for Chapter 7 Bankruptcy, you must qualify under the Chapter 7 means test. The means test first compares your income to the median income in your state. If your income is lower than the median income in your state, you can file for Chapter 7 Bankruptcy. However, if your income is greater than the median income in your state, other calculations regarding your income and allowable expenses are required to determine whether or not you can file for Chapter 7 Bankruptcy.

What is Chapter 13 Bankruptcy? Chapter 13 Bankruptcy is a full or partial repayment plan administered by the Bankruptcy court. The Debtor submits a plan for approval and, when a plan is approved, makes monthly payments to the Bankruptcy trustee. The trustee makes payments to creditors in accordance with the terms of the plan. The repayment period may be from 3-5 years. At the end of the repayment period, if all payments have been made according to the plan, remaining unsecured, dischargeable debt may be discharged.

Who Can File Chapter 13 Bankruptcy?
In one sense, it's easier to qualify for Chapter 13 Bankruptcy than for Chapter 7 Bankruptcy. Some Debtors who cannot qualify for Chapter 7 because of the means test opt to file under Chapter 13 instead. However, Chapter 13 Bankruptcy requires a regular income that will allow you to propose a feasible plan of reorganization, and make plan payments to the Trustee for duration of the plan.

Is Chapter 7 or Chapter 13 Bankruptcy Better?
The answer to this question depends on your specific circumstances. Generally speaking, Chapter 7 Bankruptcy is better for people who have a lot of unsecured debts, like credit card debt and medical bills. If you don't have much property, your income is low, and most of your debts are unsecured, Chapter 7 you might want to consider Chapter 7 Bankruptcy. Chapter 13 Bankruptcy, on the other hand, tends to be a better option for those who have regular income and non-exempt property they'd like to keep. We will review your specific financial circumstances and advise you as to which type of Bankruptcy protection might be best for you.

What is a discharge in Bankruptcy?
A Bankruptcy discharge releases the Debtor from personal liability for certain specified types of debts. In other words, the Debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the Debtor from taking any form of collection action on discharged debts, including legal action and communications with the Debtor, such as telephone calls, letters, and personal contacts. Although a Debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the Bankruptcy case will remain after the Bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

When does the discharge occur?
The timing of the discharge varies, depending on the chapter under which the case is filed. In a Chapter 7 case, for example, the court usually grants the discharge promptly on expiration of the time fixed for filing a complaint, approximately 60 days from the First Meeting of Creditors. Typically, this occurs about four months after the date the Debtor files the petition with the Bankruptcy Court.

In individual Chapter 11 cases and Chapter 13, the court generally grants the discharge as soon as practicable after the Debtor completes all payments under the plan.

How does the Debtor get a discharge?
Unless there is litigation involving objections to the discharge, the Debtor will usually automatically receive a discharge.

Are all of the Debtor's debts discharged or only some?
Not all debts are discharged. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically exempts various categories of debts from the discharge granted to individual Debtors. The most common types of non-dischargeable debts are certain types of tax claims, debts not set forth by the Debtor on the lists and schedules the Debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the Debtor's operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.

Does the Debtor have the right to a discharge or can creditors object to the discharge?
In Chapter 7 cases, the Debtor does not have an absolute right to a discharge. An objection to the Debtor's discharge may be filed by a creditor, by the Chapter 7 Trustee in the case, or by the U.S. Trustee. Creditors receive a notice shortly after the case is filed that sets forth important information, including the deadline for objecting to the discharge. To object to the Debtor's discharge, a creditor must file a complaint (lawsuit) in the Bankruptcy court before the deadline set out in the notice.

Can a Debtor receive a second discharge in a later chapter 7 case?
The court will deny a discharge in a later chapter 7 case if the Debtor received a discharge under chapter 7 or chapter 11 in a case filed within eight years before the second petition is filed. A Debtor is ineligible for discharge under chapter 13 if he or she received a prior discharge in a chapter 7, 11, or 12 case filed four years before the current case or in a chapter 13 case filed two years before the current case.

