Income Eligibility and Chapter 7 Bankruptcy

Quite a few individuals envision the filing of bankruptcy to be a simple and straightforward stroll into an attorney’s office to file some paperwork, meet with a trustee, stand before a judge, and they are done with the process, and on their way to a new life. Imagine their surprise when they come to find out that an evaluation takes place to determine if they are either ‘too rich’, or ‘too poor’ to file for a particular type of bankruptcy.

To clarify that statement a bit further, there is a term referred to as ‘Means Test’, which is designed under federal regulations to determine whether an individual’s income level is either low enough to file a Chapter 7 bankruptcy, or, if it is high enough to force them into filing a Chapter 13.

On the one hand, the first (Chapter 7) is the means through which an individual has the opportunity to eliminate those debts that are considered dischargeable, while on the other (Chapter 13), those debts will fall under a repayment schedule devised to repay those debts over time. In either case, the Bankruptcy Means Test will establish just which category an individual will find themselves in terms of which petition they qualify to file.

By definition, the Chapter 7 Means Test does not require that an individual needs to be qualified as penniless to file. They can still be bringing in a substantial level of income, but the expenses must be high enough to warrant qualification for that particular category of bankruptcy. The test is designed to limit or restrict the qualifying standards of those seeking bankruptcy to any individual who does not have any viable means to repay their debt obligations to their creditors.

The ‘qualifier’ in this case, is established through deducting an individual’s monthly expenses from their existing monthly income, which is averaged over the previous six months prior to filing the petition. This will establish the individual’s ‘disposable income’ for each month. This specific number, or dollar amount, is the tipping point. The higher the disposable income figure, the less likely the individual will qualify for a Chapter 7 bankruptcy filing.

The initial phase in this determination is whether or not an individual’s income is higher or lower than what is called the ‘median income’ level within the state they reside. If they earn more than this median, and are able to repay some of their debts after subtracting expenses, then that establishes the cut-off point in qualifying for a Chapter 7. If their monthly income is less than the median income for a household of their particular size based on state guidelines, the test is finished, and with a passing grade. They can file for Chapter 7.

For any individual whose household income is higher than the median cut-off, the Means Test becomes considerably more complex. From this point, a determination is made whether or not they have sufficient income remaining, after the monthly expenses are paid, to be able to pay off some portion of their unsecured debts. If this disposable income is higher than a certain amount, then that moves the entire process into the Chapter 13 bankruptcy filing procedure.

In a Chapter 13 bankruptcy, an individual has the disposable income sufficient enough to pay his or her creditors, and a repayment schedule is set up through the trustee, and monthly payments are made over a three to five year period, and is strictly monitored by the bankruptcy court for it entire duration.

To fully understand your financial options and obligations under the guidelines for filing either the Chapter 7 or Chapter 13 bankruptcy petition, then consulting with a knowledgeable and qualified Utah bankruptcy attorney will ensure that the proper strategies are discussed, and the correct decision is made.

Most people are aware that bankruptcy, by its definition, is when an individual is determined to be legally insolvent by the bankruptcy court. The individual’s property and assets are subsequently liquidated through the efforts of the trustee, and these funds are then distributed across the entire pool of creditors, as equitably as possible, to pay off his or her debts. Whether it is during either a Chapter 7 or Chapter 13 petition filing, one of the ways in which this bankruptcy process will come to an unsuccessful and regrettable conclusion is when any individual attempts what is known as bankruptcy fraud. Bankruptcy fraud is defined by any one of three categories of illegal activity: when an individual claims or attempts to file bankruptcy under false pretenses; when an individual files multiple bankruptcy claims (called petition mills); or when an individual knowingly attempts to conceal or hide the full extent of his or her assets from the court.

In regards to the last mentioned category, the concealment of assets, this practice constitutes almost 70% of all petitions filed in the bankruptcy courts by individuals that are determined to be fraudulent. This category of fraud takes place when an individual knowingly and purposefully fails to document each and every form of asset or property holding in their bankruptcy petition. The misguided idea behind this illegal activity evolves from the debtor’s assumption that neither the creditors nor the trustee can liquidate those assets or property if they cannot be found, and therefore, they remain hidden from the court proceedings.

