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Bankruptcy Overview

BANKRUPTCY

AN OVERVIEW

Bankruptcy is a process provided for by federal law which enables an individual, a married couple, or a business to discharge their debts and get a fresh financial start.  Filing bankruptcy immediately stops all of your creditors from continuing any attempts to collect the debt from you while your case makes its way through the bankruptcy court system, with some exceptions.

Individual bankruptcy is typically divided into two categories: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.  Meanwhile, corporate bankruptcy is typically categorized as a Chapter 11 Bankruptcy.

OVERVIEW OF CHAPTER 7

Chapter 7 bankruptcy specifically is known as “straight” bankruptcy or “liquidation.”  Nevada law provides ample exemptions to protect the majority of the assets of most people who file bankruptcy, but does not protect substantial assets from being sold and used to pay creditors.  In most cases, you will keep all of your belongings and property, but if you have a lot of cash-on-hand, motorcycles, boats, or other non‑exempt assets, you might end up turning them over to the bankruptcy court to sell to pay your creditors.

If you are unsure as to whether all of your assets will be exempt in bankruptcy, please call the our offices to schedule a consultation.  We may be able to take certain limited steps to protect some non‑exempt assets and convert them to exempt assets, but you must do this before you file bankruptcy.

OVERVIEW OF CHAPTER 13

Chapter 13 bankruptcy, is often called the ‘wage earner’ bankruptcy.  If you have valuable assets, such as a home or multiple vehicles, that might not be exempted in a Chapter 7 bankruptcy, you may prefer a Chapter 13 bankruptcy.  During Chapter 13, your bankruptcy attorney prepares an detailed ‘plan’ to propose for approval by the Bankruptcy court.  The ‘plan’ will require payment for any past due balances on secured property that you want to keep, such as missed mortgage or missed vehicle loan payments.  The ‘plan’ must also include paying the equivalent value of non-exempt assets.  The ‘plan’ may also include the remaining balance owed to your bankruptcy attorney for legal fees.  We charge the same up-front cost for a Chapter 13 case as a Chapter 7 case, but because of the additional time needed to create the ‘plan’ and the requirements to monitor the case throughout the 3-5 years, there are additional legal fees, and these fees are included in the ‘plan’.  If the bankruptcy court approves and confirms the plan, you would pay into the plan a fixed payment either every two weeks or once a month to the Bankruptcy Court.

The Trustee assigned to your case by the Bankruptcy Court will take these payments and pay a pro‑rata amount to each of your creditors during the 3-5 year plan.  After those 3-5 years are finished, and presuming you made all the payments as called for by the plan, you would receive a discharge of any remaining balances owed to the creditors.  If, for example, your ‘plan’ called for paying the unsecured creditors only 20% of the amount you owe them, then after the 3-5 year plan is completed, you would be discharged permanently from ever having to pay the remaining 80% owed to those credit card companies.

If you have questions regarding whether you should file Chapter 7 or Chapter 13, please call our offices to schedule a consultation.  We will be happy to discuss your options with you.  We offer a free 30-minute initial consultation for individuals interested in filing bankruptcy.

BANKRUPTCY TIME-LINE

Below is a general timeline of the bankruptcy process.  Keep in mind that your specific circumstances could require more or less time.  For a more individualized understanding of what to expect, call our offices to schedule a consultation.

  1. •Credit Counseling – 180 days to filing – You need to complete pre-filing credit counseling no sooner than 180 days before filing and no later than 1 day before filing.

 

  1. •Re-filing Bankruptcy – 180 days to filing – If you had a previous bankruptcy case dismissed with prejudice you may be prohibited from filing another bankruptcy case.  But if your previous case was dismissed without prejudice (the usual way), then you may re-file immediately if you wish.

 

  1. •Residency Requirements – 91 days before filing – You must have lived in Nevada no less than 91 days during the previous 180 days prior to filing your bankruptcy case in Nevada.