Can the discharge be revoked?
The court may revoke a discharge under certain circumstances. For example, a Chapter 7 Trustee, creditor, or the U.S. trustee may request that the Court revoke the Debtor's discharge in a Chapter 7 case based on allegations that the Debtor: obtained the discharge fraudulently; failed to disclose the fact that he or she acquired or became entitled to acquire property that would constitute property of the Bankruptcy estate; committed one of several acts of impropriety described in section 727(a)(6) of the Bankruptcy Code; or failed to explain any misstatements discovered in an audit of the case or fails to provide documents or information requested in an audit of the case. Typically, a request to revoke the Debtor's discharge must be filed within one year of the discharge or, in some cases, before the date that the case is closed. The court will decide whether such allegations are true and, if so, whether to revoke the discharge.

May the Debtor pay a discharged debt after the Bankruptcy case has been concluded?
A Debtor who has received a discharge may voluntarily repay any discharged debt. A Debtor may repay a discharged debt even though it can no longer be legally enforced. Sometimes a Debtor agrees to repay a debt because it is owed to a family member or because it represents an obligation to an individual for whom the Debtor's reputation is important, such as a family doctor.

What can the Debtor do if a creditor attempts to collect a discharged debt after the case is concluded?
If a creditor attempts collection efforts on a discharged debt, the Debtor can file a motion with the court, reporting the action and asking that the case be reopened to address the matter. The Bankruptcy court will often do so to ensure that the discharge is not violated. The discharge constitutes a permanent statutory injunction prohibiting creditors from taking any action, including the filing of a lawsuit, designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge injunction. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.

May an employer terminate a Debtor's employment solely because the person was a Debtor or failed to pay a discharged debt?
The law provides express prohibitions against discriminatory treatment of Debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a Debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the Bankruptcy filing.

How do I rebuild my credit?
It’s important to note that rebuilding your credit and raising your score is a bit like losing weight: It takes time and there is not quick fix. In fact quick-fix efforts can backfire. The best advise is to manage credit responsibility over time. Please contact our office for detailed information on systematic approach to improve your credit history.

Are student loans discharged in a Bankruptcy proceeding?
Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 or Chapter 13 Bankruptcy. They may be dischargeable; however, if the court finds that paying off the loan will impose an undue hardship on the Debtor and his or her dependents.

In order to qualify for a hardship discharge, the Debtor must demonstrate that he or she cannot make payments at the time the Bankruptcy is filed and will not be able to make payments in the future. The Debtor must file an adversary proceeding (lawsuit) requiring the Court to make this determination.

Does a Bankruptcy filing have effect on the collection of alimony and child support?
The filing of a Bankruptcy petition does not have any effect on the collection of alimony or child support.

Will a Debtor lose its home by filing Bankruptcy?
This depends upon the particular circumstance of each Debtor.

In a Chapter 7 Bankruptcy Case, a Debtor, who is current on his mortgage payment, may elect whether or not to keep his home. If the Debtor desires to keep his home, the Debtor must enter into a Reaffirmation Agreement with the Mortgage Company.

In a Chapter 13 Bankruptcy Case, a Debtor, regardless of whether they are current on their mortgage, may choose to reaffirm their indebtedness to the mortgage company, and may repay any arrearage to the mortgage company over the life the Chapter 13 Plan.

Will a Debtor be able to preserve the equity it has in its home?
There are many answers to this question depending on the specific circumstance. The Debtor has many options under the Federal Exemption Statute, Michigan Exemption Statute, and Michigan Entireties Exemption to exempt a portion, if not all of their equity in their home. During the initial free consultation, we advise our clients of the proper way to maximize the preservation of the equity in their home through the Bankruptcy process.

How long are Bankruptcy and other credit information included on the Debtor's credit report?
Generally a consumer credit report may include Chapter 7 and Chapter 13 Bankruptcy information for ten years from the time the case is filed. Most other credit information can be included in a consumer credit report for seven years.

What happens if the Debtor's salary increases after the filing of a Chapter 13 plan?
The Bankruptcy Code requires that the Debtor contribute his or her projected disposable income toward the plan payments for the duration of the plan. If the Debtor's income has changed after the case has been filed but before the court has confirmed the plan, making it binding on the creditors, parties who have an interest in the case will closely scrutinize the Debtor's disposable income to make sure that the payments and the income are consistent and will incorporate any necessary changes into the plan.

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