Chapter 7 - Frequently Asked Questions
Common Questions About Chapter 7 Bankruptcy
Am I eligible for Bankruptcy? Where can I file? What exemptions can I use?
You are eligible to file bankruptcy if you are a person who has a domicile, place of business, or residence in the United States. Railroads, banks, and other specifically listed entities are not eligible under chapter 7 of the bankruptcy code.
Whether venue is proper in a particular state (e.g. you are allowed to file bankruptcy in that state) is determined by the state in which for the 180 days before you file the bankruptcy you meet one of the following for factors established by 28 U.S.C. § 1408 which says the appropriate location is in one of four places: 1) the location of the debtor’s domicile; 2) the location of the debtor’s residence; 3) the location of the debtor’s principal place of business in the United States; or 4) the location of the debtor’s principal assets in the United States. Thus, you may file a bankruptcy in any state in which you have met one of these tests for 180 days or more in that state.
Just because you are allowed to file bankruptcy in a particular state does not necessarily mean you can use that state’s set of exemptions. If you have been continuously domiciled in a state for 730 days (2 years) before filing bankruptcy, you can use that state’s exemptions or the federal exemptions if allowed by that state. However, if you have not been continuously domiciled in the same state for 730 days before you file, you must use the 180-day rule to determine which exemptions you can use. If you did not live in your current state continuously for at least 730 days, then you must pick the state in which you lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where you lived most of the time between 2 and 2 ½ years before filing. If no state qualifies using the above rules or if the 180-day state requires current residency or domiciliary to use its exemptions (a tricky issue), then you must use the federal exemptions. Determining which set of exemptions is available to you is absolutely critical to a successful bankruptcy case and a happy debtor in bankruptcy. Do not try to make the determination on you own – retain Deshaies Law to make this determination for you!
Am I eligible for Chapter 7?
Whether you are eligible for chapter 7 depends on two things: first, the results of the Means Test; and second the amount of monthly disposable income you have available to pay to creditors. If you pass the Means Test and you do not have much disposable income available each month after you pay your reasonable and necessary living expenses, you likely will qualify for chapter 7. There could, however, be other reasons that the United States Trustee’s Office objects to your bankruptcy such as if you are not candid in the bankruptcy process (e.g. you lie on or leave things off of your bankruptcy schedules) or you engage in certain fraud before or during your bankruptcy.
What is the Means Test and how does it work?
The Means Test is required by 11 U.S.C. §707(b) of the Bankruptcy Code. It is a “test” the requirement for which was established in 2005 by Congress. Most individual debtors filing for bankruptcy relief are required to complete either Official Bankruptcy Form 22A or 22C (Statement of Current Monthly Income and calculations). Bankruptcy Form 22A is the form chapter 7 debtors will complete for “Means Testing” purposes; Form 22C is the form chapter 13 debtors will complete. Despite the name, the Means “Test” isn’t really a pass or fail type of exam. It is a formula that simply determines whether, based on Congress’ standards, you have the ability to pay something back to your creditors each month after paying your reasonable and necessary living expenses. If you “fail” the Means Test, and you want to benefit from a bankruptcy discharge, you will have to proceed under chapter 13 of the Bankruptcy Code instead of under chapter 7.
The Means Test is largely guided by the median income figures for your state. If the current monthly income for a family of your size is lower than the median income for a household of your size in your state, then you are one step closer to being able to file a chapter 7 as opposed to a chapter 13. If the debtor’s current monthly income is higher than your state median, then things are more complicated. If the debtor’s annual income is higher than the median, in order to pass the Means Test and be able to proceed under chapter 7 you have to “rebut the presumption of abuse.” What this means is that you need to demonstrate to the court by completing the “expense” part of the Means Test form that, even though your income is above-median, you still are unable to pay something back to your creditors. While this might sound easy, it is not. It is a very high threshold to meet and, in fact, most debtors who are above-median are unable to rebut the presumption.
As this explanation demonstrates, it is helpful to have an experienced bankruptcy attorney conduct the Means Test analysis for you. Retain Deshaies Law to do this form you by calling (603) 580-1416.
