The Best Bankruptcy FIrm in San Diego is North Park Bankruptcy headed by Attorney Todd A. Warshof. He was voted among the best lawyers in San Diego for bankruptcy law in both 2014 and 2015. NPBK helps residents in zip codes 92104, 92103, 92116, 92105, 92102, 92101, and across San Diego County with all bankruptcy and debt-relief needs

Practice Areas:

  • Chapter 7 Bankruptcy 50%
  • Chapter 13 Bankruptcy 40%
  • Non-Bankruptcy Alternative Debt-Relief 5%

Chapter 7 Bankruptcy

Eliminate your debts right away.  Get a quick fresh start and start reestablishing your credit immediately.

 

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Chapter 13 Bankruptcy

Propose an affordable payment plan towards past due mortgage; tax debt, & pay off vehicle loans too.

 

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Debt Settlements

Let us negotiate lump sum settlements on your accounts for pennies on the dollar and without having to file bankruptcy.

 

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GENERAL BANKRUPTCY INFORMATION

 

 

BANKRUPTCY

For most people, Chapter 7 or Chapter 13 bankruptcy relief will be the most appropriate types of bankruptcy relief available . The other chapters are specifically for businesses or complex financial arrangements, cities/towns, family farmers, etc. Chapter 7 and Chapter 13 are primarily for individual people, though Chapter 7 relief can also be sought by businesses seeking to cease their operations and dissolve completely.  The majority of chapter 7 cases and all chapter 13 cases are filed by individual people with married couples having the option to file one joint case covering both of them.

HOW TO CHOOSE WHICH CHAPTER OF BANKRUPTCY TO SEEK RELIEF UNDER

Determining which chapter of  bankruptcy is the most appropriate in your situation is a multi-stepped analysis.

  1. One step of the analysis will involve a determination of what the qualifying requirements are for seeking relief under each chapter and then determining whether the facts that are present in your situation are sufficient to bring you within those qualifying requirements.
  2. Another step will involve you determining the various types of financial obligations that are present in your case as well as identifying your particular goals and expectations in filing for bankruptcy relief to begin with while also determining how relief under each chapter of bankruptcy will effect those financial obligations and whether this outcome is closely aligned with your underlying goals and expectations.
  3. You may further want to determine what overall costs you should attribute to seeking relief under bankruptcy, including not only your immediate out of pocket costs in filing for bankruptcy itself and in being represented by an experienced bankruptcy attorney during your case, but also including any longer term costs such as lower credit score and higher interest rates for a certain time period afterwards; potential difficulty in obtaining credit in the immediate future, etc. and you will want to balance those costs against the total short and long term benefits that you will derive by seeking relief under bankruptcy, including the savings from not having to pay all or a portion of your debts back, including the interest and/or fees you won’t end up having to pay back either; the big head start you get in being able to start rebuilding credit significantly sooner than having to pay off the debt first before you start rebuilding, and you’ll likely want to ensure that what you stand to benefit is worth what you stand to give up.
  4. There may also be other considerations that may come up on a case-by-case basis but an experienced bankruptcy attorney can assist you with going through all of these steps while you determine which chapter of bankruptcy is the most appropriate and beneficial to you.

WHAT ARE THE QUALIFYING REQUIREMENTS FOR FILING UNDER EACH CHAPTER OF BANKRUPTCY

WHAT ARE THE VARIOUS TYPES OF FINANCIAL OBLIGATIONS I SHOULD BE LOOKING FOR?

WHAT ARE SOME COMMON GOALS AND EXPECTATIONS OF PEOPLE FILING FOR BANKRUPTCY CASES AND WHAT OPTIONS ARE AVAILABLE ONCE THEIR CASE HAS BEEN FILED?

HOW ARE EACH OF THESE TYPES OF FINANCIAL OBLIGATIONS HANDLED IN EACH CHAPTER OF BANKRUPTCY?

