Bankruptcy- it’s not a dirty word
Individuals may file for bankruptcy in a Federal Court under Chapter 7 (“liquidation bankruptcy”). Filing for Bankruptcy does not mean that you are left penniless afterwards. The Bankruptcy code is intended to give the honest debtor a fresh start and does so by allowing the debtor to keep certain property as being exempt, and thus retained by the debtor after the discharge.
In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. The exemptions vary by state but in both Pennsylvania and New Jersey you can opt for the Federal Exemptions which currently allow you to keep the following:
-Homestead Exemption: $21,625 of equity in your home/ per debtor. If you do not own real estate or if you have less than $21,625 in equity, you can use $10,825 of any unused portion of your homestead towards any other property
-Wildcard Exemption: $1,150 of any property
-$3,450 of equity for your motor vehicle
-$1,450 for jewelry
-$11,525 aggregate value ($550 per individual item) on household goods, furnishings and appliances, clothes, books, animals, crops, or musical instruments
-$2,175 for tools of trade including implements and books
-Life insurance policies that have not matured except credit life insurance, and
-$11,525 in loan value of life insurance policy.
-Varying amounts in retirement plans, depending on the type, but usually unlimited amount.
-Domestic maintenance such as alimony or child support reasonably necessary for your support.
-Life insurance payments that you need for support under policy of someone you were a dependent of.
-Social security, unemployment benefits and compensation, veteran’s benefits, public assistance, and disability or illness benefits.
-$21,625 for personal injury except pain and suffering or pecuniary loss
award for loss of future earnings needed for support
-recovery for wrongful death of person you were a dependent of needed for support, and
-compensation received for being a crime victim.
In certain cases a debtor may wish to use the individual state’s exemptions, which are not as generous but may allow a debtor to retain all property held (titled) by husband and wife jointly, regardless of equity or value. Our bankruptcy attorneys will be glad to look at your individual situation and determine which exemptions will help you preserve the most property after the discharge.
Although you are relieved from further obligation to pay them, most liens, however (such as real estate mortgages and security interests for car loans), survive and the creditor can recover the collateral (home or car) should you fail to make payments after your automatic stay is lifted.
The benefits to filing bankruptcy are obvious. Many types of unsecured debt are legally discharged (written off)by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce.
If you are wondering how long the Bankruptcy will stay on your record, the amount of time varies. A chapter 7 bankruptcy stays on an individual’s credit report for 10 years from the date of filing the chapter 7 petition. This however does not mean that for the next 10 years you will be unable to obtain any credit. Most debtors in fact start receiving offers for credit cards soon after filing their petition. What it does mean is that there may be less credit available and/or terms less favorable, although high debt can have the same effect. Often times, creditors will consider a Bankrupt debtor a better credit risk post bankruptcy than pre-bankruptcy because the removal of actual debt from the filer’s record by the bankruptcy tends to improve creditworthiness. Also, since new credit extended post-petition is not covered by the discharge, creditors may be more willing to offer new credit to the newly-bankrupt.
Many people wonder if they are eligible to file a Chapter 7 Bankruptcy. In fact in 2005 congress made it more difficult to file for Chapter 7 by creating a formal means test for Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005’s means test is based on each individual states’ median income and we will be glad to discuss if your current income allows you to qualify.