Different Ways To File For Bankruptcy
Bankruptcy is a process in which the court decides what the best route is for a person with overwhelming debt to pay as much as possible, given their assets. The solution may be Chapter 7, which discharges debts but also liquidates assets, though not all, of a persons assets. Chapter 13 bankruptcy allows a person to keep their assets, but puts them on a strict repayment plan.
No matter which type you file for, the court puts an automatic stay on any foreclosure action. This means that if your house was being foreclosed on, that procedure will stop as the court sorts out your ability to pay. It doesnt mean, however, you automatically keep your house.
In both types of bankruptcy, there is a homestead exemption, a way to protect some of the equity you have built. Its another element of bankruptcy designed to make it more possible to keep your house. Each type of bankruptcy is a totally different process, but in each, the idea behind exemptions is that the person needs to protect some important assets in order to get by. There are also exemptions for keeping your car and other necessary items. The amounts vary by state, but the types of things you can exempt are limited to what you need to get by. Luxury items are not on the list.
You are required to have lived in a state, in that house, for 40 months, in general, to claim a state exemption. Check with your state rules to see what the details are.
Can Criminal Fines And Court Costs Be Discharged In Bankruptcy
The general rule with respect to fines and court costs in criminal cases is that fines issued against the Debtor as punishment for the crime are not dischargeable in either a Chapter 7 or Chapter 13. This includes fines in a criminal sentencing order or restitution set out in a criminal sentencing order. Although fines from a traffic ticket are not discharged, a fine imposed by a municipality as a result of a red light or speed camera are fines resulting from what has been decided by most courts as a civil action, and therefore these fines are dischargeable.
Fines that are related to court ordered reimbursement of governmental expenses are dischargeable in bankruptcy. Examples would be a fine to reimburse your city for cutting your grass after you were cited for the lawn being overgrown. The fine is considered an attempt by the municipality to recoup an expense and is civil, not criminal, in nature. It can therefore be discharged.
Another common example of a government imposed debt is debt related to overpayment of public assistance benefits. These claims are civil in nature , and therefore the claim can be discharged.
It is always a good idea to contact an attorney who is knowledgeable about the ins and outs of Chapter 7 and Chapter 13 bankruptcy when you cannot pay government debts, including criminal reimbursement fines or court related fines and costs.
Chapter 13 Bankruptcy And Fines
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcyprotections allow for the discharge of fines which were assessed as a means of punishment. Chapter 13 bankruptcy protections also allow the discharge of punishment debts if the debt was the result of fraud.
There are restrictions, however, on what types of punitive fines can be discharged in Chapter 13 bankruptcy. Those fines which were included as part of criminal sentencing including any restitution fines cannot be discharged through bankruptcy.
Similar to Chapter 7 bankruptcy protection, under Chapter 13 bankruptcy, any fines which seek reimbursement for governmental costs or loses may be discharged.
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The Chapter 13 Option
Chapter 13 allows debtors to repay all or a portion of what is owed on pre-bankruptcy debts under the terms of a plan that lasts from three to five years. Amounts still owed on the debts at the end of the plan are discharged. However, exceptions to discharge of fines and restitution apply in chapter 13 as well as in chapter 7.
Chapter 13 has advantages over chapter 7 when it comes to discharging certain civil penalties. However, in Mr. Smiths case the $2,500 criminal fine and the $250 restitution order that are non-dischargeable in chapter 7 are also non-dischargeable in chapter 13. Chapter 13 involves a significant commitment of time and expenses, so for the limited purpose of addressing his criminal justice debt, chapter 7 likely best meets Mr. Smiths needs.
Other Ways Bankruptcy Can Help With Court Fines
Chapter 7 and Chapter 13 bankruptcy each provide a different benefit. So even if you can’t discharge a fine, filing for bankruptcy might help in another way.
- Chapter 7 bankruptcy. If your income is low enough to allow you to qualify for Chapter 7 bankruptcy, you’ll be able to get rid of other types of debt, such as credit card balances, personal loans, and medical bills. After three to four months , you should have less debt and more funds to pay your fine.
- Chapter 13 bankruptcy. If your fine is hefty, or you have other nondischargeable debt, a Chapter 13 bankruptcy can give you additional time to pay it off. You’ll propose paying off the debt in full over a three to five-year repayment plan. If you can prove that you have sufficient income to make the payments, the court will likely confirm your plan.
Here’s another tip: If your driver’s license has been taken away for failing to pay fines, a Chapter 13 bankruptcy filing might help. Some states will allow you to get your license back if you can show that you have a repayment plan in place. Competent bankruptcy counsel will be able to help you through the process.
