Filing for bankruptcy is a major decision not to be entered into lightly. People who are considering this process often are uncertain about what is required and what advantages it may offer, compared to other alternatives. At Grainger Legal Services, our Alabama bankruptcy lawyers are committed to helping debtors resolve their questions and evaluate whether filing under Chapter 7 or Chapter 13 makes sense for their situation.
The goal of bankruptcy is to obtain a “discharge” of debts. The discharge will release the debtor from personal liability for a debt and prevent a creditor or collection agency from taking a collection action against a debtor. Usually, a Chapter 7 bankruptcy filer receives the discharge at the end of the case, about four months after the petition is filed. A Chapter 13 bankruptcy filer will receive the discharge after the debt repayment plan is complete, three to five years from the date the petition is filed.
The primary difference between Chapter 7 and Chapter 13 is that the latter requires you to submit a debt repayment plan and pay off your debts over a period of three to five years. To file for Chapter 13 bankruptcy, you will need to have an income that allows you to make monthly payments in accordance with your plan. In exchange for paying off most of your debts through the approved repayment plan, you can keep various items of property that would be sold in a Chapter 7 bankruptcy case. If you lose your job during the bankruptcy period, you may have to convert your case to a Chapter 7 case.
Only people who pass a strict “means test” may file for Chapter 7 bankruptcy. In this process, you can potentially obtain a bankruptcy discharge within four to five months, and your non-exempt belongings will be sold to repay creditors to the extent possible. Different states provide for different systems of exemption, and in some cases you can use a federal exemption system. However, in Alabama, you must use the Alabama exemptions. For example, you can protect up to 15,000 in the value of your home and up to 160 acres of real estate that it sits upon. If your spouse is a co-owner of the home, that spouse also has a $15,000 homestead exemption.
Yes. When you file for bankruptcy, an automatic stay goes into effect. This stay is an order that most creditors must stop their collection activities. If the automatic stay is in place, a creditor or collection agency may not continue to contact you by phone or mail. It may not garnish your wages, proceed with a lawsuit, or file a lien against your property. An automatic stay does not apply to lawsuits to collect alimony or child support or most IRS proceedings. Certain creditors, such as those about to foreclose on real property in a Chapter 7 bankruptcy case or a landlord about to evict a tenant, can make a motion to the court to lift the stay.
Your bankruptcy case is a matter of public record. Anybody can access these records online or call the bankruptcy court to find out about your bankruptcy. Moreover, a Meeting of Creditors is held during bankruptcy, and it is open to the public. It is extremely rare for anyone but creditors to attend, but it is possible. Creditors normally don’t attend either. In the future, lenders, landlords, and in some cases employers may learn of your bankruptcy filing by reviewing your credit history over the past 7-10 years.
Bankruptcy will discharge most consumer debts, such as credit card debts and medical debts. These are considered “unsecured” debts. Whether or not other debts are discharged may depend on the type of bankruptcy you file. In a Chapter 13 case, you can stop a mortgage foreclosure, strip away junior liens that are not secured by your house, and cram down secured debts that are worth more than the property that secures them, such as car loans.
There are 19 categories of “non-dischargeable” debts. Some examples include child support, alimony, government penalties and fines, drunk driving personal injury debts, tax debts, criminal restitution, and debts based on tax-advantaged retirement plans. Certain of these debts may be discharged if a creditor does not object.
At Grainger Legal Services, our Alabama bankruptcy attorneys can counsel individuals on whether Chapter 13 or Chapter 7 would be a good way to manage their particular debts. We have offices in Montgomery, Prattville, and Troy. Call us at (334) 260-0500 or contact us online to schedule a free consultation.