Archive for the ‘bankruptcy’ Category
Not all debts can be discharged through bankruptcy. The debts discharged vary under each chapter of the Bankruptcy Code. Section 523(a) of the Code specifically excludes various categories of debts from the discharge granted to individual debtors. Therefore, the debtor must still repay those debts after bankruptcy. Congress has determined that these types of debts are not dischargeable for public policy reasons (based either on the nature of the debt or the fact that the debts were incurred due to improper behavior of the debtor, such as the debtor’s drunken driving).
There are 19 categories of debt excepted from discharge under chapters 7, 11, and 12. A more limited list of exceptions applies to cases under chapter 13.
Generally speaking, the exceptions to discharge apply automatically if the language prescribed by section 523(a) applies. The most common types of nondischargeable debts are certain types of tax claims, debts not set forth by the debtor on the lists and schedules the debtor must file with the court, debts for spousal or child support or alimony, debts for willful and malicious injuries to person or property, debts to governmental units for fines and penalties, debts for most government funded or guaranteed educational loans or benefit overpayments, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, debts owed to certain tax-advantaged retirement plans, and debts for certain condominium or cooperative housing fees.
The types of debts described in sections 523(a)(2), (4) and(6) (obligations affected by fraud or maliciousness) are not automatically excepted from discharge. Creditors must ask the court to determine that these debts are excepted from discharge. In the absence of an affirmative request by the creditor and the granting of the request by the court, the types of debts set out in sections 523(a)(2), (4) and (6) will be discharged.
A slightly broader discharge of debts is available to a debtor in a chapter 13 case than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property, debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. Although a chapter 13 debtor generally receives a discharge only after completing all payments required by the court-approved (i.e., “confirmed”) repayment plan, there are some limited circumstances under which the debtor may request the court to grant a “hardship discharge” even though the debtor has failed to complete plan payments. Such a discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control. The scope of a chapter 13 “hardship discharge” is similar to that in a chapter 7 case with regard to the types of debts that are excepted from the discharge. A hardship discharge also is available in chapter 12 if the failure to complete plan payments is due to “circumstances for which the debtor should not justly be held accountable.”
When non-business debtors contemplate the option of bankruptcy, they need to first decide whether to file under Chapter 7 (liquidation) or Chapter 13 (reorganization) of the U.S. Bankruptcy Code. The effect of the filing is to let someone saddled with debt to discharge or reduce debts. It also has the added benefit of serving as a court order to creditors and their collection agencies to stop hassling you through telephone calls, letters, and personal contact in an effort to get you to pay the debt. This is called temporary automatic stay.
Chapter 7
Filing for chapter 7 bankruptcy does not mean that immediately all of your debts are eliminated in their entirety. Rather, secured debt must be still be dealt with. It does mean, however, that commonly unsecured debts like credit card bills and medical expenses do not have to be paid back. But getting off the hook here does not come without costs. Rather, filing chapter 7 often means the necessary liquidation (selling off) of most of your personal property that are not exempted under the law. While there are limitations to what can be confiscated by creditors, (such as your home under the homestead protection), expect that the U.S. Trustee will sell off most of your valued possessions, including your home (if it has equity), to pay part of your debts to them. In addition, your credit rating will be adversely impacted by this filing. You will find it very difficult, if not completely impossible, to get a mortgage for a new home, a car loan, a credit card, and even limits very small forms of credit like appliance financing and at times payday loans.
Chapter 13
Chapter 13 filing means quite simply that you are restructuring your debt by negotiating with your creditors and establishing a plan to pay them off over the course of three to five years. So, this is a formal declaration that you will and have worked with creditors so that they will get some or all of their money. By promising to pay off your debts, you are allowed to keep valuable personal property such as your home and car. Typically the arrangement reached with creditors is to have you pay your regular monthly payments, plus an additional amount that over time allows you to get caught up on your payments over time.
If you have related needs, give our BK lawyers a call today. Business and corporate attorneys at Schein & Cai LLP in San Jose, California (capital of Silicon Valley, San Francisco Bay Area) can help you handle the most complicated cases of bankruptcy.