Bankruptcy does not get rid of all debts. You are still responsible for:
- Alimony
- Child support
- Most recent back taxes
- Most student loans
- Recent large purchases of more than $550 for luxury goods bought within 90 days of filing
- Fines or penalties of government agencies
- Fraudulent debts
- Cash advances of $825 within 70 days of filing
On April 20, 2005, the President signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act, which limits individual access to US bankruptcy courts. Some of the changes, which were effective October 17, 2005, included:
- New bans on Chapter 7
- Increased Chapter 13 payments
- New presumptions against debtors with increased penalties
- The reduction of judicial discretion to balance competing interests
Chapter 13 Bankruptcy
If you are an individual or a sole proprietor, you can file a Chapter 13 bankruptcy to pay off all or part of your debts over three to five years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay.
Many people who file Chapter 13 bankruptcies have:
- Mortgages or other loans they would like to bring current, so they do not lose their homes or other property
- Taxes, child support or student loans that can't be wiped out by Chapter 7 bankruptcy
- Moral convictions that debts should be paid no matter how long it takes
For a Chapter 13 bankruptcy, you will need a stable income with disposable income (income left over after you pay the bare necessities of life such as shelter, food and utilities). You must have no more than $1,010,650 in secured debt (debt involving property that your creditor might take if you do not make your payments) and $336,900 in unsecured debt.
The filing of the Chapter 13 petition must be accompanied by a proposed payment plan extending over three to five years. The proposed payment plan must provide for the payment of all "priority claims," such as taxes, in full.
The bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and flexibility. The proposed plan is distributed to creditors, who have the right to object to the plan if it is unreasonable. If the plan is approved, you can keep all your assets during the period of the plan. You make monthly payments to the bankruptcy trustee, who distributes the funds to the creditors according to the plan. If the plan is completed as approved, your unpaid debts are "discharged." If you do not complete the repayment plan as approved, you will have several other alternatives which we can explain to you.