This activity is also frequently attempted by business owners as well, when monies, property or other assets are concealed prior to filing bankruptcy, or in other instances, they are transferred to relatives and family members or other business associates so that these assets will not be found or confiscated by the court. Some of the ways or schemes that individuals use to hide these assets are making false statements or blatant lying about their ownership on the bankruptcy documents and schedules, fabricating liens or mortgages to falsify the value of those assts, or transferring those assets or property under another person’s or fictitious name, or even having them hold those assets concealed or hidden for a period of time.

Other activity can be viewed as fraudulent when an individual is regarded as being completely careless when filling out the bankruptcy statements and schedules, such as leaving these documents signed but without any asset or property listings, or when it is found that assets or property has been transferred within a year prior to the individual’s filing of their petition. These practices are also considered as the ‘hiding’ of assets.

Naturally, there are certain circumstances or issues that can be ‘forgotten about’ when disclosing other certain types of assets, such as lottery winnings or annuities, retirement benefits or insurance claims, inheritances, co-owned bank accounts, vehicles or real estate, and so on. These would encompass assets which the individual may have not yet received, or even assets or property they might be entitled to keep under the law. Simply stated, if an individual decides not to account for the assets that the law allows them to retain, they may not be permitted to claim their right to retain those assets once they are discovered.

In the end, if the trustee in charge of monitoring these bankruptcy proceedings discovers that the individual in question has in fact hidden, or has attempted to hide their assets, then the trustee will be obligated to file a lawsuit, which is termed an ‘adversary proceeding’, in the bankruptcy court. If the court finds the individual knowingly or purposefully failed to document those assets, or has concealed those assets with the intention of hindering, delaying or defrauding their creditors, the court will certainly deny the discharge of their debts.

If these issues need any type of clarification, or if there are instances or circumstances regarding the proper course to take when considering the full extent of your rights and obligations when filing for bankruptcy, then it is certainly time to consult a qualified bankruptcy attorney, in order to take positive and corrective action before proceeding with filing your petition.

Among the most embarrassing and downright inconvenient consequences of being in financial difficulties is worrying about, or actually experiencing, an attempt or action involving the repossession of your property or assets by a creditor. More specifically, the mere threat or reality of losing access to one of the only means an individual can continue earning money by getting to work every day – their car – is only adding more problems to an already tough situation. If things have taken a turn for the worse in anyone’s monetary affairs, and their creditors have begun to take serious legal steps to either enforce repayment of their obligations, or take possession of those assets, perhaps it is time to consider seeking the guidance of a bankruptcy attorney, and the protection of a Chapter 13 petition for bankruptcy.

For anyone contemplating the necessity for taking this important step, one of their first concerns will be what exactly happens to their means of transportation – their car or truck. To expand on this area of concern, there are other points that may need clarification as well, such as the affect a Chapter 13 may have on an individual retaining possession of the vehicle, or what this procedure represents in terms of a vehicle loan or lease payments, or even getting the vehicle back after it has been repossessed already. A Chapter 13 bankruptcy has various avenues to pursue regarding an individual’s right to retain his or her possessions, as long as certain guidelines are met in accordance will the bankruptcy codes.

When an individual files a petition for a Chapter 13, in most cases, virtually all of their creditors are immediately prohibited from pursuing or continuing any efforts to collect or repossess their property or assets, and this includes the car or truck. Once the petition is filed, what is referred to as an ‘automatic stay’ is initiated by the court, and any repossession activity by the lender associated with the vehicle is halted. Within the framework of a Chapter 13, an individual gets to retain their property, however they must use their existing income to repay some or all of their obligations to their creditors through a repayment schedule approved by the court through a trustee. This repayment plan is generally set up for between three and five years.

The two basic scenarios regarding the repossession issue within the Chapter 13 boil down to this. First, if the creditor has not already repossessed the vehicle, the automatic stay prevents any further action until the bankruptcy court signs off on the repayment schedule. In addition, if the schedule also deals with the back payment amount owed on the loan as well, the vehicle still remains in the individual’s possession both during and after bankruptcy as long as the loan payments are kept current.

Secondly, if the vehicle has in fact been repossessed prior to filing the petition, the individual may regain possession if it has not been re-sold by the creditor of course, and, the back payments of the vehicle loan have been included in the court-approved schedule of repayments to the creditor in question. Again, the existing loan payments on the vehicle must be kept up to date throughout the bankruptcy time-line.