WHAT ARE THE POSSIBLE BENEFITS DERIVED BY SEEKING RELIEF UNDER EACH BANKRUPTCY CHAPTER?

WHAT ARE THE NEGATIVE CONSEQUENCES SUFFERED BY SEEKING RELIEF UNDER EACH BANKRUPTCY CHAPTER?

WHAT ARE SOME OTHER POSSIBLE CONSIDERATIONS THAT COULD COME UP WHEN DECIDING WHICH CHAPTER OF BANKRUPTCY IS THE MOST APPROPRIATE IN MY SITUATION?

 IN GENERAL, WHAT ARE THE BENEFITS OF CHAPTER 7 AND IN WHAT COMMON SITUATIONS DOES CHAPTER 7 USUALLY PROVIDE SUFFICIENT RELIEF?

IN GENERAL, WHAT ARE THE BENEFITS OF CHAPTER 13 AND IN WHAT COMMON SITUATIONS IS IT OFTEN ADVISABLE TO SEEK RELIEF UNDER CHAPTER 13 RATHER THAN UNDER CHAPTER 7

CREDIT AND BANKRUPTCY

For many of our clients, their ability to regain the excellent credit scores they once had established prior to having filed for bankruptcy relief is of utmost importance.  Luckily, in many if not the majority of chapter 7 cases, the bankruptcy filing itself and the corresponding issuance of the discharge of debts, will ultimately provide our clients with their strongest weapon in reestablishing their credit history back to those levels which client’s are both comfortable with not to mention where they again start receiving the best credit deals available.

Although bankruptcy is often spoken of in terms that seek to cast a shadow upon the concept and legal tool, and is seemingly designed to persuade people to avoid filing for bankruptcy relief whenever possible;  anyone putting forth any real effort into researching how a bankruptcy filing actual affects a debtor’s credit and what the process of reestablishing credit after bankruptcy is, will quickly learn that there has been a lot of misinformation passed around among less informed individuals.

We would like to provide you with some general information and guidelines as it pertains to your credit and bankruptcy, the effect a bankruptcy filing may have on your credit report and score, as well as the most efficient methods of rebuilding credit after bankruptcy to lessen the overall time period before one can regain their pre-bankruptcy, and pre-missed payment(s) credit score.  We will also provide you information on how we are able to provide you with any assistance you may need in this regard and can provide you tricks and tips of various things you can do to maximize your ability to quickly regain superior credit.

Credit reporting and credit scores exist in a very murky water; where there seldom exist much in the way of black or white rules in determining what affect a bankruptcy filing will have on any particular debtor’s actual credit score.  With that in mind, it is not possible to provide you with an absolutely accurate picture of precisely how your credit will be affected by the bankrutpcy filing, in fact, a lot this will further be contingent on precisely what your credit looks like immediately prior to your bankruptcy case being filed, the strength of what’s currently listed now; what, if any items will remain post-bankruptcy and the effect such items may have.

HOW WILL A BANKRUPTCY FILING EFFECT MY CREDIT IN THE NEAR TERM?

WHAT ARE THE RAMIFICATIONS TO MY CREDIT WHEN COMPARING CHAPTER 7 V. CHAPTER 13 BANKRUPTCY  OR V. OTHER DEBT-RELIEF ALTERNATIVES?

ARE THERE ANY ACTIONS THAT CAN BE TAKEN PRIOR TO FILING FOR BANKRUPTCY RELIEF, THAT MAY ASSIST IN REBUILDING CREDIT AFTER FILING?  WHAT ABOUT ACTIONS TAKEN DURING THE BANKRUPTCY CASE?

WHAT IS THE MOST EFFECTIVE WAY TO APPROVE YOUR OVERALL CREDIT AFTER SEEKING BANKRUPTCY RELIEF AND WITHIN THE SHORTEST POSSIBLE TIME POSSIBLE?