If I “pass” the Means Test does that mean I am automatically eligible for chapter 7?
If you “pass” the Means Test there is another hurdle before you may proceed under chapter 7. In addition to reviewing the Means Test calculation and results, the Office of the United States Trustee also reviews the debtor’s Schedules I (Income) and J (Expenses). The amounts on these schedules are more forward looking. Unlike the Means Test, Schedules I and J are supposed to reflect what your current monthly income and expenses are/were at the time that you filed your bankruptcy petition. So, if your income or expenses have changed recently (e.g. since the period of time that is included in the Means Test calculation) Schedule J could show that you have more or less disposable income than the Means Test results. Moreover, there are some expenses that may be included on Schedule J that are not included on the Means Test (in the District of NH, for instance, often times the debtor can deduct from his disposable income the regular monthly payments on long-term student loans) and there are some you may not be able to include. The Office of the United States Trustee reviews the last entry on Schedule J (the amount of disposable income) which shows how much money the debtor has remaining each month after the listed expenses have been paid. The Office of the United States Trustee also reviews the expenses listed on Schedule J to assess whether they are necessary or objectionable. If the Office of the United State Trustee feels the expenses are objectionable or there is too much income remaining each month, the Trustee will object to the debtor proceeding under chapter 7 because it appears the debtor can afford to proceed under chapter 13 and pay a little bit each month toward the debts it otherwise will be discharging.
Are there any things I must do before I can file a chapter 7 bankruptcy?
Before you file bankruptcy you must obtain a Credit Counseling Certificate by taking a course online, in person, or over the telephone regarding consumer debt. The purpose of the counseling session is to review your financial circumstances and make a recommendation as to how to improve your financial situation. The counselor may recommend making certain adjustments to your finances, entering into certain repayment plans, and/or filing bankruptcy. It is not a pass or fail test. If the counselor does not recommend bankruptcy, you will still receive your certificate as proof that you underwent the counseling. In order to complete the credit counseling session, you will need to provide detailed information about your income, expenses, and debts. If you will be filing bankruptcy as a married couple, you must provide complete financial information for both spouses. At the end of the session you need to make sure you take the steps necessary to receive the certificate. The cost of the session and certificate can be anywhere between $5 and $50. While this office does not endorse any one counselor over another, our clients have successfully undergone counseling at the following online site and received their certificates for $5.00 each: www.consumerbankruptcycounseling.info.
Who is the chapter 7 trustee and what are his/her duties?
The chapter 7 trustee is an attorney appointed by the office of the United States Trustee to oversee your bankruptcy. There is a panel of chapter 7 trustees who work in the state of New Hampshire. The Office of the United States Trustee rotates the chapter 7 panel trustee assignments so that they are distributed as the Office of the United States Trustee believes is appropriate. The result is that we will not know which chapter 7 trustee will be appointed to your case. However this office has worked with each of the chapter 7 trustees so that which trustee is assigned to your case should not have any significance to your case. The duty of the chapter 7 trustee is to examine the debtor under oath at the Meeting of Creditors to ensure that the debtor’s bankruptcy schedules are accurate and complete and to find non-exempt assets for liquidation. (Liquidation means sale.) Upon liquidating any and all nonexempt assets, the chapter 7 trustee will take his/her commission (currently 10%) and distribute the remaining proceeds pro rata to your creditors. Typically, a chapter 7 trustee will become more interested in your case if he/she feels you are hiding assets that he/she may be able to recover for the benefit of your creditors. Therefore, you should not attempt to hide assets. They will find them. Your counsel will help you understand which assets are nonexempt, if any, and what will happen to them in your bankruptcy. It is imperative you are completely candid with Deshaies Law throughout the bankruptcy preparation process. It you do not tell Deshaies Law everything, Deshaies Law cannot adequately help you.
What debts will not be discharged by my chapter 7 bankruptcy?
