Greenville Bankruptcy Lawyer
John DeVore Compton, III
There are four chapters under the Bankruptcy Code available for the relief of consumer debtors: Chapters 13, 12, 11 and 7. Consumer debts are those incurred primarily for personal, family or household purposes. Businesses may file under these chapters in particular circumstances, but business bankruptcy will be covered in future blog posts.
For the purpose of this post we will leave out Chapter 12 (bankruptcy relief for farmers), and Chapter 11 (bankruptcy relief for debtors with debts that are large – amounts that exceed the jurisdictional limits of Chapter 13. Chapter 7 is always available to businesses which wish to totally liquidate.
We will focus on the chapters that 99% of consumer debtors fall under: Chapters 7 and 13.
Chapter 7 bankruptcy (sometimes called straight bankruptcy) is available to debtors who wish to eliminate their debts in full. Debtors considering this chapter are subject to a “means test”. This means that if, depending on family size and income, the debtor’s household income is above “median income” they will be unable to file a chapter 7. Such debtors would be required to reorganize under chapter 13 and pay back at least a portion of their debts.
Under Chapter 7 you can protect exempt assets under state law, and are likely to keep all of your property (unless you own assets that fall outside of the exemption statute). IRAs and retirement accounts, for example, are absolutely exempt from creditors. Therefore, it is always a mistake to borrow against your retirement to pay debts. At the end of the case, a Chapter 7 debtor will receive a general discharge except under certain circumstances – such as if they injure a person while under the influence of drugs or alcohol. Debts incurred through fraud may also not be discharged. Also child support obligations cannot be discharged.
Under Chapter 13, a debtor will file to protect assets, or be required to pay back a portion of her debts if her household income exceeds median income. A plan of reorganization will be proposed, and once completed, the debtor’s debts will be discharged, with the exception of domestic support obligations and student loans, among a few other narrow circumstances.
In either chapter, debtors are required to receive credit counseling and financial management counseling, before a discharge can be received.
All bankruptcies are filed under the penalty of perjury, so one must be completely candid in her bankruptcy filings. If not it is possible that a debtor could be charged with a crime and be subject to fines, imprisonment, or both. It is important, therefore, that one be completely open and honest with her attorney, to avoid any pitfalls.
Bankruptcy is designed for debtors to be able to start over fresh. And with good representation, and thorough work, that’s exactly what a consumer will receive – financial pressure will be relieved – and then the process of rebuilding will begin.