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What Kinds of Debts are Discharged in a Chapter 7 Bankruptcy?

Bankruptcy can be a solution for solving financial problems faced by individuals and businesses.   It is sometimes the only workaround to the debt problem. Financial experts recommend considering this option as a last resort to ease the debt burden.

In a Chapter 7 bankruptcy, a lawyer will represent you in the court to discharge debts. Debts that are discharged no longer require any payment. This will ease the burden of having too many debts that you cannot repay.

An important consideration when choosing Chapter 7 bankruptcy is the kinds of debts that will be discharged. Here you will learn about the debts that can be discharged when you file.

Debts that Can be Discharged in a Chapter 7 Bankruptcy

You can discharge certain pre-petition debts when you file for the bankruptcy protection. Pre-petition debts are those obligations that have incurred before the filing date. Some of the pre-petition debts that you can discharge include the following.

  • Medical bills
  • Credit card debt
  • Personal loans including car, truck or other vehicle loans
  • Promissory notes
  • Lines of credit
  • Mortgages including second and third mortgages
  • Certain lawsuit judgments
  • Obligations under contracts and leases owed by a sole proprietor including residential and commercial property leases
  • Unsecured business debts owed by a sole proprietor to consultants, suppliers, and professionals such as architects or accountants.

All the above types of debts are dischargeable under the Chapter 7. Once you file the protection plan you may be able to discharge these loans. It’s advisable to contact a professional bankruptcy lawyer who can help you discharge maximum loan amount.

Debts Not Dischargeable Under Chapter 7 Bankruptcy

You should also know about the loans that can’t be discharged when you file for the Chapter 7 bankruptcy plan. Post-petition loans that you rack up after filing the paperwork are not dischargeable. In addition, certain financial obligations can’t be discharged whether you obtain them prior to or after submitting the paperwork for initial bankruptcy, such as:

  • Alimony
  • Child support
  • Student loans (unless there is extreme hardship)
  • Fines and penalties owned to government
  • Payment for driving under the influence
  • Divorce settlement agreements
  • Loan from pension plans
  • Personal injury judgments

You should discuss your options with a professional bankruptcy law attorney.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

What are the Benefits of a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows the debtor to pay some or all of the debts. The debts can be paid over a period of three to five years as per a court-approved repayment plan.

The decision to file a Chapter 13 Bankruptcy should be weighed carefully. You should consider the benefits before making a move. Here are five benefits of this debt relief option that you should consider to make an informed decision.

1. Flexible Payment Terms

The trustees of chapter 13 bankruptcy are usually flexible about payment terms. You may be allowed to reduce debt payments, extend the payment period, or give up an asset that you are making payments on.

When you file a chapter 13 bankruptcy, you may also consolidate some debts. The debts can be reorganized into one affordable payment that you can pay in up to five years.

2.  Bankruptcy Shown on Credit Report

An advantage of chapter 13 bankruptcy over chapter 7 bankruptcy is that it’s shown on the credit report for a lesser period.

With chapter 7 bankruptcy, bankruptcy is shown in the credit report for 10 years. On the other hand, it’s shown for just 7 years in the chapter 13 bankruptcy. As a result, creditors will know about the bankruptcy for a longer period if you file chapter 7 bankruptcy as opposed to a chapter 13 bankruptcy. This is important since the report is viewed by house loan, vehicle loan, and credit card companies.

3. Save Your Property

Another benefit of a chapter 13 bankruptcy is that you may be able to save your home if you file before the foreclosure date. The mortgage payments due known as arrearages can be paid back over a period of three to five years.

In addition, if you have a second or higher mortgage, you may only have to pay the first mortgage through a process known as ‘lien stripping’.  To become eligible for this option, the home value must be equal to or lower than the amount owed on the first mortgage when the bankruptcy was filed.

4. Lower Payments

In some cases, chapter 13 bankruptcy will reduce the balance owned. In this way, you can continue to make payments for your personal loans such as a car loan. It will prevent repossession of your asset and you can catch up on the loan payments.

5. Reduce Tax Amount

Your taxes can be paid through a chapter 13 payment plan. The IRS will not hound you to make payment in full, and accept the amount is agreed by the bankruptcy court.

Eligibility for Chapter 13

Only individuals can file for chapter 13 bankruptcy. Businesses are not allowed to file for this repayment plan. However, sole owners and partners can file for the relief option individually.

To be eligible for the chapter 13 bankruptcy, you must have enough income to repay the debts as per a court-approved repayment plan. In addition, unsecured debts must be less than $394,725 to be eligible for chapter 13. For more information about the other benefits and also the eligibility criteria, you should contact a professional bankruptcy law attorney.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can I Keep My Tax Refund if I File a Chapter 7 Bankruptcy?

If you are contemplating about filing for a bankruptcy, you probably have a lot of questions regarding the aftermath. At the top of the list will probably be questions about your tax refund.