One final consideration needs to be reviewed regarding the Chapter 13 repayment plan, and how an individual’s repayment schedule reflects on their ability to keep the vehicle. The repayment plan, in order to be approved by the court, must include all of an individual’s disposable income, which is what is left over after living expenses. This amount must be used to repay the debts that are classified as ‘unsecured’. When the disposable income amount is determined, and the living expenses are taken into account, they will of course include the payments for the vehicle in question.

Bear in mind that this must also satisfy the requirement that the vehicle is needed for the continued support of the individual and their family, and, the repayment amount for this vehicle must be of a ‘reasonable’ amount. In other words, the court will only approve an expense for a vehicle that is considered ‘lower-priced’, as opposed to a ‘luxury’ model, when the disposable income calculations are evaluated.

If your car has been repossessed, or you are in imminent risk of having it repossessed, and you would like to discuss the property rights you have under the law regarding filing for a Chapter 13 bankruptcy, then consult a qualified bankruptcy attorney as soon as possible.

During the initial proceedings involved with filing a bankruptcy petition, there is quite naturally a certain amount of paperwork involved, along with a proportionate amount of soul-searching. The reason for the paperwork is obvious, and it requires the individual to fully disclose the entire scope of his or her assets and property for review by the bankruptcy court. This documentation in turn allows for the proper evaluation by the court to establish if the individual meets the necessary qualifications to file a petition, and which type of bankruptcy they can actually qualify to file for – either Chapter 7, or a Chapter 13. The reason behind the need for soul-searching by the individual, is to establish a framework of legitimacy surrounding those statements and schedules, especially in reference to any attempt to hide the accuracy or truth regarding those assets.

The primary lesson here is, there is never a time or circumstance when hiding assets or property ownership is a wise idea. In straightforward terms, bankruptcy is a process that allows an individual to have all or most of their debts discharged or eliminated. In exchange for this opportunity, the court requires that the individual documents everything they happen to own in the way of assets or property into these statements and schedules for review by the court.

Common sense would reveal that if the individual fails to list those particular assets in their entirety, then they will not be entitled to the protection of the final discharge of their debts. More importantly, in addition to this very negative result, that individual may also face criminal charges, along with never being allowed to have those debts discharged in future bankruptcy proceedings.

The trustee assigned to an individual’s bankruptcy case is responsible for many things, the primary role being to distribute the funds acquired from the liquidation of these assets and property, for the sole purpose of paying off as many creditors as possible, and in the most equitable manner. If an individual knowingly fails to document all of these assets, there will be some rather nasty consequences.

One consequence, as mentioned, is there will be no final discharge of their debts, and all those debts will remain on the individual’s shoulders. The case will not be dismissed, and the listed property will be liquidated to compensate the creditors, but the unlisted assets and their corresponding debt will remain active, and the individual remains fully liable for them. Another consequence, is the trustee, upon finding those hidden assets after the debts have been discharged, can request that the court ‘revoke’ the discharge. The trustee can keep the case open for as long as a year after those debts were discharged, causing the individual to be fully liable once again for those debts.

The next consequence, as indicated earlier, is that any time the individual attempts to file another bankruptcy petition at some future date, those specific debts that were listed in the previous case, which was denied or revoked for hiding those assets, will also be treated in the same fashion – they will not be discharged. In addition, the ultimate consequence for hiding assets or property is that the individual will more than likely face criminal charges. Since the individual signed those bankruptcy schedules, which were supposed to contain all their assets, they did so under penalty of perjury, and revealed that these documents were in fact not true nor accurate. The resulting criminal liability for committing perjury or concealing assets in the bankruptcy code of regulations is a fine of up to $500,000, or imprisonment for up to five years, or both.

The bottom line is that failure to be completely truthful when it comes to filling out the bankruptcy statements and schedules is not only regarded as fraud, but in the eyes of the law, it is also a felony. To get a complete picture of your full responsibilities and obligations when seeking bankruptcy protection, the best advice is to speak with a Utah bankruptcy attorney who understands these laws, and the ramifications for failing to heed them.

For an individual facing insurmountable debts, the journey toward the final decision to file a bankruptcy petition is often a long and difficult road. The signs along that road are many, and quite often go unheeded until filing for bankruptcy protection becomes the only viable solution. For many, the most glaring sign that presents itself is either a bank levy against whatever is left in their rapidly dwindling accounts, or even worse, a wage garnishment. Before the garnishment of the individual’s wages took place, the creditor’s only other option was to hope, and often in vain, that voluntary payments would be made by the individual. Unfortunately, the debtor’s declining resources made honoring the obligation that much more difficult.

