Chapter 7 Bankruptcy
Chapter 7 cases are the most common type of Bankruptcy filing. These cases are for the traditional “liquidation” of personal, business or partnership assets. While that may sound imposing, the practical effects of a Chapter 7 are typically not a problem.
Generally, a Chapter 7 Bankruptcy will discharge the following types of debts:
- Medical bills;
- Credit Card debts;
- Judgments (in cases not involving fraud or criminal conduct);
- Payday Loans (in cases not involving fraud or criminal conduct);
- Personal loans or debts; and
- Deficiencies on foreclosed properties or repossessed vehicles.
You get a fresh start by discharging your obligations to pay these debts. In addition, you are able to stop a foreclosure or repossession.
Qualifying to file a Chapter 7 Bankruptcy
The gross annual income is a primary factor in determining whether you may qualify for a Chapter 7 Bankruptcy. For these purposes, the gross annual income is not the actual income earned over the past year, but rather the average monthly gross income earned for the six months prior to filing bankruptcy multiplied by 12.
Generally, in order to qualify for Chapter 7 Bankruptcy relief, the maximum gross annual income is as follows: $53,046 for a single person, $63,330 for a couple, $69,239 for a three-person family and $84,997 for a family of four. With each additional person exceeding a family of four, the maximum gross annual income increases by $9,000. In addition, if you earn more than the gross maximum income you may still be able to otherwise qualify for Chapter 7 Bankruptcy relief. Please call to schedule an appointment and receive a personalized analysis of your particular situation to see if you qualify for Chapter 7. This information is effective as of May 1, 2019, and will periodically change.
Assets You Can Keep
A Chapter 7 is associated with a liquidation of assets, but usually a person is able to keep all of their property. This includes your house and vehicle so long as you are current with your payments. You can keep all property that is ”exempt” from creditors. In Nevada, the list of “exempt” property includes, among other things:
- a decent portion of equity in your home;
- up to $1,000,000 in qualified retirement accounts;
- $15,000 in equity in your car;
- all Social Security benefits;
- up to $12,000 in household furnishings, appliances, and electronics;
- one firearm; and
- many other assets.
Keeping your House in Bankruptcy
In a Chapter 7 Bankruptcy, you may keep your primary residence if you can stay current on your payments and the amount of equity in the home is below the appropriate level. If you have owned your primary residence for less than 1,215 days you can retain up to $125,000 in equity.
If you have owned your primary residence for more than 1,215 days you may retain up to $550,000 in equity. This protection is due to the “homestead” laws. As such, this protection only applies to your primary residence and not a second home, investment property, or vacant land.
For those who are late on your mortgage payments and wish to keep their home, you may want to consider a Chapter 13 Bankruptcy.
Retirement Accounts (IRA’s, 401k’s, pensions and social security)
“Qualified” retirement accounts are fully exempted in bankruptcy up to $1,000,000 per person. This means that if you file for bankruptcy, you can keep all amounts in these accounts up to $500,000 per person. “Qualified” retirement accounts are defined in the Internal Revenue Code and include most IRA’s, 401k’s, SEP’s, and pensions. In addition, Social Security and retirement payments are also exempt and fully protected.
Bank Accounts in Bankruptcy
You must list every bank and investment you have in your name in your Bankruptcy Petition. There is no particular exemption (or means to preserve in bankruptcy) most types of bank and investment accounts, unless it is a “qualified” retirement account such as 401k’s, IRA’s, SEP’s and pension accounts. As such, we generally recommend that clients keep a minimum amount deposited in these accounts, particularly on the day of filing for a Chapter 7 or 13 Bankruptcy. Since there is not a particular exemption to protect these assets, you may only be able to rely on a “wild card” exemption. This exemption allows each debtor to protect up to $10,000 of assets ($20,000 for a couple) that are not otherwise exempted and we often use this “wildcard” for bank accounts or tax refunds.
Motor Vehicles and Bankruptcy
Generally, you may keep your vehicle if you file for bankruptcy. You may also choose to surrender your vehicle if you prefer not to keep it.
If you own your vehicle, you are permitted to keep it provided that you have less than $15,000 of equity in the vehicle. Also, married couples are allowed this exemption for two vehicles, one for each spouse.
You are permitted to keep it in a Chapter 7 Bankruptcy if you are current on your payments and have less than $15,000 equity in the vehicle. If you are filing for Chapter 7, and are late on your car payments, you must arrange some form of forbearance with your lender or find a way to get current with your past due payments. In the event the vehicle has more than $15,000 of equity, you may still be able keep the vehicle but you may have to come up with a way to pay the difference between the equity and $15,000 to your bankruptcy trustee (they usually will take payments). If you are late on payments and not able to get current, you may want to consider filing a Chapter 13 Bankruptcy.
Most Chapter 7 cases are completed in less than 120 days. However, it sometime takes a bit longer. The last, and pivotal, step of the bankruptcy process involves the debtor receiving a discharge. The discharge is the order from the Bankruptcy Court that wipes out all of the dischargeable debts. Filing for Chapter 7, however, is not allowed for everyone. In order to determine if you are eligible, please contact our office to arrange a consultation on which type of bankruptcy is right for you.