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How State Or Local Law Classifies The Fine
Whether a fine is penal in nature may also depend on how state or local law characterize the infraction. For instance, misdemeanors and felonies are usually considered criminal, which means you could not discharge the fine in bankruptcy. But many states and municipalities do not designate parking tickets and many traffic tickets as criminal — you could argue that those should be eligible for discharge in a Chapter 7 case.
The Bankruptcy Automatic Stays Impact On Collection Of Criminal Justice Debt
A major benefit of bankruptcy is that the filing of a case triggers an automatic stay of actions to collect on pre-bankruptcy debts. 11 U.S.C § 362. However, an exception to the automatic stay applies to the commencement or continuation of a criminal action or proceeding against the debtor. 11 U.S.C. § 362. Collection of criminal justice fees and charges sometimes fall into a gray area under this standard. SeeNCLCs Clearing the Path to a New Beginning: A Guide to Discharging Criminal Justice Debt in Bankruptcy, at 34 NCLCs Collection Actions § 11.5.2 NCLCs Consumer Bankruptcy Law and Practice § 18.104.22.168
If the collection activity involves the enforcement of a specific court order directing fixed payments under a defined schedule, the continuing collection activity is likely excepted from the automatic stay and can proceed despite the bankruptcy. Actions by a private debt collector to collect on debts assessed outside of the sentencing order are more likely to be barred by the stay.
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Can Chapter 7 Bankruptcy Help Eliminate Other Court Fines
Most Court fines are not dischargeable in a Chapter 7 bankruptcy. However, there are a few types of court fines that can be discharged when you file bankruptcy. To determine if your Court fines are dischargeable you will need to assess whether the fine was imposed for punishment or reimbursement. If the fine was given to punish you for something you did, the fine will not be discharged. If, on the other hand, the fine was imposed because you owe the government money then it may be dischargeable. If you are not sure whether the fine is dischargeable, you should speak with a bankruptcy lawyer who can review your specific situation and give you legal advice as to whether your Court fines can be eliminated.
What about jail fees or other costs of incarceration?
Under the Bankruptcy Code, these fees are likely not dischargeable. However, depending on what the fee is for exactly, and who the fee is owed to, there may be an argument that can be made that this debt should be dischargeable. Whether your debt can be discharged can only be answered by a bankruptcy lawyer who is familiar with the details of your case.
Things To Consider Before Filing For Bankruptcy
There are other debt-relief solutions than bankruptcy available for people who are struggling financially, but have enough resources to right the ship.
Calling a counselor from a nonprofit credit counseling agency is a good first step. They offer a free counseling service that looks at your finances and discusses the pros and cons of a debt management program, a debt consolidation loan or even debt settlement, any of which might help guide you back to safe ground.
Another step in the right direction would be to get serious about creating and living within a budget. You could supplement your current income with things like taking a second job or trying to sell some assets to pay bills.
Other things to consider before making a final decision: Did I try to negotiate the debt down to manageable numbers? Is my current status permanent or is the situation expected to improve soon?
A final consideration: Do I have a big bill or series of big bills coming due soon? You might want to hold off on paying that until you decide whether or not to file bankruptcy since those bills could be dismissed through bankruptcy.
Here are some other questions you need to answer before making a decision on whether you want to file bankruptcy.
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Turning A $12634 Debt Into $2750
Based on these facts, and current court interpretations of Bankruptcy Code § 523, this is how a chapter 7 bankruptcy might be able to deal with each of the components of the $12,634 criminal justice debt:
1. The $2,500 fine for retail theft, a court-ordered criminal fine imposed in a sentencing order, is non-dischargeable in bankruptcy.
2. The $250 restitution order for the benefit of a private party and as compensation for that partys loss appears to be dischargeable based upon a plain text reading of § 523. However, under the Supreme Court standard enunciated in Kelly v. Robinson, 479 U.S. 36, 50 this debt is non-dischargeable because it is a condition a state criminal court imposed as part of a criminal sentence.
3. The $4,270 assessment for the cost of post-sentencing detention a purely compensatory charge assessed by state officials after Mr. Smiths sentencing and not included in the criminal courts sentencing order. Here is an example showing where bankruptcy might be successfully used to eliminate an individuals criminal justice debtin this case, possibly 78% may be dischargeable. While few cases present this proportion of criminal justice debt that may be dischargeable, the example is useful as an illustration not be subject to the § 523 discharge exception, so should be discharged in bankruptcy.
What Happens To Your Business
If youre self-employed, your business will be closed. Any business assets will be claimed by the trustee.
Your employees may make a claim for unpaid wages and holiday pay, payment in place of notice, and redundancy. Theyll make this claim to the National Insurance Fund, or the money may be claimed in the bankruptcy process.
You can start trading again, but youll have to follow certain rules.