With the court-ordered wage garnishment in hand, the creditor is now able to force that individual to come up with payments that are, at this point, certainly involuntary. Through this forced payment arrangement, the garnishment of that individual’s earnings represents 25% of their total wages, making a tough situation even more unbearable. This is often the final straw, which breaks down any last resistance the debtor may have had against moving forward with the bankruptcy process.

At this stage, as soon as an individual files for bankruptcy protection, whether they qualify for a Chapter 7 or a Chapter 13, what is known as an ‘automatic stay’ is put in place. This procedure immediately stops any action against the individual’s assets or property, by any creditor, collection agency, or federal government bureau, to file a lawsuit against the individual for these unpaid obligations. This automatic stay also covers any contingencies involved with the individual being now at risk of eviction or foreclosure, or the imminent loss of basic living requirements such as utilities, welfare, or unemployment benefits. It even halts any activity such as being forced from their place of employment due to wage garnishment actions taken by other creditors. Regardless of the full extent of an individual’s financial problems, activating their rights through the protection of this automatic stay is a very strong incentive to file a petition, while certainly seeking the overall guidance of an experienced bankruptcy attorney.

There is an additional important factor regarding wage garnishment that an individual needs to take careful note of, and it is one of a strategic nature. If the individual has in fact filed for bankruptcy protection, those ‘garnished’ wages paid to that particular creditor may be subject to recovery. When an individual finally initiates the petition process, any ‘involuntary’ payments that have been made to any creditors, including wages garnishments, within 90 days of filing for bankruptcy, those funds may be recoverable. This is because, under the law, these payments made within that time period are now considered as ‘preferential’ transfers of funds.

In other words, any transfer of funds made by the debtor to a creditor while in a state of insolvency, and within 90 days prior to the date of filing their petition, the creditor receiving those funds has in essence been given a preferential status over and above any other creditor. In this manner, the creditor has received more than they would have under the more equitable bankruptcy distribution process. As a result, the court-appointed trustee may now seek to recover those ‘preferential’ payments. On a more ironic note, by proceeding with the bankruptcy petition, the individual may in fact recover the involuntary payments they made as garnished wages. It is for this reason alone that reinforces the logic behind consulting with an experienced bankruptcy attorney. They alone can protect your rights under the law, and ensure that whatever property or assets belong to you, stay with you, even your hard-earned wages.

One of the more important and often complicated issues that arise in many bankruptcy proceedings is the subject of child support. Any individual that is contemplating filing bankruptcy, and is already under obligation to pay for child support, will certainly need to know exactly how a bankruptcy ruling will affect these obligations. By contrast, the spouse of this same individual will certainly want to know the implications regarding any future child support payments they might be not only expecting, but are mandated by law to continue receiving.

While Chapter 7 and Chapter 13 bankruptcy codes certainly allow most classifications of debts to be either eliminated or re-aligned within a repayment schedule, in either case there are specific types of debts which are not dischargeable under any personal bankruptcy laws enacted by the federal government. One of these laws is most definitely that of the issue of child support.

Child support payments are in most instances mandated by the state courts in which a particular individual resides. However, the federal guidelines in both Chapter 7 and Chapter 13 bankruptcies maintain that an individual’s personal debt regarding existing or delinquent child support obligations are not considered eligible for being eliminated through declaring bankruptcy. This holds true even if the petitioner happens to satisfy every requirement in the Chapter 7 or 13 filing guidelines.

In some rare instances when there are considerations of extreme hardship, negotiable flexibility may be possible. But overall, bankruptcy petitions, on a federal level, are reviewed on a case-by-case basis. In the majority of these rulings, however, bankruptcy judges have demonstrated a clear unwillingness to eliminate or even reduce child support obligations. Divorced spouses who are legally obligated by their state courts to pay child support have very few options regarding any adjustment or elimination of the child support they are expected to pay.

Should an individual decide to file a Chapter 13 bankruptcy, in which their other debts will be restructured in a repayment schedule, by contrast, any delinquent child support debt will be given not only top priority, but will be demanded to be paid by the petitioner in the full amount each and every month. Should the trustee establish that the individual does not meet the income requirements necessary for a Chapter 13 filing, then that petition will be denied anyway, but the child support obligation will still stand.

