With so much information out there, it’s important to separate fact from fiction, especially regarding the seriousness and complexity of Chapter 7 and 13 bankruptcies. If you’re curious about either thinking of filing, use these five things as baseline knowledge of the process and what a proceeding might look like.
If your assets are worth more than the exemption amounts, a Chapter 13 could be a better option as it would allow you to keep your property and pay the “over-exempt” value to the trustee to be split between your unsecured creditors. If you were to file a Chapter 7 case in such a situation, the risk is that the Chapter 7 trustee would sell those assets and use the funds to pay your creditors. By filing a Chapter 13 instead, you retain possession and control over the assets without any sale being held, and the creditors receive the value they would have received in a Chapter 7.
1. You’re Not Going to Lose Everything
Most Chapter 7 cases are deemed “no-asset” cases, meaning the debtor (you) gives up no possessions. The Bankruptcy Code allows a certain dollar amount of protection for different property (homestead, vehicle, household goods, etc.). Most people can value their property within those exemption amounts.
2. Your Financial Life Will Be Exposed
Bankruptcy schedules are an extensive package of paperwork that lists all of your debts, income, assets, expenses, and recent transactions. Additionally, at a meeting of your creditors, the appointed bankruptcy trustee will ask you very personal financially-related questions in an open room. If you’re not ready to have your personal finances analyzed intensely, bankruptcy may not be for you. Full financial disclosure is part of the price that you pay in exchange for the discharge of your debts.
3. Chapter 7 is Potentially a Faster Liquidation of Your Debts
Since Chapter 7 is based on your inability to pay debts based on current income, if you pass an income means test, you could be able to wrap things up within 100 days. As a repayment plan-based proceeding, Chapter 13 could take up to five years, but with potentially less damage to your credit score.
4. The Bankruptcy Discharge Only Affects Your Liability on Your Debt
A bankruptcy discharge only bars your own creditors from collecting debts that you are liable for from you. If you have a cosigner or a codebtor on any debt, your liability on that debt will be discharged, but the cosigner/codebtor’s liability will be unchanged. If this is not addressed at the beginning of the case, it can cause personal problems to develop after the discharge between you and the cosigner/codebtor.
5. How the Pandemic Affected Bankruptcy
The COVID-19 stimulus package, known as the CARES Act, ensured that stimulus payments are not subject to the income calculations qualifying for bankruptcy or Chapter 13 repayment. This includes any federal stimulus payment made in response to the emergency, such as the lump-sum payment each taxpayer received and the federal supplemental unemployment payments. For those debtors with confirmed Chapter 13 plans before the enactment of the CARES Act who experienced COVID-19 financial hardship, modification to extend the length of the Chapter 13 plan by up to 24 additional months is possible.
If you’re considering an individual bankruptcy, it’s crucial to speak with a knowledgeable bankruptcy attorney to learn about the process, your options and which one may be right for you. Call the team at Natural State Law today at (501) 916-2878 to learn about how we’ve helped Arkansas residents restart their financial lives.