ARE THERE CERTAIN THINGS THAT SHOULD BE AVOIDED PRIOR TO, DURING, OR AFTER FILING FOR RELIEF, THAT COULD POSSIBLY HAVE A NEGATIVE EFFECT ON THE REESTABLISHMENT OF CREDIT AFTER BANKRUPTCY?

WHAT ARE SOME OF THE MORE COMMON NEGATIVE CONSEQUENCES AND/OR INCONVENIENCES THAT DEBTORS END UP HAVING TO DEAL WITH AS A RESULT OF THEIR BANKRUPTCY’S EFFECT ON THEIR CREDIT? ARE THERE WAYS THAT THESE CAN BE AVOIDED OR MINIMIZED?

 

WHEN BANKRUPTCY ISN'T AN OPTION

There are unfortunately  certain situations that lead to the determination that filing for relief under any chapter of bankruptcy is not the most appropriate course of action under the circumstances or actually not even a possibility under the circumstances at all.  If a client cannot file for bankrutpcy for one reason or another, yet still finds themselves in a position where they strongly need some sort of assistance or need a “break” in some form or another; we are pleased to say that there are still other alternatives that can provide a debtor significant relief from their debts without any need for the debtor to file for relief under bankruptcy.  However, many of these may require that you have some ability to repay a portion of your debts or other resources or assets that you can use as leverage in negotiating a better overall settlement or agreement for resolving your outstanding debts with one or more creditors.

WHAT ARE SOME COMMON REASONS OR SITUATIONS WHERE A DEBTOR WAS EITHER BETTER OFF NOT FILING FOR BANKRUPTCY RELIEF OR WHERE THEY SIMPLY COULD NOT FILE FOR BANKRUPTCY RELIEF?

WHAT ARE SOME COMMON WORK-OUTS OR PROPOSED SETTLEMENTS THAT ARE POSSIBLE OPTIONS FOR A CLIENT WHO CHOOSES TO AVOID BANKRUPTCY?

We offer our experienced legal representation in debt-relief matters outside of bankruptcy and are able to do so in various ways depending on the particular situation at hand.  The process of going through the debt-relief motions can vary significantly and contingent upon the specific facts of the case.  The time period involved from beginning until debts have been resolved in full also can range significantly and are also contingent upon the facts. If you would like to learn more about either your bankruptcy options or your alternative debt-relief options outside of bankruptcy; you can schedule your free attorney consultation today by filling out the form below:

 

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Chapter 7 Bankruptcy

 

What is Chapter 7 Bankruptcy

A chapter 7 bankruptcy involves a liquidation of your non-exempt assets and the discharge of your dischargeable debts.  In other words; when you file for relief under chapter 7 of the bankruptcy code; a bankrutpcy estate is established.  Your non-exempt assets become property of your bankruptcy estate and a Chapter 7 Trustee is appointed to administer your estate.  The administration of your estate involves the Trustee liquidating your non-exempt assets and disbursing the funds from such liquidation to your creditors, based on claims your creditors must file with the Court, evidencing the debts you owe them. Certain types of debts have priority over others; so the Trustee will disburse funds to priority creditors first and should there remain funds after priority creditors have been paid, the Trustee will then disburse any remaining funds to your general unsecured creditors until all claims have been paid.  Should there exist a surplus of funds after disbursements have been made to your creditors and after the Trustee has been paid for all administrative expenses, this surplus will be refunded to you.

Should there not be sufficient funds to pay all claims, the Trustee will pay a percentage of your debts back, with priority claims being paid first, then each general non-priority creditor receiving a pro-rata share of the total amount that the Trustee disburses. If there are no funds to disburse because the Trustee could not liquidate any non-exempt assets; then the case will be considered a “no-asset” case.  In these cases, the Trustee will simply file a “Report of No Distribution” in your case, stating that no funds were disbursed to creditors, and your creditors will not receive any form of repayment.  99% of chapter 7 bankrutpcy cases are no-asset cases and as such,  99% of bankruptcy debtors do not lose any of their assets and complete their chapter 7 bankruptcy cases with no disbursements being made to their creditors. 