Some debts are not discharged in your chapter 7 bankruptcy. Secured debts are not discharged as they relate to the collateral that secures them. For instance, although you will no longer be personally liable for your car loan, it still encumbers the title of the car until it is paid in full. This means that if you stop making the regular payments on that loan the lender holding the title can repossess the vehicle but will not be able to pursue you for any deficiency. Other debts that often are not dischargeable are most student loans and real estate and income taxes. However, an experienced bankruptcy attorney at Deshaies Law can analyze your student loan and tax debt situations to tell if you they may be discharged under one of the special circumstance exceptions. Deshaies Law has been successful in discharging thousands of dollars of tax debt. Please call this office at (603) 580-1416 for your free consultation.
Will a chapter 7 bankruptcy stop a foreclosure?
When a debtor files any chapter of bankruptcy the automatic stay comes into effect enjoining creditors from continuing with collection actions, one of which is foreclosure. Generally the automatic stay will prevent a foreclosure from continuing until the bankruptcy is closed or the creditor files a motion with the bankruptcy court and secures an order of relief – relieving the creditor from the automatic stay injunction. Most chapter 7 cases, therefore, will stop an imminent foreclosure as long as the bankruptcy is filed before the foreclosure is completed. However, in a chapter 7 bankruptcy the creditor may seek permission to go forward with the foreclosure after a hearing with the bankruptcy court because there is no plan or way for the debtor to cure a mortgage arrearage over time in a chapter 7. The result is that while filing chapter 7 may slightly delay the foreclosure process, it ultimately will not prevent the foreclosure unless you are able to bring the mortgage current in a very short period of time. If you are behind on your mortgage, you should retain Deshaies Law to determine if you can file a chapter 13 bankruptcy and fund a chapter 13 plan. It is through the chapter 13 plan, if you are able to fund it, that you would cure the mortgage arrearage and ultimately prevent foreclosure of your home.
What property do I get to keep in a chapter 7 bankruptcy and what do I give up?
In a chapter 7 bankruptcy you must list on your schedules all of the property that you own with estimated values. In New Hampshire you may then choose from the State of New Hampshire or the federal list of exempt property. The lists are different and an experienced bankruptcy attorney can help you choose which list would protect more of your property. Generally, a debtor would choose the New Hampshire exemptions if he/she has a lot of equity in his/her home or the federal exemptions if the debtor has valuable a personal property. In general a debtor is able to keep his/her home with modest equity, a car, modest home furnishings etc. It is not correct to assume that you lose everything (or even anything) when you file bankruptcy. If you contact this Deshaies Law for a free initial consultation Attorney Deshaies will discuss with you what assets you have and whether any likely would be lost in the bankruptcy.
Will I have to go to court and face my creditors when I filed a chapter 7 bankruptcy?
Most debtors do not have to go to court. Court hearings – meaning hearings that actually take place before the bankruptcy judge in the bankruptcy court – are generally only for contested cases in which a debtor engaged in fraud etc. However, all debtors must attend a Meeting of Creditors. This takes place on the 7th floor of the court building but is not in the court room or before the judge. The chapter 7 panel trustee presides over the meeting where he/she will ask you about your bankruptcy schedules under oath. Creditors are free to attend the meeting and ask you questions, although they often do not come except for unique issues or if they have a specific question they have not been able to resolve prior to the meeting.
How can I best help Deshaies Law in preparing and filing my chapter 7 bankruptcy?
You must promptly gather all of the documents requested and fill out the questionnaires completely and thoroughly. You will need to provide copies of certain pay stubs and other evidence of income and make a list of all the property you own with estimated values. You will also need to look up and print an accurate Kelly Bluebook value for each vehicle you own and determine with certainty the cash value of any life insurance policy you have. Also, please do not forget to include each and every investment you have in your list of property. Stocks, bonds, IRAs, 401ks all need to be on the list with some evidence of their present value. A bankruptcy petition cannot be prepared without this information and your attorney cannot gather it for you. The sooner you provide this information to Deshaies Law, the sooner Deshaies Law will be able to assess whether bankruptcy is right for you and, if it is, prepare and file your bankruptcy petition and schedules.
What are my options with my car in bankruptcy?