The bottom line on the child support payment issue is this. Child support is seldom, if ever, considered in personal bankruptcy cases. If an individual determines they are unable to meet these obligations, then consulting with a qualified bankruptcy attorney is a must. Regardless, even with a dramatic decrease in income or other form of hardship, the individual will need to meet these obligations no matter what their circumstances might be. Bear in mind that these laws were designed to protect and provide for children, and to make those responsible for their well-being be monetarily obligated to ensure their continued growth, development, care, and support.

Its always good to consult a qualified bankruptcy attorney when dealing with complex matters such as these.

A common misperception regarding exactly what motivates many individuals to file for bankruptcy is the assumption that their credit card debt became unmanageable and repayment obligations grew impossible to handle any longer. The real reason behind most bankruptcy filings is a bit more astonishing. Numerous studies and research has found that over 50% of all personal bankruptcy petitions are filed by individuals who cannot meet their medical care debts any longer, even those who actually have health insurance coverage.

The largest proportion of these individuals that are suffering under this sky-rocketing debt load are 65 and older, causing bankruptcy to become their only viable solution. Next in line are low-wage earning single women raising children, or those whose husbands have abandoned them while neglecting their child support payments. Statistics also reveal that as much as 13% of those bankruptcies were filed because the medical debts exceeded $10,000 or more.

The reason so many individuals file bankruptcy due to their medical debts seems to arise from the practices of the medical collection industry, which tends to act without much flexibility, nor much inclination to devise workable repayment plans for those in need. Hospitals, doctors, and medical collection agencies file small claim lawsuits at an alarming rate, and many small claims courts are jammed with such suits, with medical debt lawsuits comprising a large segment of the court dockets. In addition, medical-related businesses transfer delinquent accounts to collection agencies in as little as 30 to 60 days rather than the normal 150 day period.

With this reality in mind, the question concerning whether or not an individual can file for bankruptcy just for medical bills, while leaving their credit cards or other debts on the table, is quite simple and straightforward, though perhaps not very appealing. The short answer is that indeed filing bankruptcy is a viable option, but not just on the medical debts. The slightly longer explanation reveals why.

Bankruptcy codes and regulations stipulate that medical debts and obligations cannot be treated any differently than those of credit cards, loans, or mortgages. In simple terms, all debt is treated the same. Under these laws, there is no separate provisions for any type of ‘medical bankruptcy’. All creditors, no matter what their classification happens to be, must be treated fairly and on equal terms.

As an example, the court cannot allow an individual to pay off a certain debt to one creditor, even it is a family member, at the expense of another creditor who happens to be owed money on a credit card account. No one can, in essence, pick and choose who can be paid or not.  This is what the court regards a giving a ‘preference’ to one creditor over another. An individual may not just file on one or two credit cards, or on one judgment, or just their medical debt. Medical expenses, credit card debt, personal loans, and some taxes are all generally considered ‘unsecured debts’, and they must be evaluated the same way in the name of fairness to all the creditors.

Therefore, although there is no such allowance for ‘medical bankruptcy’ by itself, filing either a Chapter 7 or Chapter 13 bankruptcy petition to deal with large medical bills is certainly an option provided all of an individual’s debts are included in the petition. The best advice is to seek professional guidance with a qualified Utah bankruptcy attorney who is skilled in handling these complex bankruptcy issues, so you may get out from under the weight of these heavy medical obligations.

All across the country, and certainly the rest of the world, while the current economic climate continues to harbor the dark clouds of uncertainty, many people are still facing varying degrees of financial troubles. All too often, they do feel they are quite alone in these unfortunate and sometimes devastating circumstances, and certainly experience some form of isolation and embarrassment within their family and social life. Quite understandably, these individuals approach the realities of filing a petition for bankruptcy with a sense of reluctance and foreboding, simply because social pressures tend to place the misguided notion of failure and irresponsibility on their shoulders, on top of the mental anguish and financial concerns for their future that go along with it.

However, there is a certain bright side to the whole affair, beyond the fact that bankruptcy does and will provide an individual with a much deserved feeling of economic relief and closure from their present fiscal woes. They also need to be aware that they are not the only ones that have been forced to consider this decision. Public records will probably reveal quite a number of people in their community have taken the avenue of bankruptcy, and most would surely not possess an ounce of regret for doing so. They lives and livelihoods are now on a far better road to financial recovery, and a much brighter future awaits them as a result.