The great majority of Chapter 7 cases are ‘no-asset” cases due to the debtor’s right to exempt a portion of their property from the bankruptcy estate.  These exemptions are codified under State Law, in most cases, and specifically list what types of property and the maximum value of said property, that can be claimed exempt in a bankruptcy filing and therefore protected from liquidation by a Chapter 7 Trustee.  Under California law; these exemptions are quite liberal, allowing most debtors to retain all of their assets in a Chapter 7 case.  It is for this reason that the great majority of cases, at least in California, are no-asset cases.  Whether or not you can claim exemptions under California law, however, will depend on several factors and such a determination will be made by your attorney after reviewing your case.   However, if you currently reside in California and have resided in California for three or more consecutive years; you should not have any problem claiming your exemptions under California Law.   Read more about Bankruptcy Exemptions.

Generally speaking, Chapter 7 Bankruptcy cases are fairly quick and debtors should expect to receive their Chapter 7 discharge of debts approximately 3 1/2 to 4 months after they file their chapter 7 case with the Court.  Debtors will be required to appear at one hearing which is referred to as the “341a Meeting of Creditors”, which is typically scheduled to occur abour 30 days after the date the case was filed.  Debtors must appear at the 341(a) Meeting of Creditors along with their attorney, if any.  The Chapter 7 Trustee assigned to the case will be present at the 341(a) Meeting and will be questioning each debtor after first swearing the debtors in under oath. Read more re: 341(a) Meeting of Creditors.

The Chapter 7 Trustee’ has several duties  under the bankruptcy code.  Their primary duty is to determine if a debtor has any non-exempt assets that can be liquidated for the benefit of the debtor’s creditors.  Should such assets exist, it is then the Chapter 7 Trustee’s duty to liquidate such assets while providing notice to all creditors that they must file their claims with the COurt, evidencing each of the debts owed by the Debtor. The Trustee will ultimately use the funds received from the liquidation of the debtors’ non-exempt assets to pay creditors pursuant to their claims.

When a Debtor files a Chapter 7 case with the Court, the Debtor must file a Chapter 7 Petition along with the Bankruptcy Schedules and Statements required under the bankruptcy code.  These schedules require, among other things, that a debtor disclose all assets for which the Debtor has an ownership interest.  The Chapter 7 Trustee assigned to the Case receives a copy of the Debtors’ petition, schedules, and statements that are filed with the Court and will review these documents prior to meeting with the Debtor at the 341(a) Meeting of Creditors.  The 341(a) Meeting of Creditors hearing is the Chapter 7 Trustee’s opportunity to question the Debtor regarding the information contained in the Debtors’ schedules as well as to confirm that the Debtor has indeed disclosed all assets and has estimated their value in good faith and as supported by additional evidence of value.

The 341(a) Meeting of Creditors is also the Chapter 7 Trustee’s opportunity to verify the identity of the debtor with Debtor’s government issued photo ID and social security card. The Trustee will also get the Debtors testimony, under oath, that they’ve disclosed all of their assets, debts, income, expenses, and truthfully answered the other miscellaneous questions within the bankruptcy schedules and statements. Although Creditors and other parties in interest may make an appearance at this hearing; most trustees limit their questioning to question regarding the nature and location of assets. Creditors are generally prohibited from asking questions regarding their particular claims and/or the particular debt owed to them.

Once the 341(a) Meeting of Creditors has been concluded, the Trustee will either file a report of no distribution if there are no assets to liquidate or he will file a report regarding his intent to liquidate one or more assets.  Regardless of whether the Trustee pursues assets; there will not be any additional delay in the debtor’s discharge being issued, which usually occurs approximately 60 days after the first 341(a) Meeting of Creditors.