If you owe money on your car when you file chapter 7 bankruptcy, you have three choices with regard to your car loan. You can choose to “surrender” the car, which means you will not have to repay the debt in exchange for giving up the car; you can choose to “reaffirm” the car loan debt, which means you will keep the car and agree to repay the loan as if you had not filed bankruptcy; or you can choose to “redeem” the car.
What Is Redemption?
Redemption is not as common as reaffirmation or surrender. If you choose to redeem your car loan, you can keep your car, but you must pay the lender the current value of the vehicle, all in one lump sum. To successfully redeem your vehicle, you must: (i) propose the amount you will pay (the value of the car); (ii) get the creditor to agree to the value or go to court for a judge to decide, and (iii) pay the amount within a specified period of time.
The value for redemption will depend on what your lender will accept, but the legal standard is that you must pay retail value -- that is, the amount a merchant (such as a dealership) would charge for that same vehicle, given its age and condition. To prove value, you can look to vehicle valuation guides such as the Kelley Blue Book, the Black Book, or the NADA Guide. These guides provide the values for vehicles based on make, model and year, as well as condition. They generally are accepted as sufficient evidence of value. However, if you disagree with the creditor about the car's condition, you may run into trouble. You can also obtain an appraisal, which can be expensive but which holds more evidentiary weight. Once you and the creditor agree on the car's value or the court decides the value of the car, you must pay the full value in one payment. Once the court enters your discharge at the end of your chapter 7, the creditor must release its lien, and you will own the car free and clear.
Pros and Cons of Redeeming Your Car in Chapter 7
By redeeming your car you have transportation without a car payment. This means you also spend less on the vehicle overall because you eliminate months or years of accrued interest payments. Although you have to pay a large sum up front, you pay far less than you would have if you had continued to make payments on the vehicle for the original loan term. Redemption can be difficult, however, because you will have to pay the lump sum to the creditor. Additionally, agreeing on valuation with the creditor is not always simple or quick, and you may have to go to court, which could end up costing you extra attorney fees.
Am I eligible for Bankruptcy? Where can I file? What exemptions can I use?
You are eligible to file bankruptcy if you are a person who has a domicile, place of business, or residence in the United States. Railroads, banks, and other specifically listed entities are not eligible under chapter 7 of the bankruptcy code.
Whether venue is proper in a particular state (e.g. you are allowed to file bankruptcy in that state) is determined by the state in which for the 180 days before you file the bankruptcy you meet one of the following for factors established by 28 U.S.C. § 1408 which says the appropriate location is in one of four places: 1) the location of the debtor’s domicile; 2) the location of the debtor’s residence; 3) the location of the debtor’s principal place of business in the United States; or 4) the location of the debtor’s principal assets in the United States. Thus, you may file a bankruptcy in any state in which you have met one of these tests for 180 days or more in that state.
Just because you are allowed to file bankruptcy in a particular state does not necessarily mean you can use that state’s set of exemptions. If you have been continuously domiciled in a state for 730 days (2 years) before filing bankruptcy, you can use that state’s exemptions or the federal exemptions if allowed by that state. However, if you have not been continuously domiciled in the same state for 730 days before you file, you must use the 180-day rule to determine which exemptions you can use. If you did not live in your current state continuously for at least 730 days, then you must pick the state in which you lived most of the time during the 180 days prior to the 730 days. In other words, the state that must be selected is where you lived most of the time between 2 and 2 ½ years before filing. If no state qualifies using the above rules or if the 180-day state requires current residency or domiciliary to use its exemptions (a tricky issue), then you must use the federal exemptions. Determining which set of exemptions is available to you is absolutely critical to a successful bankruptcy case and a happy debtor in bankruptcy. Do not try to make the determination on you own – retain Deshaies Law to make this determination for you!
Am I eligible for Chapter 7?
Whether you are eligible for chapter 7 depends on two things: first, the results of the Means Test; and second the amount of monthly disposable income you have available to pay to creditors. If you pass the Means Test and you do not have much disposable income available each month after you pay your reasonable and necessary living expenses, you likely will qualify for chapter 7. There could, however, be other reasons that the United States Trustee’s Office objects to your bankruptcy such as if you are not candid in the bankruptcy process (e.g. you lie on or leave things off of your bankruptcy schedules) or you engage in certain fraud before or during your bankruptcy.