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Before Filing For Bankruptcy
Before you file for bankruptcy, get informed about this debt relief option and the others that may be available to you. Debt settlement programs, for instance, can help you eliminate your debt without forcing you to surrender your assets. Fill out the Canadian debt relief application for more information about your options.
When Is Filing For Chapter 7 The Right Move
Filing for Chapter 7 makes a great deal of sense when you owe a lot of unsecured debt. These creditors may be looking to:
- sue you,
- place liens on your property,
- garnish your wages, or
- levy your bank account.
In cases where youre struggling to make payments as it is, Chapter 7 can be beneficial. In Chapter 7, bankruptcy can discharge all of your unsecured debt. This would free up your finances to ensure that you stay out of jail and continuing making restitution to the court. It would also ensure that you continue pay those whom you owe a duty to repay.
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Bankruptcy Stops A Judgment
Filing a consumer proposal or bankruptcy provides a stay of proceeding which stops most creditor actions for judgment debts including garnishments and can unfreeze a bank account.
There are exceptions. Certain debts are not eligible for discharge in a bankruptcy including debt related to fraud or misrepresentation, court-imposed fines, student debt less than 7 years old, and child support or alimony. Neither a judgment debt or garnishment can be stopped for these debts.
However all other judgment debts can be eliminated through both a bankruptcy and a consumer proposal.
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How Funds Are Recovered And Distributed
To help creditors recover some of what they are owed, non-exempt property owned by the bankrupt as of the date of the bankruptcy, or acquired prior to the bankruptcy discharge, may be seized and sold by the LIT. Exempt property includes property protected by applicable provincial and federal laws , property held by the bankrupt in trust for another and, in some cases, goods and services tax payments.
In addition, the LIT determines the bankrupt’s “surplus” income, i.e., the amount beyond what the bankrupt requires to maintain a reasonable standard of living. The bankrupt must pay this amount to the estate for distribution to the creditors after the costs of administration are deducted.
After the LIT has sold all of the bankrupt’s property, he or she must prepare a final statement of receipts and disbursements and a dividend sheet. The dividend sheet contains a list of creditors who will receive dividends and the amount to which they are entitled. You will be paid the dividends to which you are entitled before the bankruptcy file is closed, which is before the discharge of the LIT.
Once the secured claims have been settled, the dividends are distributed in the order set out in section 136 of the
These prior claims are subject to certain conditions and this list is not exhaustive.
The law gives priority to the claims of preferred creditors over those of other unsecured creditors.
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Criminal/penal Case Court/osbnos: 31
A husband sold the family home to his wife. The wife immediately remortgaged that home. After four months, she stopped making mortgage payments on it. Soon after that, the family moved to a new home that they bought in their daughter’s name. The daughter made a $228,000 down payment on the home using money her father gave her. When the wife filed for bankruptcy, she reported her previous house as an asset. In addition to the mortgage debt on that previous house, she owed $169,000 in other debts. The husband filed for bankruptcy 10 months after the wife, declaring debts of $270,000. The husband said that he had given the house to his wife as part of their separation agreement, along with $100,000. Then the husband changed his account of the events and said that he had sold the house to someone else and given $100,000 of the proceeds to his wife as part of a separation agreement. An investigation concluded that the down payment on the second home likely came from the wife’s purchase and remortgaging of the first home in an attempt to shield that money from bankruptcy proceedings. The investigation also found that both spouses accumulated most of their debt in the seven months before they filed for bankruptcy. Each had obtained more than $130,000 in cash advances, as well as bought goods on credit.
Summary of offences of the bankruptsFootnote 2
If The Ability To Pay Was Not Considered It May Be A Basis For Appeal
The Washington State Supreme Court, in State v. Blazina, ruled that courts must consider a persons ability to pay in establishing discretionary legal financial obligations . If your ability to pay was not considered, you may be able to get the LFOs removed or reduced. It is important to note, the requirement the consider the ability to pay only applies to discretionary LFOs. Mandatory LFOs are not subject to this type of review.
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Does The Fine Punish The Violator Or Compensate The Government
Whether you can discharge a fine in bankruptcy depends on the nature of the charge or what it is intended to accomplish. If the fine is penal in nature — that is, the fine is intended to punish you for wrongdoing — you cannot discharge in in a Chapter 7 case. On the other hand, if the fine is designed to compensate the government for its pecuniary loss, you can discharge it in bankruptcy.
Example. Let’s say you spray paint graffiti in a public park. If caught, you would likely receive two fines: One for defacing public property and one for the cost of cleanup or repair. The first fine would likely be nondischargeable because it is intended to punish you for failing to abide by the law. The second would likely be dischargeable because it is designed to compensate the city for removing the paint.