From the date a chapter 7 case is filed; a debtor should expect to receive their discharge within  between 90 to 100 days afterwards.  They will be required to appear at their 341(a) Meeting of Creditors scheduled approximately 30 days after their case is filed and they will need to complete the pre-bankruptcy credit counseling requirement prior to filing their case and complete the “financial management” course, aka “debtor education” class, after they file their case but prior to the Court issuing the chapter 7 discharge.  The initial notice of bankrutpcy filing that the Debtor will receive after they’ve filed their case will have the exact deadline to complete and file their financial management course certificate with the Court, and will also have the date of their 341(a) Meeting of Creditors.  This notice will also state the deadline for creditors to object to the Debtor’s discharge, which is generally the same date as the deadline to file the Financial Management Course Certificates.  Assuming no objections are filed and the debtor timely files their certificate; the Court should issue the Chapter 7 discharge within a day or two of that deadline, roughly 90 days from the date the Debtor filed their Chapter 7 Petition with the Court.

 

What Debts are Discharged in Chapter 7

When the discharge order is issued by the Court roughly 90 days after a Debtor files their Chapter 7 petition; it is entered on the docket and then mailed to the debtor, the debtors’ attorney, the Trustee, and all creditors and parties in interest.  This order is the official notice that the Debtor has been discharged of their liability on any debt that is dischargeable under the bankruptcy code and existing at the time the Debtor filed their case.

Some debts are not dischargeable by their very nature such that they simply are not affected by the discharge order and will continue to be obligations of the debtor even after the discharge has been entered.  These debts include the following:  (1) Student Loans, (2) Recent Income Tax Debt (Tax Debt for tax years where (a) the return for said year was due less than 3 years prior to the filing date of the debtors’ case (b) tax debt for years where such tax return was filed less than 2 years prior to the bankrutpcy case being filed, and (c) Any tax debt that had been reassessed within the 240 days prior to the date of the bankruptcy filing), (3) Domestic Support Obligations, such as Child Support or Alimony, (4) Fines owed to the Government such as Traffic Fines, Criminal Restitution, etc.,(5) Personal liability on business-type taxes, payroll taxes, etc.,, (6) Debts for which the Court has ordered to be non-dischargeable, usually pursuant to an adversary proceeding filed by a creditor,  and (7) reaffirmed debts.

As stated above, sometimes Creditors will file an adversary proceeding seeking a determination by the Court that a particular debt owed to them by the Debtor should be non-dischargeable and therefore should survive the bankruptcy discharge.  There are certain types of debts that a Creditor can seek such a determination for but it is important to note that in order for such debts to be determined non-dischargeable, the Creditor must actually file an adversary proceeding against the Debtor within the 90 days afforded to creditors to object to the discharge, and the Court must find in favor of the Creditor, thereafter ordering such debt to be non-dischargeable.  Absent such an Order, these debts will remain dischargeable even though they fall within the definition of debts that are considered exceptions to the discharge.  These types of debts include the following: (1) Debts incurred through fraud or false pretenses, (2) Debts incurred as a result of the Debtor driving under the influence of intoxicating substance/alcohol; (3) Debts incurred while debtor acting with malice.

 

The Automatic Stay & Bankruptcy Protections:

As is the case with Chapter 13 cases, when a Debtor files for Chapter 7 relief, most debtors will immediately receive the benefits and protections of the Automatic Stay.  The automatic stay goes into effect by operation of law and immediately upon a debtor filing a bankruptcy petition with the Court.  The automatic stay acts to stop or “stay” any further actions of your creditors in their collection of of the debts owed to them.