As a form of example, and one to take heed to regarding the long list of people in the public eye that have also taken this critical step, are those who have walked across not only the pages of history, but come from all walks of life, including numerous artists, entertainers, musicians, athletes, authors, actors, business people, politicians and even presidents who have filed for bankruptcy. Not only that, but most have gone on with their lives quite productively and successfully, and without the financial burdens they would have continued to face had they done otherwise.

Arts, Music, Sports and Entertainment

Gary Busey  -  MC Hammer  -  Jerry Lee Lewis  -  Mick Fleetwood  -  Willie Nelson

Michael Jackson  -  Gary Coleman  -  Burt Reynolds  -  Kim Bassinger  -  Elton John

Oscar Wilde  -  Wayne Newton  -  Dorothy Hamill  -  Mickey Rooney  -  Andy Gibb

Johnny Unitas  -  Mike Tyson  -  Mark Twain  -  Lynn Redgrave  -  Merle Haggard

Buffalo Bill  -  Larry King  –  Tom Petty  -  Toni Braxton   -  Francis Ford Coppola

Marvin Gaye  -  Ted Nugent  -  Gary Coleman  –  Margot Kidman  -  Don Johnson

David Crosby  -  Lenny Bruce  -  Debbie Reynolds  -  Chaka Khan  -  Bjorn Borg

Meat Loaf  -  Cyndi Lauper  –  Rembrandt  -  Randy Quaid  -  Amadeus Mozart

Government, Politics, and Public Service

Thomas Jefferson  -  John Connally  -  Ulysses S. Grant  -  George McGovern

William McKinley  -  Benedict Arnold  -  Abraham Lincoln -  Thomas Paine

Daniel Webster

Business People

Donald Trump  -  Charles Goodyear  -  PT Barnum  -  Henry Heinz

Milton Hershey   -  Henry Ford  -  Walt Disney  -  William C. Durant

After reading this list of the notable and noteworthy individuals who have made such a lasting impact on our lives, regardless of their circumstances, it will certainly drive away the misguided idea that filing a bankruptcy petition is the end of the world. The important thing to consider is that it represents a brand new beginning, and a definite path toward recovery for both you and your family. So consult a qualified and knowledgeable bankruptcy attorney, and get the assistance and guidance to put your financial future in a much better light, and in the very best of company.

Fortunately, for anyone in the throes of financial difficulties, the bankruptcy process has been designed and mandated to provide an individual with the ability to create or build a new beginning regarding their financial affairs. Its framework involves providing the vital legal mechanism for an individual to eliminate the bulk of their current debt load, or in more flexible circumstances, to begin a structured repayment process to meet some of those obligations over a period of time.

In the final outcome, naturally there are certain unsecured creditors who will be left without any monetary compensation for those debts. To level the playing field within the bankruptcy game, however, the laws are specifically designed to ensure that every creditor, regardless of credit status, will be treated with the utmost fairness prior to any final settlement.

This ‘fairness’ doctrine is maintained through the trustee assigned to the bankruptcy case. The trustee wields the power and authority to either set aside or cancel any particular payments or transfers of property or assets the individual may have made to any single or group of creditors prior to the filing of the bankruptcy petition. These kinds of payments, and specifically when the payments may have been made, are referred to as ‘preferences’ or ‘preferential payments’ by the court.

As the definition indicates, it addresses the issue that one or more of an individual’s creditors may have received better monetary treatment, or preference, for those debts than the other creditors who happen to be in the same financial bind. Before an individual considers filing a bankruptcy petition, it is vitally important that they understand exactly how and why a trustee can set aside a payment or transfer, and which details allow a trustee to in fact cancel these payments, and subsequently demand they be returned to the court.

The laws surrounding bankruptcy stipulate exactly which of these preferential payments or transfers can be called into question. The characteristics of these payments are based on certain criteria, such as whether on not these payments were made to a creditor on a debt the individual was obligated to pay, or that they were made when the individual was in a state of insolvency (bankrupt). Furthermore, these payments can be questioned if they were made within ninety days prior to filing the bankruptcy petition, or within a year if a particular payment was made to a family member, termed an ‘insider’ creditor.

This form of preferential treatment regarding outstanding debt repayments by an individual, in essence, permits that particular creditor to receive more money than they would have if the property and assets were allowed to be distributed more equitably across the complete pool of creditors listed in the Chapter 7 bankruptcy petition. As an example, a preferential payment may be when an individual repays a $1,500 loan to a family member within one year from filing bankruptcy, or, if they pay a substantial credit card balance down within ninety days of filing.

