The United States Bankruptcy Code provides different options for individuals and businesses struggling to pay their debts. Many debtors, particularly those with limited income and few assets, are eligible to wipe out much (or all) of their debts. That option is known as “debt liquidation” and is available under Chapter 7 of the Bankruptcy Code. Chapter 7 is intended to give a fresh start to people who have no realistic opportunity to pay their debts.

Chapter 7 Bankruptcy relief is available to both businesses and people. If you are married, you can file jointly with your spouse, or you can file individually. In order to determine whether you are eligible to file a Chapter 7, we are required to perform a Means Test to determine your current monthly income. If your current monthly income is lower than Kansas’ median income for a household of your size, you will most likely be eligible to file a Chapter 7. If your current monthly income exceeds Kansas’ median income, we perform additional calculations to determine whether you qualify for a Chapter 7 Bankruptcy.

Chapter 7 completely eliminates certain kinds of debt. After the bankruptcy procedures are completed, the bankruptcy court grants you a “discharge” of those debts. In other words, the debt is wiped out and you no longer have any obligation to pay those debts and the creditor no longer has the right to ask you for payment.

An immediate benefit of a Chapter 7 is the “automatic stay” that takes effect as soon as the bankruptcy petition is filed with the court. The stay stops all collection activity (including garnishments) and prevents creditors from collecting the debt while the bankruptcy is pending. The creditor can no longer send threatening letters to the debtor or make harassing telephone calls – they must contact our office instead of contacting you. If the debt has been referred to a collection agency, the collection agency must cease its efforts to collect the debt. The creditor cannot file a lawsuit to collect the debt and any lawsuit that has already been filed (including foreclosures and repossessions) must be put on hold until the bankruptcy court takes further action.

If you can discharge most or all of your debt, a Chapter 7 is probably best for you. Even if you have some debts that can’t be discharged, wiping out the majority of your debt with Chapter 7 will free up income that you can use to pay your nondischargeable debts.

For eligible individuals who want to free themselves from debt problems quickly, and for those who do not want to commit themselves to a long-term debt repayment plan, Chapter 7 is usually the solution.

Most unsecured debts can be discharged in a Chapter 7. Unsecured debts include credit cards, medical bills, most judgments, personal loans, signature loans, payday loans, repossessions, foreclosures, past leases, past utility bills, and bad checks (though you still might have criminal liability). However, some unsecured debts will not be discharged in a bankruptcy. The most common of these include most taxes, alimony and child support, student loans, and government debts and fines.

Secured debts are debts that are protected by a security interest, such as a mortgage or deed of trust on a house, a lien on a car, or some other form of pledge of collateral. Secured debts may or may not be discharged, depending on what you choose to do. If you want to keep the property that is secured by the debt, you must continue to make your monthly payments. Nothing really changes with your payments – generally, you’ll make your payments on the same date as usual, to the same place and in the same amount. If you fail to make your payments the creditor will be able to foreclose upon or repossess the property. However, you also have the option of giving the property back to the creditor and then discharging any debt that may be left.

In a Chapter 7 property is classified as either exempt or non-exempt. Exempt property is property the law allows you to keep. Usually, this consists of your home, one vehicle per debtor, your household items, furniture, clothing, personal belongings, jewelry, tools of the trade, and any Qualified retirement. Some of these items may be limited as to the value of the exemption and some exemptions may not apply to you if you have recently moved to Kansas from another state.

Non-exempt property is property the Trustee (who is an attorney appointed to look out for the creditors’ interest) could require you to turn over so that it can be sold to pay some of your creditors. There are many types of non-exempt property, but the most common include, but aren’t limited to, extra vehicles, boats, motorcycles (if this isn’t your main form of transportation) jet skis, four-wheelers, campers, trailers, guns, and any money owed to you at the time you file the bankruptcy. However, even though these types of property may be non-exempt, it doesn’t necessarily mean that you won’t be able to keep them. Many clients file a Chapter 7 and are able to keep non-exempt property. Your specific situation will determine how non-exempt property is handled.

Secured debts are debts that are protected by a security interest, such as a mortgage or deed of trust on a house, a lien on a car, or some other form of pledge of collateral. Secured debts may or may not be discharged, depending on what you choose to do. If you want to keep the property that is secured by the debt, you must continue to make your monthly payments. Nothing really changes with your payments – generally, you’ll make your payments on the same date as usual, to the same place and in the same amount. If you fail to make your payments the creditor will be able to foreclose upon or repossess the property. However, you also have the option of giving the property back to the creditor and then discharging any debt that may be left.

Chapter 13 Bankruptcy is often referred to as “debt reorganization”. If you file a Chapter 13 you will be in the bankruptcy for a minimum of three years, and a maximum of five years, depending on your specific situation. You will be required to make a monthly payment to the Trustee to repay some, or all, of your debt. The amount of your payment will depend on your specific situation as well, and this payment is called your Plan payment. If you are not required to pay back a portion of your debt, that debt will be discharged at the end of your Chapter 13 Bankruptcy.

Non-exempt property is property the Trustee (who is an attorney appointed to look out for the creditors’ interest) could require you to turn over so that it can be sold to pay some of your creditors. There are many types of non-exempt property, but the most common include, but aren’t limited to, extra vehicles, boats, motorcycles (if this isn’t your main form of transportation) jet skis, four-wheelers, campers, trailers, guns, and any money owed to you at the time you file the bankruptcy. However, even though these types of property may be non-exempt, it doesn’t necessarily mean that you won’t be able to keep them. Many clients file a Chapter 7 and are able to keep non-exempt property. Your specific situation will determine how non-exempt property is handled.