 Generally speaking, the automatic stay typically continues in effect while a debtor’s bankruptcy proceeding is still pending and acts to protect a debtor from practically any actions taken by creditors in their attempts to collect a pre-pre petition debt from the Debtor. The Automatic stay acts to prohibit actions such as a secured lender’s actions to repossess property subject to a secured loan such as a vehicle subject to a defaulted vehicle loan or a home subject to a mortgage and a potential foreclosure sale.  The automatic stay legally stops these types of actions from taking place until the Court Orders otherwise.  The automatic stay also prohibits any creditor from continuing to pursue a legal judgment against the debtor, continuing to seek an eviction order, and also prohibits any communications between the creditor and the debtor such as phone calls or letters deemed to be related to the collection of a pre-petition debt.

There are only a few situations where the automatic stay doesn’t come into effect or where it does not prohibit collection actions of creditors.  The automatic stay does not prohibit the recipient of a domestic support order such as child support or alimony or a representative of such recipient such as a State Child Support Services department from seeking collection of a domestic support obligation from the Debtor notwithstanding the automatic stay being in effect as to all other creditors.  The automatic stay’s term may be limited in situations where a debtor files a bankruptcy case having had one previous bankruptcy case filed and dismissed in the prior 12 months, as in such cases the automatic stay generally terminates after 30 days unless and until the Debtor files a motion seeking to extend the automatic stay and the Court holds a hearing on the matter within that first 30 days.  The automatic stay does not go into effect at all when a debtor files a bankruptcy case having two or more bankruptcy cases filed and dismissed in the prior 12 months though such a debtor may motion the Court to impose an automatic stay for good cause.

The automatic stay is what debtors rely upon in filing for bankrutpcy relief to avoid the foreclosure of their home or the repossession of their vehicle or to stop an ongoing lawsuit that may have been filed against them.  It is also what allows debtors to terminate wage garnishments and avoid bank levies not to mention what will finally make creditors stop calling them every 5 minutes.The automatic stay generally terminates upon the Debtors’ bankruptcy case coming to a close, and in most cases, once the Debtor has received the discharge of debts issued by the Court.

For unsecured debts that are discharged by the discharge order, creditors are thereafter prohibited from collecting on such debts as a result of the discharge order that is entered and there is thus no need or justification for continuation of the automatic stay’s protections once the discharge is entered.  For secured debts, such as a mortgage or vehicle loans; the bankruptcy discharge only acts to sever the debtor’s personal liability under such loans but does not sever the security interest in the collateral held by the Creditor.  Accordingly, should a debtor be in default on any secured loans; the creditor retains their right to foreclose or repossess the secured collateral subject to such loans once the automatic stay has terminated and despite the existence of the discharge order.  The discharge simply discharges the Debtor’s personal liability in owing the balance of the loan proceeds still due; it does not allow a debtor to take free and clear the collateral that was subject to the secured loan.

 

Secured Debts in Chapter 7

As explained above; a chapter 7 discharge only acts to discharge a debtor’s personal liability for paying back the remaining funds due on such loans but does not give the debtor a right, free and clear, in the collateral that was subject to the secured loan.  In chapter 7 cases, there are several different ways a debtor may handle secured loans and it will ultimately rest upon whether the Debtor wishes to retain the collateral or to surrender it back to the lender, though there will also be other considerations as well and these will depend on exactly what type of collateral is involved, who the lender is, the total amount still owed on the loan, as well as other miscellaneous variables. Read more about Secured Debt in Chapter 7.

One important thing to consider when making a decision on whether to file for Chapter 7 relief or in the alternative, Chapter 13 relief, is precisely what will happen to your secured debts and the collateral that secures them.  When a debtor is up to date on their payments and is in all respects not in default on the secured loan at the time they file their chapter 7 case; there is generally no issues with the Debtor continuing to meet their contractual obligations under the secured loan (by continuing to make their monthly payments) and as a result, being able to retain the collateral.