In another case, a preferential payment could be when an individual pays off a family member’s debt in exchange for a project or work the family member may have done for that individual. Other questionable activities, like an individual transferring the title or giving a lien to a family member on some property as a repayment on a debt within two years of filing, may also be deemed as a preferential transfer or payment by the trustee.

In the end, the bankruptcy court may in fact agree with the findings of the trustee, that these types of payments or transfers do qualify as preferential, and the creditor may be forced to surrender these payments to the court, which will then be applied or distributed more fairly to the entire list of creditors in a more equitable fashion.

Without a doubt, preferential payments or transfers can be somewhat difficult to understand or sort out, and can be a very complicated process. It is certainly advisable to consult with a highly qualified and knowledgeable Utah bankruptcy attorney to ensure that no unfortunate circumstances result, and what may have started out as a voluntary act of kindness turns into a violation of the bankruptcy law.

Within both state and federal Chapter 7 bankruptcy statutes regarding the exempt or non-exempt status of an individuals assets and property, the perceived outcome is usually somewhat frightening to anyone considering filing the necessary petition. No one, and quite understandably, wants to endure having their often hard-earned or precious assets taken from them in the ensuing process. In some cases, an individual may have to relinquish their property or assets to the bankruptcy trustee, whose task it is to evaluate which, if any, of that property must or can be liquidated in order to pay the debts due to the creditors. However, if some or all of an individual’s property is in fact exempt, then liquidation of these assets will not take place, and the individual will be allowed to retain them.

Property Exemptions from Chapter 7 Liquidation

Though Chapter 7 bankruptcy exemptions can and do vary from state to state, generally those items that are exempt may include an individual’s home and a certain portion of its equity, an automobile, ownership of land, tools and equipment required for employment, personal property such as furniture, appliances, and clothing, along with jewelry that does not exceed a certain value. There may also be additional considerations for exemption on insurance and pension payouts, as well as any benefits such as unemployment or workers compensation payments.

Property Not Exempt from Chapter 7 Liquidation

While Chapter 7 bankruptcy exemptions may keep all of an individual’s property from being sold to cover their obligations to their creditors, it would be unwise to think that the exempt classification is automatic. By contrast, there are certainly types of property or assets that are indeed at risk of liquidation by the trustee, and would not be considered exempt in the Chapter 7 proceedings. These items would include any additional homes an individual may own, a second automobile, any personal family heirlooms or valuable collector’s items, as well as cash, bank accounts, stocks, bonds, or any other type of investment asset.

Property Exemptions in a Chapter 13 Bankruptcy

The procedures for exemptions for property and assets have a significant factor within a Chapter 13 bankruptcy as well. Because this type of bankruptcy process is centered around a reorganization framework, an individual is, in essence, permitted to retain most or all of their assets or property, while a schedule is developed to repay a specific portion of these debts through any future earning potential they may have. In other words, the exemptions in a Chapter 7 bankruptcy stipulate exactly which property an individual may retain. By contrast, the exemptions listed in a Chapter 13 bankruptcy filing establish how much an individual will be required to repay those creditors that are categorized as unsecured debts.

Chapter 7 versus Chapter 13 Exemptions

The Chapter 7 process allows the trustee to sell these assets or property to repay the creditors, if these assets do not qualify for exemption status. On the other hand, the trustee in a Chapter 13 is not required to sell off the assets that are deemed non-exempt. In this case, the individual is required to repay the unsecured creditors from the proceeds of these assets that are considered non-exempt. These amounts become a part of the reorganization plan approved by the bankruptcy court.

The reasoning behind these rulings is based on the necessity for keeping the playing field level for the creditors when an individual decides on either the Chapter 7 or the Chapter 13. This allows the proceeds of either bankruptcy filing to be granted to the creditors on a more equitable ratio of distribution, and leaving no creditor in a worse position should the individual decide on the Chapter 13 instead of the Chapter 7.

Overall, the asset and property protection functions regarding these exemptions and their classifications are not only vitally important, but are indeed a somewhat challenging and complex factor within the scope of the bankruptcy proceedings. Sorting out these complexities requires in-depth consultation with a knowledgeable and highly experienced bankruptcy attorney to ensure each individual’s assets or property is adequately protected under the laws governing these essential issues.