2. Dispelling the Myth of Bankruptcy
Contrary to popular belief, bankruptcy can
actually provide a way to protect your assets.
Filing for bankruptcy can create a financial
barrier from aggressive creditors who use the
courts to seize your possessions. In this
presentation, we’ll examine common reasons
for bankruptcy, explain the difference between
the two different types of personal bankruptcy
and what it all means for you.
3. Personal Bankruptcy: By the Numbers
• 96% of all bankruptcy filings are non-business
consumer bankruptcies. In 2013 there were
approximately 1.03 million consumer bankruptcies
filed, compared with 812,898 twenty years prior.
• In Kentucky, there were ~17,000 bankruptcies filed in
2014. So far in 2015, there have been ~6,000 Chapter 7
filings and ~2,400 Chapter 13 bankruptcies filed in
Kentucky.
• A Harvard study reports that in 2007, before the
economic downturn, an American family filed for
bankruptcy in the aftermath of illness every 90
seconds; three quarters of them were insured.
4. Reasons People File For Bankruptcy
• Healthcare - 62 percent of those who file for
personal bankruptcy do so because of debt from
medical bills and health care expenses. This is not
exclusive to people without health insurance.
• The second most common reason cited for
personal bankruptcy is loss of job-related income.
This includes job loss or significantly reduced pay.
• Other reasons that people file bankruptcy include
divorce, credit card debt and unexpected
expenses.
5. Two Types of Personal Bankruptcy
Those filing for non-business consumer
bankruptcy do so under Chapter 7 and Chapter
13. Chapter 7 accounts for roughly 70 percent of
all non-business bankruptcy filings. There are
important distinctions between these two types.
6. Chapter 7 Bankruptcy
• Most common type of bankruptcy, often called
‘liquidation bankruptcy’ as non-exempt assets are sold
to pay creditors.
• Sometimes the “preferred” choice because it offers a
clean slate, discharging most debts, in ~3-6 months.
• Often the preferred bankruptcy option for those who
have barely enough income for basic living expenses.
• Chapter 7 remains on your credit report for up to 10
years.
• Your post-bankruptcy income is yours and not subject
to garnishment by your creditors.
7. Chapter 7 Bankruptcy (part 2)
• Must pass a “Means Test” to qualify
• Last 6 months’ income must be less than the state’s median
income.
• And, may not have disposable income to repay debts via Chapter
13.
• Chapter 7 bankruptcy can only be filed once every eight years.
• No minimum amount of debt required to file Chapter 7.
• Immediate protection from collections and wage garnishment.
• All non-exempt assets are taken over by a bankruptcy trustee to
sell, using the proceeds to pay creditors.
• In most cases, Chapter 7 does not result in a stay of foreclosure
actions if the debtor is behind on mortgage payments.
8. Chapter 7 Bankruptcy (part 3)
• Co-signers on your debts can be held responsible, unless
they also declare bankruptcy.
• While there are some tax debts eligible for discharge, most
owed taxes are not wiped out in Chapter 7.
• Child support debts and other domestic support obligations
are considered “priority debts” and are non-dischargeable
in bankruptcy proceedings.
• Child support, maintenance and alimony payments are
non-dischargeable in bankruptcy, and the debtor is
responsible for making those payments post-bankruptcy.
• Typically, student loans are not discharged in a Chapter 7 –
unless the debtor meets the “undue hardship” criteria.
9. Chapter 13 Bankruptcy
• Chapter 13 is usually the best option when the debtor wishes to
keep non-exempt assets or business property at the end of a
bankruptcy. Also helpful to debtor by changing the payment terms
of secured creditors, such as lowering interest rate and monthly
payments.
• As a general rule, Chapter 13 is the bankruptcy option for
individuals who can pay their living expenses, but not their debts.
• Chapter 13 remains on your credit report for 7 years.
• Typically provides a 3-5 year repayment plan that allows debtors to
fulfill their obligations to creditors and still discharge some debts
entirely.
• Your income after filing for Chapter 13 is used to pay your debts
according to the repayment plan.
10. Chapter 13 Bankruptcy (part 2)
• Chapter 13 can be filed, repeatedly, at any time.
• Immediate protection from collections and wage
garnishment.
• If you can manage the repayment plan, you are able to
keep all exempt and non-exempt property.
• A Chapter 13 filing will stop mortgage foreclosure actions
and give you more time to catch up the missed payments
during the Chapter 13 case.
• Chapter 13 can often stop the repossession of a vehicle by
forcing the creditor into a new repayment plan. Debtors
may be eligible for a ‘cramdown’ option.
• If the repayment plan provides for full repayment of the
debt, co-signers are immune from collection efforts.
11. Chapter 13 Bankruptcy (part 3)
• Tax debts are usually paid during the Chapter 13
bankruptcy – but they are not discharged completely.
• Child support debt and obligations are considered
“priority debt” and are paid ahead of other creditors
from your monthly payments to the Chapter 13
Trustee.
• Chapter 13 does not discharge or forgive child support,
maintenance or alimony payments, but it gives you
more time to catch up the arrearage.
• Chapter 13 will not provide long-term relief from
student loans, but may allow you to make lower
payments during the 3-5 year bankruptcy period.
12. Avoid These Common Mistakes
Before Filing
Once you make the difficult choice to file, it is
important to avoid common mistakes that could
prove costly down the road:
• Failing to disclose the whole truth
• Charging debt to your credit card
• Paying off family and friends before filing
• Using your 401k to pay down debt
• Transferring property prior to filing
• Failing to obey court orders.
13. If You’re Considering Filing For
Bankruptcy
Bankruptcy can be a complicated legal maze.
With over 35 years of experience in our
community, the Fayette County bankruptcy
lawyers at Bunch & Brock are committed to
providing each of our clients with a high level of
personal service. Let us work with you to make
the best plan for eliminating or repaying your
debts. We encourage you to contact our office
by calling 859-254-5522 or filling out this online
form.