What is the Means Test and how does it work?
The Means Test is required by 11 U.S.C. §707(b) of the Bankruptcy Code. It is a “test” the requirement for which was established in 2005 by Congress. Most individual debtors filing for bankruptcy relief are required to complete either Official Bankruptcy Form 22A or 22C (Statement of Current Monthly Income and calculations). Bankruptcy Form 22A is the form chapter 7 debtors will complete for “Means Testing” purposes; Form 22C is the form chapter 13 debtors will complete. Despite the name, the Means “Test” isn’t really a pass or fail type of exam. It is a formula that simply determines whether, based on Congress’ standards, you have the ability to pay something back to your creditors each month after paying your reasonable and necessary living expenses. If you “fail” the Means Test, and you want to benefit from a bankruptcy discharge, you will have to proceed under chapter 13 of the Bankruptcy Code instead of under chapter 7.
The Means Test is largely guided by the median income figures for your state. If the current monthly income for a family of your size is lower than the median income for a household of your size in your state, then you are one step closer to being able to file a chapter 7 as opposed to a chapter 13. If the debtor’s current monthly income is higher than your state median, then things are more complicated. If the debtor’s annual income is higher than the median, in order to pass the Means Test and be able to proceed under chapter 7 you have to “rebut the presumption of abuse.” What this means is that you need to demonstrate to the court by completing the “expense” part of the Means Test form that, even though your income is above-median, you still are unable to pay something back to your creditors. While this might sound easy, it is not. It is a very high threshold to meet and, in fact, most debtors who are above-median are unable to rebut the presumption.
As this explanation demonstrates, it is helpful to have an experienced bankruptcy attorney conduct the Means Test analysis for you. Retain Deshaies Law to do this form you by calling (603) 580-1416.
If I “pass” the Means Test does that mean I am automatically eligible for chapter 7?
If you “pass” the Means Test there is another hurdle before you may proceed under chapter 7. In addition to reviewing the Means Test calculation and results, the Office of the United States Trustee also reviews the debtor’s Schedules I (Income) and J (Expenses). The amounts on these schedules are more forward looking. Unlike the Means Test, Schedules I and J are supposed to reflect what your current monthly income and expenses are/were at the time that you filed your bankruptcy petition. So, if your income or expenses have changed recently (e.g. since the period of time that is included in the Means Test calculation) Schedule J could show that you have more or less disposable income than the Means Test results. Moreover, there are some expenses that may be included on Schedule J that are not included on the Means Test (in the District of NH, for instance, often times the debtor can deduct from his disposable income the regular monthly payments on long-term student loans) and there are some you may not be able to include. The Office of the United States Trustee reviews the last entry on Schedule J (the amount of disposable income) which shows how much money the debtor has remaining each month after the listed expenses have been paid. The Office of the United States Trustee also reviews the expenses listed on Schedule J to assess whether they are necessary or objectionable. If the Office of the United State Trustee feels the expenses are objectionable or there is too much income remaining each month, the Trustee will object to the debtor proceeding under chapter 7 because it appears the debtor can afford to proceed under chapter 13 and pay a little bit each month toward the debts it otherwise will be discharging.
Are there any things I must do before I can file a chapter 7 bankruptcy?
Before you file bankruptcy you must obtain a Credit Counseling Certificate by taking a course online, in person, or over the telephone regarding consumer debt. The purpose of the counseling session is to review your financial circumstances and make a recommendation as to how to improve your financial situation. The counselor may recommend making certain adjustments to your finances, entering into certain repayment plans, and/or filing bankruptcy. It is not a pass or fail test. If the counselor does not recommend bankruptcy, you will still receive your certificate as proof that you underwent the counseling. In order to complete the credit counseling session, you will need to provide detailed information about your income, expenses, and debts. If you will be filing bankruptcy as a married couple, you must provide complete financial information for both spouses. At the end of the session you need to make sure you take the steps necessary to receive the certificate. The cost of the session and certificate can be anywhere between $5 and $50. While this office does not endorse any one counselor over another, our clients have successfully undergone counseling at the following online site and received their certificates for $5.00 each: www.consumerbankruptcycounseling.info.
