BANKRUPTCY
Bankruptcy is designed to obtain debt relief, usually by giving the debtor
a ”fresh start” (in Chapter 7) or to accomplish a “reorganization” of debt
(in Chapter 13).
712 E. Peace Street
Canton, Mississippi
(601) 855-2255

What is a Chapter 7 bankruptcy?

Chapter 7 is the liquidation chapter; that is, except for exempt property, the debtor surrenders his assets to the Chapter 7 trustee for distribution to his creditors. Fortunately, for most debtors, the use of bankruptcy exemptions allows them to keep their property.

Exempt property is property that has been designated as protected from creditors such as household goods necessary for the debtor’s maintenance (stove, refrigerator, bedroom sets, living room sets, clothing, washer, dryer, etc). To the extent that such property is debt free and does not total more than ten thousand dollars in value, the debtor is allowed to keep this property.

Exemption law also applies to the debtor’s homestead up to $75,000 in equity ($150,000 for a married couple). Where there is a debt on the above property, the debtor must decide whether to keep the property and pay the creditor or whether to surrender the property and walk away from the debt.

In a Chapter 7 bankruptcy, the debtor’s purpose is to discharge all debts eligible for discharge such as credit card obligations, medical bills, and loans where no collateral was put up. Debts where the debtor has collateral involved such as a car that is being financed or where TV’s and stereos and other types of property are used as collateral for a loan can be discharged only if the debtor surrenders the collateral to the creditor.

If the debtor wishes to keep the collateral, under the new law, he must demonstrate that he has a monthly income that will allow him to pay for the collateral.

What is a Chapter 13 bankruptcy?

Chapter 13 provides a set of tools for an individual with regular income to adjust his debts. Chapter 13 allows the debtor to retain his assets in return for agreeing to use future income to fund a chapter 13 payment plan. Most Chapter 13’s are filed to prevent the loss of a home or a motor vehicle.

If I get an income tax refund, will I be able to keep it?

Your income tax refund for the tax year in which you file the bankruptcy belongs to your bankruptcy estate. Therefore, you should be prepared to surrender the refund to the trustee, particularly in a Chapter 7. In a Chapter 13, the tax refund is budgeted into the plan and used to fund the plan and the debtor’s monthly expenses.

How does filing a bankruptcy affect my credit?

Bankruptcy filings become part of your credit history and will show up for seven to 10 years on your credit report as kept or maintained by a credit bureau. Even if you file a bankruptcy and change your mind the next day, the bankruptcy filing will remain on your credit report. Credit can be re-established, although you have filed a bankruptcy. How fast your credit can be re-established depends on circumstances such as your employment history and your relationship with a particular creditor.

What are my choices in light of the new bankruptcy law?

Filing bankruptcy is still available under the new law. However, the debtor must undergo a “means test.” If the debtor wants to file a Chapter 7 bankruptcy, the means test is used to determine if his income falls below the median for the State of Mississippi. If his income is below the median, he is eligible to file a Chapter 7. If his income is above the median, he is deemed to be ineligible to file and he has the choice of not filing or of filing a chapter 13.

Is there a means test for Chapter 13?

Yes, there is a means test for chapter 13, but its purpose is to determine whether the debtor should file a three-year or a five-year payment plan.

How is median income determined?

Median income is determined by household size. Bankruptcy is designed to obtain debt relief, usually by giving the debtor a ”fresh start” (in Chapter 7) or to accomplish a “reorganization” of debt (in Chapter 13).

For further information on bankruptcy, you can contact The Evans Law Firm at 601.855.2255 or contact an attorney of your choice.

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