However, some vehicle lenders require a debtor to reaffirm a vehicle loan in order to retain the vehicle by continuing to make payments; and this is something you should discuss with an experienced bankrutpcy attorney before making a decision on whether to reaffirm such a loan or not.  Most other types of secured loans do not require a reaffirmation agreement so long as the Debtor maintains good standing by making the contractually due payments.  This applies to real estate and mortgage payments as well as other secured debts, such as financed purchases of jewelry, furniture, etc.

On the other hand; should a debtor wish to stop making the payments on a secured loan and surrender/give back the collateral to the lender; the debtor has that absolute right by way of the discharge order.  So long as the secured loan was not reaffirmed during the pendency of the bankruptcy proceeding; once the debtor surrenders the collateral back to the lender; they will not be responsible for any additional payment; even if the lender sells the collateral for less than the amount remaining on the loan.  That “deficiency balance” will have discharged in the Debtors’ bankruptcy and they will thereafter owe nothing. The issue arises, however, when a debtor is either in default on a secured loan or anticipates the imminent default of a secured loan yet still wishes to retain the collateral that is subject to the lender’s security interest.

In these situations, a Chapter 7 discharge will only protect the debtor from owing any deficiency balance once the lender repossesses or forecloses on the property.  The chapter 7 discharge will not assist the debtor in curing the default that exists on the secured loan and as such, the Chapter 7 bankruptcy may only postpone the inevitable foreclosure or repossession because of the automatic stay that goes into effect when the case is filed; but nothing will stop the lender from taking action to repossess the property once the automatic stay terminates at the conclusion of the debtor’s chapter 7.

In these situations, a Chapter 13 bankruptcy is significantly more helpful and provides the debtor with a way to cure the default on the secured loan and in certain situations, either allows the debtor to completely pay off the secured loan while in bankruptcy and under the protections of the automatic stay, thereby avoiding the repossession and/or foreclosure altogether. Better yet, in certain situations, Chapter 13 may allow a debtor to either eliminate a security interest with only partial repayment of the underlying loan or, potentially eliminate the security interest with no repayment whatsoevereven without repayment.Read more about secured debts in Chapter 13.

 

Back Due Taxes in Chapter 7

Recent income tax debt is generally non-dischargeable in bankruptcy and this is the case in both Chapter 7 and Chapter 13 cases. Income tax debt can only be discharged in bankruptcy if (1) The tax return for the tax year the debtor owes for was first due to be filed with the taxing authority three or more years prior to the date of the bankruptcy filing (and note that filed extensions will have the effect of changing the date the return was first due from April 15th to October 15th of the same year; potentially requiring a debtor to wait further before filing their bankruptcy case should they wish to discharge certain tax debt), (2) The tax returns for the tax year owed for must have been filed at least two (2) years prior to the filing of the bankruptcy case, and (3) the tax debt owed must not be associated with any tax that was reassessed within the 240 days prior to the bankruptcy filing.

Accordingly, a debtor can only discharge older tax debt. More recent tax debt is non-dischargeable but it is also considered a priority debt and will take priority over most other debts when there is any repayment to creditors in the bankruptcy case. Based on the explanation above; a Chapter 7 case will not have any effect on more recent tax debts and though the automatic stay may prevent the IRS or the State Taxing Authority from taking actions in the three or so months the Debtor is in an active bankrutpcy case, they can continue collection efforts once the debtor is out of bankruptcy.  Furthermore, the taxing authority can continue to assess both interest and penalties on the outstanding tax debt and can do so notwithstanding the automatic stay.

