Chapter
7 Bankruptcy is probably what most people think of when they
hear bankruptcy.A
successful Chapter 7 case cancels all of your debts that can
be cancelled through bankruptcy.(Certain debts, such
as child
support, alimony, and recent taxes cannot be cancelled.) §523
As soon as you file bankruptcy, your creditors (the
companies and people you owe money to) have to stop trying
to collect their debts.They cannot call you, send you letters, start or
continue foreclosure or other lawsuits, take your
wages or property, or do anything else.You are protected
from your creditors by an order, called the Automatic
Stay, that enters immediately when you file. §362
The
bankruptcy court sends a notice of the Automatic Stay to
your creditors.Your
creditors can only try to collect their debts by filing
papers (called a Motion for Relief
from Stay) in bankruptcy court asking permission.The court can only
give them permission under certain circumstances (for
example, your mortgage lender can get permission if do not
make your mortgage payments after you file). §362
The other form of bankruptcy
commonly filed by consumers is Chapter 13 Bankruptcy. Chapter 13
is filed by persons who want to save a home or a car by
getting caught up on their payments. Chapter 13 may
also be filed by persons whose income is too high to meet
the Means Test. (Read about the differences
between Chapter 7 and Chapter 13.) §707(b)
Your
Property
Most people who file Chapter 7 keep all their
property.The law allows youto keep certain
types of property up to a certain value for each type.Most people who file
bankruptcy do not have much property and what they do have
is protected by the law.The procedure for protecting what you have is called
exempting property.(To
know what property you can keep, see the exemptions
section of the FAQ page.) §522(d)
Your Home
and Your Car
If you own a home and are behind with your mortgage
payments, Chapter 7 will not help you save your home.If you cannot get
caught up very quickly, you will have to file a Chapter 13
Bankruptcy and get caught up with a payment plan lasting
3 to 5 years.
If you own a home and are up to date with your
mortgage payments, but have other debt that you want to
cancel (such as charge cards or medical bills), you may be
able to file Chapter 7 and still keep your home under the
following circumstances:
You can use the exemption that applies to a
home (it is called the homestead exemption) to keep your
home if your home’s equity (the difference between the
value of your home and the total of all the mortgages
against your home) is less than the exemption
amount. §522
You can choose either federal or
Connecticut exemptions.
The federal amount is $20,200 and the
Connecticut amount is $75,000.
If a husband and wife file bankruptcy
together, the amounts are doubled. This means, for example, that a couple
would be able to keep a home worth $300,000 if
their mortgage is more than $150,000 (if they
use the Connecticut exemption).
To keep your home, you have to sign a reaffirmation agreement with
the bank. This is an
agreement that makes you responsible for paying
your mortgage debt even though you have filed
bankruptcy. This can
be risky because if later you fall behind with
your mortgage and the amount you owe is more
than your house is worth, the bank can come
after you for the difference.
You
will continue to make monthly payments on the loan.
The
amount and number of your monthly paymentsmay be
adjusted for you to get caught up with the amount
that you are behind on the loan.
The
loan amount may be adjusted to reflect the present
value of the car if your loan is more than 2½ years
old.
You
will still owe the loan company the amount of the
loan despite having filed bankruptcy.
You
are taking a risk because if your car should be
totalled or stolen in the future, you will still
have to finish making the loan payments if you owe
more than the salvage value of the car.
You can also keep the car by paying the amount
you owe (called redeeming).
You may be able to take out a new loan to
pay off your existing loan.
If you have had your car loan for more than
910 days (2 ½ years) old, you may only have to pay
the value of the car rather than the full amount of
the loan.
You may be able to keep your car, without
reaffirming or redeeming, just by continuing to make
your payments on time. However, this has not been
settled under the new bankruptcy law.
Filing
Chapter 7
Not everyone can file Chapter 7.
You cannot file if you had a bankruptcy case
dismissed during the last 180 days (about 6 months) for
willful failure to obey court orders or to prosecute the
case. §109(g)
You cannot file if you asked for a bankruptcy
case to be dismissed during the last 180 days (about 6
months) and a creditor had filed a motion for relief
from stay. §109(g)
You cannot file if you received a previous
discharge in a Chapter 7 during the last 8 years or
in a Chapter 13 during the last 6 years (unless you paid
all your unsecured debt or at least 70% and
that was the best you could do). §727(a)
You cannot file if your income is too high to
meet the new Means Test put into place by the 2005
Bankruptcy Act. §707(b)
You only have to be concerned about this
test if your annual household income is above the Connecticut median ($95,183 for
a household of 4; $53,553 for a household of
1).
If you do not meet the Means Test, you can
file a Chapter
13 Bankruptcy, which will require you to pay
some or all of your unsecured debt over 3 to 5
years.