Who is the chapter 7 trustee and what are his/her duties?
The chapter 7 trustee is an attorney appointed by the office of the United States Trustee to oversee your bankruptcy. There is a panel of chapter 7 trustees who work in the state of New Hampshire. The Office of the United States Trustee rotates the chapter 7 panel trustee assignments so that they are distributed as the Office of the United States Trustee believes is appropriate. The result is that we will not know which chapter 7 trustee will be appointed to your case. However this office has worked with each of the chapter 7 trustees so that which trustee is assigned to your case should not have any significance to your case. The duty of the chapter 7 trustee is to examine the debtor under oath at the Meeting of Creditors to ensure that the debtor’s bankruptcy schedules are accurate and complete and to find non-exempt assets for liquidation. (Liquidation means sale.) Upon liquidating any and all nonexempt assets, the chapter 7 trustee will take his/her commission (currently 10%) and distribute the remaining proceeds pro rata to your creditors. Typically, a chapter 7 trustee will become more interested in your case if he/she feels you are hiding assets that he/she may be able to recover for the benefit of your creditors. Therefore, you should not attempt to hide assets. They will find them. Your counsel will help you understand which assets are nonexempt, if any, and what will happen to them in your bankruptcy. It is imperative you are completely candid with Deshaies Law throughout the bankruptcy preparation process. It you do not tell Deshaies Law everything, Deshaies Law cannot adequately help you.
What debts will not be discharged by my chapter 7 bankruptcy?
Some debts are not discharged in your chapter 7 bankruptcy. Secured debts are not discharged as they relate to the collateral that secures them. For instance, although you will no longer be personally liable for your car loan, it still encumbers the title of the car until it is paid in full. This means that if you stop making the regular payments on that loan the lender holding the title can repossess the vehicle but will not be able to pursue you for any deficiency. Other debts that often are not dischargeable are most student loans and real estate and income taxes. However, an experienced bankruptcy attorney at Deshaies Law can analyze your student loan and tax debt situations to tell if you they may be discharged under one of the special circumstance exceptions. Deshaies Law has been successful in discharging thousands of dollars of tax debt. Please call this office at (603) 580-1416 for your free consultation.
Will a chapter 7 bankruptcy stop a foreclosure?
When a debtor files any chapter of bankruptcy the automatic stay comes into effect enjoining creditors from continuing with collection actions, one of which is foreclosure. Generally the automatic stay will prevent a foreclosure from continuing until the bankruptcy is closed or the creditor files a motion with the bankruptcy court and secures an order of relief – relieving the creditor from the automatic stay injunction. Most chapter 7 cases, therefore, will stop an imminent foreclosure as long as the bankruptcy is filed before the foreclosure is completed. However, in a chapter 7 bankruptcy the creditor may seek permission to go forward with the foreclosure after a hearing with the bankruptcy court because there is no plan or way for the debtor to cure a mortgage arrearage over time in a chapter 7. The result is that while filing chapter 7 may slightly delay the foreclosure process, it ultimately will not prevent the foreclosure unless you are able to bring the mortgage current in a very short period of time. If you are behind on your mortgage, you should retain Deshaies Law to determine if you can file a chapter 13 bankruptcy and fund a chapter 13 plan. It is through the chapter 13 plan, if you are able to fund it, that you would cure the mortgage arrearage and ultimately prevent foreclosure of your home.
What property do I get to keep in a chapter 7 bankruptcy and what do I give up?
In a chapter 7 bankruptcy you must list on your schedules all of the property that you own with estimated values. In New Hampshire you may then choose from the State of New Hampshire or the federal list of exempt property. The lists are different and an experienced bankruptcy attorney can help you choose which list would protect more of your property. Generally, a debtor would choose the New Hampshire exemptions if he/she has a lot of equity in his/her home or the federal exemptions if the debtor has valuable a personal property. In general a debtor is able to keep his/her home with modest equity, a car, modest home furnishings etc. It is not correct to assume that you lose everything (or even anything) when you file bankruptcy. If you contact this Deshaies Law for a free initial consultation Attorney Deshaies will discuss with you what assets you have and whether any likely would be lost in the bankruptcy.