In other words, a Chapter 7 bankruptcy acts only to temporarily stop the taxing authority from taking any direct collection actions while the automatic stay is in effect but a chapter 7 does nothing more.  This is not the case in Chapter 13 cases, however.  Chapter 13 cases provide a substantial benefit to debtors as it relates to non-dischargeable tax debts. Non-dischargeable, priority tax debt must be paid in a chapter 13 plan, usually in full since it is a priority debt and paid prior to other creditors.  However, not only are the accrued penalties considered dischargeable and non-priority; both interest and penalties stop accruing upon the filing of the chapter 13 case, as least where the Debtor ultimately completes their chapter 13 and obtains the chapter 13 discharge. This is a substantial benefit and an advantage to filing Chapter 13 over Chapter 7.  Read more about tax debt in Chapter 13

CHAPTER 13

Chapter 13 differs from Chapter 7 because it involves the debtor proposing a chapter 13 repayment plan providing for repayment  to creditors of a portion of  the debts owed by the Debtor. In Chapter 7 cases, creditors, if they are to be paid anything at all,  are paid from the Chapter 7 Trustee’s liquidation of the debtors’ non-exempt assets.  In chapter 13 cases, however, the Debtor generally proposes to pay his creditors from the debtor’s future income rather than from any liquidation of the debtors’ assets.  As a result, Chapter 13 debtors are generally able to retain all of their assets, including those assets that cannot be fully claimed exempt. That being said, under the provisions of Chapter 13; Debtors’ must propose to repay creditors, over the full term of their plan, an amount that is equal to or greater than the amount creditors would have received had the debtor instead filed chapter 7 and had a chapter 7 trustee liquidated debtor’s non-exempt assets and disbursed those funds to creditors as their payment.

Under Chapter 13 of the Bankruptcy code; debtors must be individuals and must receive regular income.  Unlike chapter 7 cases, corporations and other business entities are not entitled to chapter 13 bankrutpcy relief. Furthermore, such an individual with regular income will still only be eligible for chapter 13 relief if, as of the date they file their chapter 13 petition, they owe no more than $1,148,525 in debt that is secured by real or personal property and they owe no more than $363,175 in unsecured debts.  It should be noted, however, that these amounts are set to increase as of April 1, 2016.  If a Debtor has debts exceeding either one of these “debt limits”, there are several options. They may seek relief under Chapter 11 or Chapter 7 of the bankruptcy code,  assuming they fall within the qualifications of those particular chapters of bankruptcy; or they can take other strategic actions in an effort to fall within the debt limitations of chapter 13 at some point in the future.  An experienced bankruptcy attorney should be able to assist a debtor in determining what their best course of action should be in such a situation.

There are two main types of Chapter 13 debtors; There are debtors who would have received the most relief from a chapter 7 filing but due to one or more variables, they are not currently eligible for Chapter 7 Relief.  Besides having already filed for Chapter 7 relief within the prior 8 years; the other most frequent reason a debtor might not be eligible for Chapter 7 relief is because they have sufficient disposable income to repay a portion of their debt back through a Chapter 13 case.  Debtors who have household income that is considerably more than the median household income for similarly sized households and who cannot show sufficient reasonable and allowable monthly expenses to eliminate such income are left with disposable income. If such disposable income is sufficient to repay over say 20 to 25% of their total unsecured debts over a 5-year period, the Bankruptcy code requires such debtors to seek relief under Chapter 13, or in some cases Chapter 11, rather than Chapter 7.  It is said that Chapter 7 is generally reserved for those debtors who have no current means to repay any portion of their outstanding debts.

The other types of debtors who file chapter 13 cases are those debtors who seek the additional benefits afforded them under Chapter 13 of the bankruptcy code and/or debtors who have specific goals and intentions regarding property they own that is secured by one or more debts that they owe and who stand to benefit significantly more by the relief set forth under Chapter 13 as opposed to that set forth under Chapter 7.  Chapter 13 includes provisions that provide debtors filing a case under chapter 13 as well as Debtors receiving a discharge under Chapter 13 with substantial advantages over those seeking relief under Chapter 7.  Furthermore, Chapter 13 provisions can alleviate certain imminently disastrous situations and allow debtors to reorganize and prioritize their financial obligations; ultimately avoiding said disastrous situations altogether while consolidating their entire debt portfolio into one monthly payment that repays the most “important” creditors while keeping  all the others off their back, sometimes with little to no repayment whatsoever.