 

  1. •Non-dischargeability problems – 60 days before filing – You should not incur over $1,000 of unsecured debt during the 60 day period prior to filing your bankruptcy case.  If you do, the debt may be considered ‘non-dischargeable’ and you will not be able to discharge this debt through bankruptcy.

 

  1. •FILE DATE – This is the date you file your bankruptcy petition.

 

  1. •Late Schedules – 15 days after filing – If all of your schedules were not filed with your bankruptcy petition, you must file the missing schedules, which list your assets and liabilities among other things, no later than 15 days after filing bankruptcy.  The court may not accept schedules after this day without you filing a Motion to Extend Time to File Schedules.  Call our offices if this occurs and we may be able to assist you in resolving this problem.

 

  1. •First Chapter 13 Payment Due – 30 days after filing – If you filed a Chapter 13 bankruptcy case, you must make your first payment to the U.S. Trustee within 30 days after filing your bankruptcy case.

 

  1. •Statement of Intention – 30 days after filing – If you filed a Chapter 7 case and want to keep paying your car note to keep your car or keep paying your mortgage to keep your home, you must file a Statement of Intention stating that you intend to ‘reaffirm’ your car note and/or mortgage.  If you don’t file this, the Court will presume that you intend to give-up your car and/or house.

 

  1. •341 Creditors Meeting – 6 weeks after filing – You must attend a ‘341 Meeting of Creditors’ at the bankruptcy courthouse where your creditors have an option to attend and ask questions.  In reality, creditors rarely, if ever, attend to ask questions. This meeting is MANDATORY meaning if you do not attend, your bankruptcy case can be dismissed. This is not a hearing with a judge in a courtroom – you will be in a regular office room at a regular table and the assigned trustee will ask you a list of standard questions just like everyone else.

 

  1. •DISCHARGE! – 60 days after 341 meeting – If you filed a Chapter 7 bankruptcy, around 60 days after your first 341 meeting is scheduled, you should receive a discharge of all of your debts as long as creditors have not provided legitimate objections to your bankruptcy.  For Chapter 13 cases though, you will receive a discharge after you have made all of your monthly payments during the 3-5 year plan.

 

BANKRUPTCY MYTHS

There are many myths that you might hear from others about bankruptcy.  A myth, by definition, is not true.  Here are some of the more popular myths:

A person can only file bankruptcy once in their life.

FALSE – A person can file Chapter 7 bankruptcy every 8 years, and as soon as 6 years after filing Chapter 13 bankruptcy.

After filing bankruptcy a person can never get another credit card, car loan, or buy a house.

FALSE – Bankruptcy damages your credit in the short-term, but now that a person no longer has $20,000 in credit card debt, and no longer has a credit card company reporting 90 day late payments, that person’s credit score will begin to increase within a year after filing bankruptcy.  In fact, because a person cannot file bankruptcy for 6-8 more years, that person is at less risk of not paying credit card debts – something that credit card companies exploit.  BE CAREFUL.  A person will receive multiple credit card offers immediately after filing bankruptcy.

A person will lose their home after filing bankruptcy.

FALSE – If after getting rid of your credit card debt you would be able to continue paying your mortgage, and any past-due payments, there is no reason why you cannot keep your home.

Filing bankruptcy gets rid of spousal support & child support payments.

FALSE – Domestic Support Obligations (DSOs) are NOT dischargeable in bankruptcy.  As such, you will still have to pay any spousal support and child support payments while in bankruptcy and after bankruptcy.

Filing bankruptcy costs a lot of money and takes a long time.

FALSE – we offer competitive and affordable rates for preparation and filing of your Chapter 7 and Chapter 13 bankruptcy.  The amount of time it takes prior to filing is dependent on you – i.e. how long it takes you to gather the necessary documents and information.  After filing Chapter 7, your case can be completed, and a discharge issues, in as little as 3 months.  Because a Chapter 13 requires a repayment plan of 3-5 years, of course these take 3-5 years and you receive a discharge shortly after completion of your repayment plan.

For further information, please take a look at our Frequently Asked Questions on this subject.