Will I have to go to court and face my creditors when I filed a chapter 7 bankruptcy?
Most debtors do not have to go to court. Court hearings – meaning hearings that actually take place before the bankruptcy judge in the bankruptcy court – are generally only for contested cases in which a debtor engaged in fraud etc. However, all debtors must attend a Meeting of Creditors. This takes place on the 7th floor of the court building but is not in the court room or before the judge. The chapter 7 panel trustee presides over the meeting where he/she will ask you about your bankruptcy schedules under oath. Creditors are free to attend the meeting and ask you questions, although they often do not come except for unique issues or if they have a specific question they have not been able to resolve prior to the meeting.
How can I best help Deshaies Law in preparing and filing my chapter 7 bankruptcy?
You must promptly gather all of the documents requested and fill out the questionnaires completely and thoroughly. You will need to provide copies of certain pay stubs and other evidence of income and make a list of all the property you own with estimated values. You will also need to look up and print an accurate Kelly Bluebook value for each vehicle you own and determine with certainty the cash value of any life insurance policy you have. Also, please do not forget to include each and every investment you have in your list of property. Stocks, bonds, IRAs, 401ks all need to be on the list with some evidence of their present value. A bankruptcy petition cannot be prepared without this information and your attorney cannot gather it for you. The sooner you provide this information to Deshaies Law, the sooner Deshaies Law will be able to assess whether bankruptcy is right for you and, if it is, prepare and file your bankruptcy petition and schedules.
What are my options with my car in bankruptcy?
If you owe money on your car when you file chapter 7 bankruptcy, you have three choices with regard to your car loan. You can choose to “surrender” the car, which means you will not have to repay the debt in exchange for giving up the car; you can choose to “reaffirm” the car loan debt, which means you will keep the car and agree to repay the loan as if you had not filed bankruptcy; or you can choose to “redeem” the car.
What Is Redemption?
Redemption is not as common as reaffirmation or surrender. If you choose to redeem your car loan, you can keep your car, but you must pay the lender the current value of the vehicle, all in one lump sum. To successfully redeem your vehicle, you must: (i) propose the amount you will pay (the value of the car); (ii) get the creditor to agree to the value or go to court for a judge to decide, and (iii) pay the amount within a specified period of time.
The value for redemption will depend on what your lender will accept, but the legal standard is that you must pay retail value -- that is, the amount a merchant (such as a dealership) would charge for that same vehicle, given its age and condition. To prove value, you can look to vehicle valuation guides such as the Kelley Blue Book, the Black Book, or the NADA Guide. These guides provide the values for vehicles based on make, model and year, as well as condition. They generally are accepted as sufficient evidence of value. However, if you disagree with the creditor about the car's condition, you may run into trouble. You can also obtain an appraisal, which can be expensive but which holds more evidentiary weight. Once you and the creditor agree on the car's value or the court decides the value of the car, you must pay the full value in one payment. Once the court enters your discharge at the end of your chapter 7, the creditor must release its lien, and you will own the car free and clear.
Pros and Cons of Redeeming Your Car in Chapter 7
By redeeming your car you have transportation without a car payment. This means you also spend less on the vehicle overall because you eliminate months or years of accrued interest payments. Although you have to pay a large sum up front, you pay far less than you would have if you had continued to make payments on the vehicle for the original loan term. Redemption can be difficult, however, because you will have to pay the lump sum to the creditor. Additionally, agreeing on valuation with the creditor is not always simple or quick, and you may have to go to court, which could end up costing you extra attorney fees.
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MANCHESTER: 603-625-5333
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603-882-3223
CONCORD:
603-223-0063
TEXT:
603-490-3177
NASHUA:
603-882-3223
CONCORD:
603-223-0063
TEXT:
603-490-3177