How Does The Chapter 7 Process Differ From Others
There are several different types of bankruptcy, though the two most used by individuals are Chapter 7 and Chapter 13. About 70% of those who filed for bankruptcy in 2020 filed Chapter 7, with almost all remaining filing Chapter 13. A small fraction filed Chapter 11, which is a reorganization bankruptcy most commonly used by businesses.
Chapter 7 is a much faster process than Chapter 13. Once Chapter 7t is discharged, the court process is finished. The rest maintaining a budget and living within your means is up to you. With Chapter 13, the court, you, your trustee and your creditors agree to a repayment plan that takes 3-5 years. The plan is based on what the court determines your ability to pay is, and if you stick with it, the rest of your unsecured debt is discharged once its completed. If you dont, the bankruptcy is dismissed and youre back in the situation you were in before filing.
Debts That Will Not Be Written Off
When youre discharged youll be released from most, but not all, of the debts you owed at the date of the bankruptcy.
Debts you will not be released from include:
- debts arising from fraud
- anything you owe under family proceedings – unless the court decides otherwise
- damages for personal injuries to anyone – unless the court decides otherwise
- debts which were not included in the bankruptcy itself, for example a debt to the Student Loans Company
When Will The Court Close Your Bankruptcy Case
If you have a simple no-asset Chapter 7 bankruptcy, the trustee will file a report of no distribution with the court. In that case, the court will typically close your case shortly after you receive your discharge.
But as we discussed, if you have nonexempt assets the trustee needs to administer or ongoing lawsuits in your bankruptcy, the court will not close your case until all issues are resolved and all property is administered.
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Do You Need Help With Bankruptcy
Whether youre considering filing for bankruptcy or have already done so and are looking for some help with the process, working closely with a Licensed Insolvency Trustee can certainly help.
To be put in touch with a seasoned LIT to help guide you with your bankruptcy, be sure to call Loans Canada today! We can help point you to an appropriate trustee to help you with bankruptcy or any other debt relief services you might be considering.
Types Of Bankruptcy Filings
Chapter 7: Liquidation
Chapter 7 is designed for individuals and businesses experiencing financial difficulty that do not have the ability to pay their existing debts. Under Chapter 7 a trustee takes possession of all of your property. You may claim certain property as exempt under governing law. A bankruptcy trustee then liquidates all non-exempt property and uses the proceeds to pay your creditors according to a distribution scheme required by the Bankruptcy Code.
The main purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. A bankruptcy discharge is a court order releasing you from liability for many types of debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the court and the purpose for which you filed the bankruptcy petition will be defeated.
Even if you receive a discharge, there are some debts which are not discharged under the law. These include certain types of taxes, student loans, alimony and child support payments, debts fraudulently incurred, debts for willful and malicious injury to a person or property, and debts arising from a drunk driving charge. Generally speaking, a bankruptcy discharge does not remove liens from your property.
Chapter 11: Reorganization
Chapter 11 is designed for the reorganization of a business. It is also available to individual debtors who exceed the thresholds for Chapter 13 bankruptcies.
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How Does The Debtor Get A Discharge
Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge. The Federal Rules of Bankruptcy Procedure provide for the clerk of the bankruptcy court to mail a copy of the order of discharge to all creditors, the U.S. trustee, the trustee in the case, and the trustee’s attorney, if any. The debtor and the debtor’s attorney also receive copies of the discharge order. The notice, which is simply a copy of the final order of discharge, is not specific as to those debts determined by the court to be non-dischargeable, i.e., not covered by the discharge. The notice informs creditors generally that the debts owed to them have been discharged and that they should not attempt any further collection. They are cautioned in the notice that continuing collection efforts could subject them to punishment for contempt. Any inadvertent failure on the part of the clerk to send the debtor or any creditor a copy of the discharge order promptly within the time required by the rules does not affect the validity of the order granting the discharge.
Chapter 7 Vs Chapter 13
Chapter 7 and Chapter 13 are the two most common types of personal bankruptcy.
In a Chapter 7 bankruptcy, a trustee appointed by the bankruptcy court will liquidate many of your assets and use the proceeds to pay your creditors some portion of what you owe them. Certain assets are exempt from liquidation. Those typically include part of the equity in your home and automobile, clothing, any tools you need for your work, pensions, and Social Security benefits.
Your nonexempt assets that can be sold off by the trustee include property , a second car or truck, recreational vehicles, boats, collections or other valuable items, and bank and investment accounts.
In Chapter 7, your debts are typically discharged about four months after you file your bankruptcy petition, according to the Administrative Office of the U.S. Courts.
In a Chapter 13 bankruptcy, by contrast, you commit to repaying an agreed-upon portion of your debts over a period of three to five years. As long as you meet the terms of the agreement, you are allowed to keep your otherwise-nonexempt assets. At the end of the period, your remaining debts are discharged.
In general, people with fewer financial resources choose Chapter 7. In fact, to be eligible for Chapter 7, you must submit to a means test, proving that you would be unable to repay your debts. Otherwise, the court may determine that Chapter 13 is your only option.
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Debt Relief Alternatives To Bankruptcy
Bankruptcy has serious consequences. A Chapter 7 bankruptcy will remain on your for 10 years, and a Chapter 13 will remain for seven years. That can make it more expensive or even impossible to borrow money in the future, such as for a mortgage or car loan, or to obtain a credit card. It can also affect your insurance rates.
So itâs worth exploring other types of debt relief before filing for bankruptcy. Debt relief typically involves negotiating with your creditors to make your debts more manageable, such as reducing the interest rates, canceling some portion of the debt, or giving you longer to repay. Debt relief often works to the creditorâs advantage, too, as they are likely to get more money out of the arrangement than if you were to declare bankruptcy.