Secured debts are debts that are protected by a security interest, such as a mortgage or deed of trust on a house, a lien on a car, or some other form of pledge of collateral. Secured debts may or may not be discharged, depending on what you choose to do. If you want to keep the property that is secured by the debt, you must continue to make your monthly payments. Nothing really changes with your payments – generally, you’ll make your payments on the same date as usual, to the same place and in the same amount. If you fail to make your payments the creditor will be able to foreclose upon or repossess the property. However, you also have the option of giving the property back to the creditor and then discharging any debt that may be left.

Some people cannot file a Chapter 7 Bankruptcy because the Means Test determined their income was too high to qualify. Debtors who do not qualify for a Chapter 7 generally file under Chapter 13 if they want bankruptcy relief.

However, not all debtors can file under Chapter 13. Since you will be required to make monthly plan payments to the bankruptcy Trustee, you need to have a regular source of income. To qualify for Chapter 13, you must have enough income to pay your monthly expenses and your monthly Plan payment. If your income is not sufficient to make these payments you will not be allowed to proceed with a Chapter 13 Bankruptcy.

Non-exempt property is property the Trustee (who is an attorney appointed to look out for the creditors’ interest) could require you to turn over so that it can be sold to pay some of your creditors. There are many types of non-exempt property, but the most common include, but aren’t limited to, extra vehicles, boats, motorcycles (if this isn’t your main form of transportation) jet skis, four-wheelers, campers, trailers, guns, and any money owed to you at the time you file the bankruptcy. However, even though these types of property may be non-exempt, it doesn’t necessarily mean that you won’t be able to keep them. Many clients file a Chapter 7 and are able to keep non-exempt property. Your specific situation will determine how non-exempt property is handled.

Secured debts are debts that are protected by a security interest, such as a mortgage or deed of trust on a house, a lien on a car, or some other form of pledge of collateral. Secured debts may or may not be discharged, depending on what you choose to do. If you want to keep the property that is secured by the debt, you must continue to make your monthly payments. Nothing really changes with your payments – generally, you’ll make your payments on the same date as usual, to the same place and in the same amount. If you fail to make your payments the creditor will be able to foreclose upon or repossess the property. However, you also have the option of giving the property back to the creditor and then discharging any debt that may be left.

A Chapter 13 Bankruptcy has significant advantages for certain debtors. These include:

• Repayment of nondischargeable debts. Some kinds of debt (including student loans and most taxes) generally cannot be discharged in a Chapter 7 Bankruptcy. If you are not able to work out payment arrangements with these creditors, a Chapter 13 will allow you to repay those debts over a period of 3 – 5 years.
• Avoiding foreclosure or repossession. If you fall behind on your mortgage payments or car loan and are facing foreclosure or repossession, a Chapter 7 Bankruptcy might not help you keep your house or car. A Chapter 13 Plan can put collection efforts on hold to give you a chance to make up missing payments and keep your house or vehicle.
• Protecting co-borrowers. If someone co-signed a loan that you discharge under Chapter 7, your co-debtor can usually be held responsible for the balance of the loan. In a Chapter 13 you can prevent the creditor from pursuing your cosigner for repayment of the loan by adding the loan payment to your monthly Plan payment.
• Repaying debts that are important to you. Sometimes debtors don’t want to wipe out certain debts. They like to know that they have made their best effort to pay their debts, particularly if they owe money to friends, family members, or businesses with which they want to maintain a good relationship. Depending on the situation, these types of debts might be able to be added to the Plan so that provisions are made to pay back these creditors.

Some, and possibly all, of your unsecured debts, can be wiped out in Chapter 13 – providing your income is below a certain level. Unsecured debts include credit cards, medical bills, most judgments, personal loans, signature loans, payday loans, repossessions, foreclosures, past leases, past utility bills, and bad checks (though you still might have criminal liability). However, some unsecured debts will not be discharged in a bankruptcy. The most common of these include most taxes, alimony and child support, student loans, and government debts and fines.

Secured debts are debts that are protected by a security interest, such as a mortgage or deed of trust on a house, a lien on a car, or some other form of pledge of collateral. Secured debts may or may not be discharged, depending on what you choose to do. If you want to keep the property that is secured by the debt, you must continue to make your monthly payments. Depending on your situation, you will either make these payments through the bankruptcy, or directly to your creditor. If you make payments directly to a creditor, nothing really changes with your payments – generally, you’ll make your payments on the same date as usual, to the same place, and in the same amount. If you fail to make your payments the creditor will be able to foreclose upon or repossess the property. If you make your payments on secured debt through a bankruptcy it is possible the amount of your monthly payment will decrease. If you decide you do not want to keep secured property, you may have the option of giving the property back to the creditor and then discharging any debt that may be left.

In a Chapter 13 property is classified as either exempt or non-exempt. Exempt property is property the law generally allows you to keep.* Usually this consists of your home, one vehicle per debtor, your household items, furniture, clothing, personal belongings, jewelry, tools of the trade, and any Qualified retirement. Some of these items may be limited as to the value of the exemption and some exemptions may not apply to you if you have recently moved to Kansas from another state.

Non-exempt property is property the Trustee (who is an attorney appointed to look out for the creditors’ interest) could require you to sell so that the proceeds can be used to pay some of your creditors. There are many types of non-exempt property, but some of the most common include: extra vehicles, boats, motorcycles (if this isn’t your main form of transportation) jet skis, four-wheelers, campers, trailers, guns, and any money owed to you at the time you file the bankruptcy. However, even though these types of property may be non-exempt, it doesn’t necessarily mean that you won’t be able to keep them. Many clients file a Chapter 13 and are able to keep non-exempt property. Your specific situation will determine how non-exempt property is handled in a Chapter 13.

*If exempt property is collateral for a loan you will still be required to pay that loan if you intend to keep that property.