A reaffirmation is an official way to “reobligate” yourself on the loan. This involves the lender sending us a reaffirmation contract to be signed by you.
What Are the Different Types of Bankruptcy?
There are several different ways to file for bankruptcy. The bankruptcy code, which is the body of bankruptcy laws, is divided into various chapters. Each of those chapters features a different type of bankruptcy. There are a few different chapters. The two main ones for consumers are Chapter 7 and Chapter 13. Chapter 7 is the classic bankruptcy that most people recognize. It is preferred by most, because it is a relatively quicker and easier process to complete. Once your case is filed, it takes about three months to be completed, and then once it is completed, you can start your life over again without all these debt concerns. On the date your case is filed, the protections go into effect immediately. It is called an automatic stay. The automatic stay prevents any collection action from any of your creditors.
The automatic stay will stop all the calls, and the collection letters and any kind of garnishment or repossession that might be happening. About a month later you must attend a mandatory meeting. It is called a 341 meeting, or the meeting of creditors. This is technically where the creditors may show up and ask any kind of question. It is very rare that the creditors ever show up anyway, and that is because all the information that they can ask is already in the case documents, so they already have all the information. The meeting typically ends up being a meeting between you, your attorney, and the trustee. The trustee is simply another attorney hired by the court that sits on the other side of the table and conducts some due-diligence.
They are going to ask you questions about your assets and your transfers and other information like that, which should last about five to ten minutes. If you have hired a good attorney, that attorney will have walked you through those questions before your case was even filed, so that you may understand if there will be any issues. The meeting should go pretty smoothly. After that meeting, the court gives the creditors a sixty day window to bring any objections they may have. The objections actually are not common at all. The creditors have to have valid legal grounds to bring an objection to the table, like if fraud was involved.
If you have hired an attorney who has done a good job of looking into your situation and understanding what is going on, your attorney can advise you to take steps to ensure that you do not have any those objections raised in your case. Or if you might be open to an objection we cannot resolve, at least have a game plan for how to address these objections. After ninety days, the court issues the order for discharge. That piece of paper says your case is permanent and successful, your debts have been discharged, and your life goes on.
Is It Harder To Qualify For A Chapter 7 Bankruptcy Than The Other Chapters?
Yes, it is harder to qualify for a Chapter 7. Prior to 2005, the qualifications for bankruptcy were based on your monthly budget. Your budget is submitted and shows how much money is coming into our household, and what your living expenses are. The court essentially does money in money out analysis. If at the end of the month there is no money coming into your pocket after bills are paid, then the court would say you qualify for a Chapter 7 bankruptcy. If after you paid your monthly expenses it shows that you had $400 a month left over, then the court would say you really do not qualify for Chapter 7 because you still have some disposable income after you have paid all your monthly expenses. You would then file for a Chapter 13 payment plan.
In 2005, Congress amended the bankruptcy code and added in some new language. One of the main features of this amendment was what is called the means test. The means test is a very mechanical calculation of the past six months of your gross income. They take a six month snapshot, divide it by six, and multiply by twelve to project out your annual gross income. Once they have that number, then they weigh it against the median income for a household of your size. For example, in Minnesota the median income for a household of one is right around $51,000. If your annual gross is less than $51,000, then you qualify under the means test. If you are over the median income, then we have look at the second half of the means test.
In the second half of the means test, what we are doing is netting out monthly expenses to determine if you have the means to do a Chapter 13 payment plan. In the second half of the means test, some of those expenses are actual expenses, like what you pay for in health insurance, daycare, and things of that nature. But a lot of those numbers are standardized expenses. Those standardized numbers come from the IRS, based on what the IRS says a household of your size in a geographic location spends on things, such as utilities, food and clothing. Even if at the end of the month, you do not have disposable income, but under the means test the standardized expenses net out and calculate that you do have disposable income, then you would not qualify for Chapter 7.
There are different things that you can do to influence the Chapter 7 means test. Under the law there are different options we have for a number of different factors, depending on what the circumstances are. The Chapter 7 means test is so mechanical, even if you just lost your job and you are applying for bankruptcy, that past six months of previous income might prevent you from qualifying. One thing you can do is wait four to six months to file your case, so that income falls off your six month window.
Another thing you can do is apply under the special circumstances procedure, where essentially you file with the means test showing that you do not qualify for Chapter 7, but you have petitioned the United States Trustee’s office to rebut the presumption of abuse under the Chapter 7 means test. Which means this person should be allowed to move forward with a Chapter 7 bankruptcy.
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Chapter 13 is essentially a payment plan that you organize through the court system. Think of it as a consolidation loan with teeth.
There are 2 things you must do after your case is filed: (1) attend the meeting of creditors (aka the 341 hearing); and (2) complete a debtor’s education course via phone within 75 days from the date your case was filed. The 341 hearing is sometimes referred to as the meeting of creditors because your creditors can attend the meeting and ask you questions about the information contained in your petition.