In this article...
- What Is Chapter 7 Bankruptcy?
- How To Determine Eligibility of Chapter 7 Bankruptcy In Indiana?
- What Are The Benefits And Drawbacks of Chapter 7 Bankruptcy?
- What Is A Reaffirmation Agreement In Chapter 7 Bankruptcy?
- What Debts Cannot Be Discharged In Chapter 7 Bankruptcy?
- What Happens After Chapter 7 Bankruptcy, In Indiana?
For many, the idea of filing for bankruptcy is taboo; something only done by large corporations as an excuse to “restructure” or individuals who weren’t responsible enough to properly manage their money. But the reasons for filing bankruptcy in Indiana are many; often, they are primarily outside of the filer’s control. Our current economic climate under the effects of the coronavirus pandemic is a perfect example of how everyone, from the individual to the large corporate entity, can be comfortable in their finances one month and staring at bankruptcy paperwork the next. Whatever your bankruptcy situation is, becoming knowledgeable on the subject will only help your case.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is one of the multiple bankruptcy options, along with Chapter 13 and Chapter 11, available to individuals in the United States. It is often referred to as “liquidation bankruptcy,” as most, if not all, of your assets are liquidated in order to pay down your down.
Once you formally file Chapter 7 bankruptcy in Indiana, a bankruptcy trustee will be assigned to your case. Also, the automatic stay is triggered, which blocks your creditors from continuing to collect on outstanding debts. You will attend an initial meeting with the bankruptcy trustee and any creditors who wish to be present. At this meeting, you will answer questions, under oath, about your finances, including property, earnings, past filings, etc.
Once the trustee has all the necessary information, he or she will sell off all your nonexempt assets and distribute those proceeds to your creditors. Indiana allows for some limited property exemptions, which might enable the filer to retain their home, vehicle, or both. Creditors holding secured debts are paid before any unsecured debt. However, it’s rare that unsecured debt is repaid in Chapter 7 bankruptcy, any creditors holding secured debt usually only receive a fraction of what the debtor owes.
Secured debts include items such as home and auto loans. Unsecured debts include things such as credit card debt, medical bills, utility bills. The primary difference being that secured debts have collateral, usually in the form of the purchased item, that can be repossessed if the borrower defaults. Unsecured debts have no form of collateral and can be easily wiped out in bankruptcy.
How To Determine Eligibility of Chapter 7 Bankruptcy In Indiana?
Chapter 7 bankruptcy isn’t the right option for everyone, and those looking to wipe the slate clean might be surprised to find they don’t qualify. To be eligible to file Chapter 7 bankruptcy, the filer must pass the “means test.” The means test compares your household income to the average household income in your zip code. If you fall under the median, then you qualify for Chapter 7 bankruptcy in Indiana. If you are above the median, then you must file Chapter 13 bankruptcy. However, it is possible to prove that due to your current debt situation, and after all your expenses, it would be virtually impossible for you to survive on a Chapter 13 repayment plan, opening up the opportunity to file Chapter 7.
What Are The Benefits Of Chapter 7 Bankruptcy?
Chapter 7 bankruptcy has many advantages, including:
- A fresh start. After Chapter 7 bankruptcy you will have no debts remaining outside of secured assets on which you opted to sign a reaffirmation agreement;
- You will receive immediate protection from debtors and wage garnishment;
- After completing Chapter 7 bankruptcy any wages you earn or property you acquire will be yours to keep, so long as you continue to avoid falling into debt;
- There is no minimum amount of debt to qualify for Chapter 7 bankruptcy; and
- The entire process is complete within 3 to 6 months, allowing you to move on with your life.
Disadvantages of Chapter 7 bankruptcy include:
- You will likely lose all or most of your non-exempt property. While items like a home or a car are secured debt, they are not automatically exempt. If you want to keep your home or car and they are not completely covered under an Iowa exemption then Chapter 7 may not be the right option for you;
- The automatic stay granted by Chapter 7 bankruptcy only temporarily halts a potential home foreclosure;
- If you have a co-signer on a loan, he or she will still be liable for the debt associated with that loan unless they also file for bankruptcy protection; and
- To receive the debt discharge from Chapter 7 bankruptcy, it must have been more than 8 years since the last filing.
What Is The Reaffirmation Agreement In Chapter 7 Bankruptcy?
A reaffirmation agreement is a way for the debtor to keep a secured debt item, such as a vehicle or a home. By signing the reaffirmation agreement, you agree to remain liable for the loan and to continue paying the monthly installments. If you fail to make payments the collateral (usually the item) can be repossessed by the creditor and any deficiency charged to the debtor. The deficiency is the amount still owed by the debtor, minus the amount received from selling the item if the debtor chooses to do so. The decision to sign a reaffirmation agreement should not be taken lightly, and the pros and cons of doing so should be discussed with your bankruptcy attorney.
What Debts Cannot Be Discharged In Chapter 7 Bankruptcy?
Unfortunately, not all debts can be discharged through Chapter 7 Bankruptcy in Indiana. What this means is that even after you file Chapter 7 bankruptcy, you’ll still be liable for the non-dischargeable debts. These debts include:
- Many types of taxes;
- Alimony and child support;
- Fines or penalties owed to the government;
- Personal injury debts from a drunk driving incident;
- Student loans;
- Attorney’s fees for child custody and support;
- Debts from tax-advantaged retirement plans; and
- Court fines, penalties, and criminal restitution.
There are other categories of non-dischargeable debts, but they require the creditor to challenge the debtor in court. If the creditor fails to do so, then the debt can be discharged. There is still a chance to have the non-dischargeable debt discharged if you can prove that retaining the debt would be an extreme burden or that it will be nigh impossible to pay it back.
What Happens After Chapter 7 Bankruptcy In Indiana?
Once the bankruptcy is finalized and the discharge granted, the creditors will no longer be able to pursue collections against the debtor. However, any debts accrued after the bankruptcy are fair game. The focus after filing Chapter 7 bankruptcy should be rebuilding credit and developing healthy financial habits.
If the bankruptcy court denies your discharge, you can file again, but you should expect specific penalties and restrictions depending on how quickly you re-file. Reasons a bankruptcy discharge may be denied include:
- Poor financial record keeping and the inability to produce records requested by the court;
- The debtor fails to explain the loss of assets or attempts to hide certain assets during the bankruptcy process;
- The debtor committed bankruptcy fraud;
- The debtor did not follow the orders of the bankruptcy court; or
- The debtor attempted to conceal, destroy, or fraudulently sell a property that would have been included in the debtor’s estate.
Bankruptcy can be stressful and confusing. The most critical first step is speaking with an experienced bankruptcy attorney. They can set your expectations, guide you through the process, and make sure you get the most benefit out of your bankruptcy.