Chapter 7 Bankruptcy in Ohio
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Bankruptcy Attorneys Serving Cleveland and Akron
When most people think of bankruptcy, they are thinking of a bankruptcy proceeding filed under Chapter 7 of the United States Bankruptcy Code. Sometimes, this is called “straight bankruptcy” or “fresh start bankruptcy.” The purpose of a Chapter 7 bankruptcy is to eliminate or to “discharge” debts. This page explores the financial requirements a person has to meet in order to be able to file under Chapter 7, what types of debts you can usually discharge in a Chapter 7 bankruptcy, and whether your personal property can be taken in a Chapter 7 bankruptcy.
Can I file under Chapter 7?
Many people believe that the new law eliminated Chapter 7 bankruptcy or made it extremely difficult for people to file bankruptcy. This is simply not true and another reason why it is important to get advice from an experienced Ohio bankruptcy attorney from Borders and Gerace. Chapter 7 bankruptcy still exists and the majority of people who qualified under the old bankruptcy laws still qualify under the new bankruptcy laws.
The new bankruptcy law mainly affects people and families in higher income brackets. Most people who need a Chapter 7 bankruptcy are currently having a tough time making ends meet. They are facing harassing creditor calls, garnishment, repossessions, foreclosure, utility shutoffs, and other collection action.
The Means Test
Under the new law, a person who wishes to file a Chapter 7 bankruptcy case must financially “qualify”, so to speak. The analysis we perform at Borders and Gerace is referred to as the “means test.” First, we will help you compile your income for the six month period prior to the date of filing. For example, if the date of filing is during the month of September, the income that must be compiled is what has been received during the months of March through August.
“Income” is very broadly defined and includes such items as wages, dividends, gifts, and contributions from other persons in your household. Indeed, the only exclusions mentioned in the Bankruptcy Code are Social Security payments and certain payments made because you have been the victim of certain crimes. The total “income” then is divided by six in order to arrive at what is referred to as the “current monthly income.”
If this current monthly income is under the state median income for the area in which you reside, taking into account how many people there are in your household, then you have “passed” the means test and you are eligible to file for Chapter 7. If your income is over the median income, you still might be able to file, but it may be necessary to examine your expenses in order to see if they are sufficient to bring your net income below the threshold amount. Some of these expenses are not your actual expenses, but instead, involve national or state standards. Needless to say, the analysis can become extremely complicated and detailed. At Borders and Gerace, we can quickly and accurately determine your qualifications so you feel confident that you are making the correct financial decisions.
Are all debts eliminated in Chapter 7?
The chief advantage and principal goal of a Chapter 7 bankruptcy is that after the discharge, you will not owe any debts. However, there are important exceptions to this of which you should be aware. Some of these are the following, but, as always, however, please consult an experienced Borders and Gerace bankruptcy attorney before concluding that any particular debt in your situation will or will not be discharged:
- Unsecured debts. Unsecured debts are typically dischargeable. This kind of debt usually represents the majority of debt that people are struggling to pay. The types of debt that fall under this category are credit cards, medical bills, repossessions, collection accounts, utility bills, payday loans, lawsuits, judgments, reinstatement fees, personal loans, and many other types of general debt.
- Secured debts. This kind of debt usually involves some kind of property such as a house or car. Typical secured debts are mortgages, car loans, or loans provided to purchase jewelry or furniture. The general rule is if you keep the property, you have to keep the debt. If you surrender the property in a Chapter 7 bankruptcy, you can also discharge the debt. It is common for people to keep their secured debts such as their home and car and only eliminate their unsecured debt mentioned above.
- Income taxes. Unless income tax liability is old enough, it is not dischargeable. Generally, in order to be dischargeable, this kind of debt must be for a taxable year for which the return was due more than three years ago, with the return being filed over two years ago, and with the date of assessment being more than 240 days ago. There are some things that can increase this time, for example, offers in compromise and previous bankruptcies. In order to determine whether a tax is dischargeable, a detailed analysis must usually be made.
- Student loan debt. This kind of debt, if it was made or guaranteed by a governmental agency or a nonprofit institution, is not dischargeable unless you can show “undue hardship.” To prove undue hardship, you have to prove that you cannot maintain, based on current income and expenses, a “minimal” standard of living for yourself and your dependents if forced to repay the loans; that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and that you made good faith effort to repay the loans. It is extremely hard to meet this burden of proof.
- Alimony and Child Support. This kind of debt cannot be discharged under any circumstance. Also, if a debt has been incurred in the course of a divorce, even if it is not alimony or child support, it is not dischargeable. For example, if you have agreed to pay a certain debt in a property settlement agreement, that debt is not dischargeable.
- Other exceptions to discharge. There are other categories of debts that are “accepted” from discharge. When you discuss your situation in detail with your Borders and Gerace bankruptcy attorney, you will be advised of any other exceptions that may be applicable.
Can I lose property in a Chapter 7?
As is true under any Chapter of the Bankruptcy Code, you are required to list all your assets. An asset is any property you own or may have a right to own in the future. It could be “tangible”, such as a vehicle, or “intangible”, such as a legal claim or the right to receive a tax refund. Your assets become the property of the bankruptcy estate. In general, any property that you acquire after the date of filing the bankruptcy petition that you were not entitled to receive prior to filing is not included in the bankruptcy estate. One notable exception to this rule is inheritance rights; if you inherit property within 180 days of filing, that inherited property is considered part of the bankruptcy estate.
In a Chapter 7 bankruptcy, the trustee, who is a person appointed to take charge of the bankruptcy estate, can, if necessary, sell the property which is not exempt from seizure, and then pay creditors. However, in most Chapter 7 bankruptcy cases, people do not lose any property. There are Ohio bankruptcy exemptions that allow those who are filing bankruptcy protect certain amounts of property. These exemptions were recently increased so it is very rare a person will have property that is not exempt. It is very important, then, to identify what property is protected as exempt.
Contact a Borders and Gerace attorney today at 216-766-5704 to determine if any of your property will be at risk in a Chapter 7 bankruptcy.