Before you file, it’s important you understand that it could affect your refund. In this article, you will learn how chapter 7 could affect your tax refund and also what measures you can take to protect it.

Tax Refund and Chapter 7 Bankruptcy

When you file for Chapter 7 bankruptcy, a court-appointed trustee who is a representative of your creditors will collect your assets and liquidate them. The proceeds are used to pay your creditors.

All your assets will be transferred to the bankruptcy estate when you file chapter 7. This includes both tangible assets like your house and car, and intangible assets such as tax refund that is owed to you, but not yet paid.

If you have filed at a time when a tax refund is due, the trustee can claim it or a portion of it along with other assets. Even if your tax return is to be prepared a few months after filing, it will be claimed by the trustee if the refund is owed to you.

The fact that you didn’t know that a tax refund was due does not mean that a refund is not due.

How to Prevent Your Tax Refund from Being Transferred to a Trustee?

Proper timing is important if you want to protect your tax refund. You can prevent your refund from being collected by the trustee if you receive and spend the refund BEFORE you file a Chapter 7 as long asyou spend the money for necessities and you do not pay back money you owe to relatives, and also you do not pay back any creditor more than than the usual payment.  Be prepared to tell the trustee how you spent the money at the 341 creditor’s meeting.

However, you should consult with a bankruptcy attorney before using this strategy to protect your refund. You can easily spend the refund in ways that may seem sensible but can raise red flags upon close evaluation.

Another way you can protect your tax refund after filing for bankruptcy protection is through exemptions. Congress and state laws have established exemptions. The federal or state exemptions can be claimed by filing Schedule C: The Property You Claim as Exempt (individuals).

You can use cash-on-hand exemption ($475..00) or wildcard exemptions ($1,250.000) for protecting your tax refund, However, you can use the exemptions only if they have not been used to exempt other assets. Also, you should note that to claim exemptions in a particular state, you must have lived in the state for about two years prior to filing for bankruptcy.

Moreover, earned income credit (EIC) and child tax credit (CTC) are exempted from the bankruptcy estate without the need to claim them. EIC is a benefit for individuals with low to moderate income. On the other hand, CTC provides a credit of up to $1,000 per child under the age of 17.

You should consult with an experienced Cleveland bankruptcy lawyer to understand you options about protecting your tax refund when filing a chapter 7.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience as an attorney in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

Can I Keep My Car if I File a Chapter 7 Bankruptcy?

Chapter 7 bankruptcy involves the discharge of most, if not all, debts. The code gives power to the trustee to liquidate i.e. sell your assets, and give the proceeds to your creditors; however, depending on the value of your car, it can usually be saved when you file.

Let’s take a look at how you can retain your car in two different situations when you file for Chapter 7.

Scenario 1 — You Own Your Car or Have Outstanding Loan on Car

In case you own your car or have an outstanding loan on the vehicle, you can keep your vehicle if the equity value (after deducting the amount of the lien) is $3,750.00 or less.  That is the value in a car that is exempted or protected under the U.S. Bankruptcy Code for a car that you are currently driving. In considering the value of your vehicle, the trustee will take into account its condition as well as the number of miles you have on it.   If the value is greater than $3,750.00, the trustee may require you to pay him that additional amount, and use the proceeds to pay off your creditors.

If you are financing your car, subtract the value of the car from the amount you owe; as long as the remaining equity is $3,750.00 or less it will be protected under the Bankruptcy Code. If the equity in your car is over $3,750.00 it is possible the trustee will make a claim on your vehicle, and may require you to pay him that amount above.

If you are financing your car, and you want to keep it the car financer will require you to sign a Reaffirmation agreement.  By signing this agreement, you are reaffirming your car loan and agreeing to pay the car loan installments after the Bankruptcy. You are not required to sign a reaffirmation Agreement and you can instead surrender the vehicle and discharge the debt.

This agreement must also be approved by the Court.  For the Court to approve it, you must show that you can afford to make those payments; otherwise, the court can disapprove the agreement and you may lose possession of your car even if the value is under $3,750.00. You also have to maintain your regular payments and keep the car  insure if you want to keep your vehicle. You may want to consult a Cleveland bankruptcy lawyer about your options.

               

Scenario 2 — You Have a Leased Vehicle

If you have a leased car when you file for Chapter 7 bankruptcy,  you can continue that lease if you want.  You must sign a form known as the Statement of Intention for Individuals Filing Under Chapter 7 with the Court.  This form must be filed no more than 30 days after filing a petition.   This form should also be signed if you want signed a security agreement for furniture and jewelry and you want to keep those items after filing

The statement of petition tells the trustee what you want to do with the unexpired car lease.

  • You can decide to keep the lease and continue making timely payments until the lease expires.
  • You can reject the lease and let your creditor repossess your car. This is a good option if you have excess mileage or car damage since you will not be responsible for further installment and fees if you reject the lease.

Before filing for a bankruptcy protection, you should contact a qualified attorney. He will help you explore your options so you can keep possession of your car when you file.

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Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

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