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Do you have serious debt and can no longer maintain the payments on that debt? Bankruptcy may be an option to assist in reducing or eliminating that debt. However, in order to file bankruptcy, certain requirements must be met. There are two types of individual bankruptcies that one can file. Chapter 7 bankruptcy – which is also referred to as a liquidation bankruptcy, or Chapter 13 bankruptcy – which is a reorganization bankruptcy.
The prospect of filing for bankruptcy is understandably stressful and possibly frightening. One area that rightfully concerns most people is the effect that a bankruptcy will have on their credit. Debtors worry that their credit score will plummet if they file bankruptcy, however, the reality is if you are considering a bankruptcy, it is likely that you are having difficulty paying your debts. When debts are paid late or the minimum required payments cannot be met, your credit score may have already been adversely affected. The impact of a bankruptcy on your credit score, while negative, is a temporary effect. Although it stays on your credit report for seven to ten years, the negative effect diminishes over time.
A bankruptcy can give you a fresh start. Accounts that are included in bankruptcy must no longer be reported as delinquent and must be updated by the creditors to now be reported as having a zero balance with zero past due.
No matter which specific filing is the best option for a particular debtor, significant information must be collected prior to any filing of a Petition. A debtor must provide a list of his creditors, a list of his assets, a budget which contains his income and his expenses, documents such as pay stubs, tax returns, bank account statements, titles to assets, etc. It is typically better to over disclose to the bankruptcy Trustee than to under disclose. Not only will it save time and prevent the Trustee from having to request additional information, it can also help the debtor establish credibility with the Trustee.
If you complete these five tasks before you meet with your bankruptcy attorney, it will allow your bankruptcy attorney to develop a more thorough understanding of your unique financial position, which ultimately will allow her to provide you with the appropriate legal advice. The tasks are as follows:
- Compile a list of your income sources. When you file for bankruptcy, the bankruptcy court will require you to provide a statement of all of your financial affairs, which will include all of your sources of income.
- Put together a budget. In addition to your statement of financial affairs, you will also be required to provide a budget that specifies your required monthly spending. In order to prepare for this, you should take your average monthly income and attempt to create a detailed budget before you meet with your attorney. You should account for all of your dependents and determine your average monthly living expenses to support yourself and your dependents.
- Compile a list of all of your assets. In addition to compiling a list of sources of income and preparing a detailed budget, you should put together a list of all of your assets before you meet with an attorney for a consultation. You should also try to obtain proof of each asset.
- Compile a list of all of your debts. Similar to your list of assets, you should also compile a list of all of your debts prior to your consultation with your bankruptcy attorney. You should also provide documentation for each of your debts.
- Obtain a copy of your most recent tax returns. You will be required to provide the trustee of your bankruptcy case with a copy of your most recent tax returns within seven days prior to the 341 Meeting of Creditors where all of your creditors will be allowed to provide information and question you.
Which type of Bankruptcy is right for you?
Typically, to file a Chapter 7 bankruptcy, a debtor must have limited income and be unable to pay back their debts. To qualify, a debtor’s disposable income must be less than median income for the state in which he lives. If the debtor’s income is not below the income allocated in his state, that debtor must then pass the Chapter 7 “means test” to qualify to file a Chapter 7 bankruptcy. Disposable income is the amount of income a debtor has left after essential living costs. If a debtor is found to have the ability to repay even “some” of his debts, that debtor will be required to file a Chapter 13, rather than a Chapter 7 bankruptcy.
In cases where a debtor qualifies for a Chapter 7 filing, the Bankruptcy Trustee will sell the debtor’s property to pay off their debts. However, there are certain personal property assets that are exempt from being sold under both Federal law and State law. In Nevada, NRS 21.090 provides which assets are exempt under state law; meaning the assets listed in this statute cannot be executed upon or cannot be sold to satisfy debts in a bankruptcy. Chapter 7 bankruptcy cases, if approved by the Trustee, are usually completed within 3 – 6 months of filing. Completion of the case results in a discharge of the debts listed in the debtor’s Petition. This provides the debtor with a fresh start. However, a debtor must be aware that this type of bankruptcy can negatively impact his credit report for up to 10 years.
In a Chapter 13 bankruptcy, property is not typically sold to pay debts, but rather a payment plan in which to pay the debts is presented to the bankruptcy Trustee for approval. A debtor in a Chapter 13 typically has regular income and the ability to pay back some of his debts.
The purpose of a payment plan is to reorganize the debts of the debtor and provide a payment plan in which to pay creditors a portion of the outstanding debt over a period of time. Payment plans can be anywhere from 36 – 60 months. Secured debts receive priority and are paid first. Next unsecured priority debts are paid, such as tax liabilities. Any remaining funds will be used to pay unsecured debts.
A Chapter 13 bankruptcy is not complete until all payments of the plan are made. Therefore, completion of this type of bankruptcy can take 3 – 5 years, depending on the length of the repayment plan.
What to Expect Once You File
Once you file for bankruptcy, whether Chapter 7 or Chapter 13, the court will issue an automatic stay. This “stay” or order restrains creditors from taking action against you.
All debtors are required to attend a 341 hearing, in both a Chapter 7 bankruptcy and a Chapter 13 bankruptcy. A 341 hearing is a “meeting of the creditors.” Your attorney will attend this hearing with you. At the hearing, the debtor will meet with the Trustee assigned to the case. The Trustee typically will ask a series of questions of the debtor. Examples of questions may be:
- Verify your identity.
- Is the information contained in your petition for bankruptcy accurate and true?
- Did you disclose all sources of your income?
- Did you disclose all assets?
- Did you list all of your creditors?
- Has anything changed since the filing of your petition?
- Have you filed all tax returns when due?
The Trustee can ask many other questions if he or she feels it is necessary. Creditors can also attend this hearing. While most of the time, creditors do not attend the hearing, they may do so when seeking specific information, such as recent cash transactions or credit card purchases of the debtor or differing information in the debtor’s disclosures.
Prior to filing your bankruptcy petition, your attorney will have you take a debtor education course. It is required by law. Similarly, you will take a second class after filing your petition. Your debts cannot be discharged or your bankruptcy complete until you take both classes.
Your attorney will keep your updated throughout the process of your bankruptcy.
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Call 702-388-1851 or send an e-mail to schedule a consultation with one of our Las Vegas, Nevada, bankruptcy attorneys.