You can negotiate on your own or hire a reputable debt relief company to help you. As with , there are scam artists who pose as debt relief experts, so be sure to check out any company that youâre considering. Investopedia publishes a regularly updated list of the best debt relief companies.
Find The Original Discharge Order
This is the simplest way to find the date of your discharge. After your bankruptcy proceedings end, the bankruptcy court clerk must mail a copy of the initial discharge order to you. The clerk is only required to send new bankruptcy discharge notices, so if your discharge is old you may have to request one from the court.
If you file for a Chapter 7 bankruptcytypically the option for people with limited income who cannot repay their debtsit usually takes about three to four months after you file your initial bankruptcy petition to receive a discharge order. For Chapter 13 bankruptcieswhich require the debtor to enter into a repayment plan to pay back the debtsyou receive a discharge order upon completion of the repayment plan. Typically, repayment takes three to five years to complete.
If you either lost or misplaced the original discharge order, you can still ask for one from the bankruptcy court that handled your case. To do this, contact the clerk in the court that entered your discharge order. If you need to obtain a certified copy, you usually have to pay an additional fee. If your bankruptcy case is older and archived, the court may charge an additional fee to retrieve your order as it may take more time to locate your case. If all you are looking for is the date and do not need a physical copy of the discharge, a clerk may be willing to simply give you the information without charging a fee.
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Debts That Are Difficult To Discharge In Bankruptcy
Student loans are notoriously difficult to discharge through bankruptcy it is only possible if you can demonstrate undue hardship to yourself or your dependents, such as being unable to maintain a minimal standard of living. In some cases, a court may discharge part, but not all, of your student loan debt. If student loan debt is a major reason for your considering bankruptcy, contact your loan servicer first and see if itâs possible to negotiate a repayment plan that would work for you. In the case of federal student loans, for example, several repayment plans are available.
You cannot have income tax debts discharged without a special exemption, which can only be obtained by petitioning the bankruptcy court and explaining why you deserve relief. So if you have income tax debts that you cannot repay, then you may be better off consulting with a tax attorney to discuss your options before filing for bankruptcy.
In the case of federal taxes, for example, the Internal Revenue Service can offer several alternatives to people who are unable to pay what they owe. One is an offer in compromise, in which the IRS agrees to accept a lesser amount. The IRS may also arrange for a payment plan, or an installment agreement, that will allow you to pay your taxes over an extended period of time.
What Bankruptcy Records Exist In Canada
The official bankruptcy records in Canada are compiled by the Office of the Superintendent of Bankruptcy Canada and are public records. This means that any member of the public can access them via an internet search tool on the OSB website, although there is a fee, and searches must be very specific.
The OSB sends a monthly list of new bankruptcies to each of the credit bureaus , who record them on their credit histories of individual consumers. The OSB also sends information on bankruptcies that have been discharged , and the bankruptcy record for each person is removed from that persons credit report after a set number of years.
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Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
Who Will Know About My Bankruptcy
In most cases, only your Trustee, your creditors, and the Office of the Superintendent of Bankruptcy Canada will know you have filed for bankruptcy.
If you apply for credit with another lender while the credit bureaus still have a record of your bankruptcy, that lender will learn about your bankruptcy from a credit bureau.
Nobody else is likely to know about your bankruptcy, unless something causes them to suspect it and they take the trouble to search OSB records.
You need not fear the embarrassment of your friends or relatives seeing any bankruptcy records about you, except those you choose to tell. With this reassurance, you can contact a Licensed Insolvency Trustee near you now, for a free, confidential consultation. Your first appointment is free. We have trustees everywhere from Calgary to Montreal and more. Get a free consultation and solve your money problems today!
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Buying A New Or Used Car Bankruptcy
Can I get a car loan after bankruptcy? Yes, but first let me say that the best car is a paid-off car. Even if you are putting a couple of thousand dollars a year into maintaining an old car, it is still far less than the cost of purchasing a car on credit. If you can pay in cash for your car, that is almost always the best option. I recommend avoiding vehicle loans or keeping them very small.
That being said, if you need a car and cannot pay cash, financing a vehicle can help you rebuild your credit. Vehicle financing is often more available after bankruptcy than other types of credit.
Tips for financing a vehicle without getting ripped off
Shop around. Interest rates for post-bankruptcy buyers will be significantly higher than for buyers with excellent credit. However, it need not be an extortionary rate.
Never roll over an old car loan balance. If you still have a balance on your current car loan, the dealer may suggest that you roll it into a new car loan. Don’t do it. Rolling over the balance of an old car loan into a new loan is one of the worst financial mistakes someone can make when purchasing a car. I have had clients who were forced into bankruptcy by the enormous payments generated by such loans.
Contact The Clerk Of The Court
The first place to check when you need a copy of your bankruptcy discharge papers is with the Clerk of the Court where your case was filed. Some courts will allow you to search the record online for free, while others charge a fee for searches. If you need copies of the document, there will be a fee as well. Copies of the document are often a charge per page. If it has been many years, the case may have been archived, so additional fees may apply.
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How To See If A Bankruptcy Has Been Discharged
When a person applies for a new loan or refinancing after bankruptcy, it is common for some lenders to want proof of discharge. This can easily be established with bankruptcy records. You may obtain a copy of the discharge order from the bankruptcy court, the from your bankruptcy attorney or online using the PACER system.
What If You Live Overseas
If you are living overseas you can still become bankrupt. Creditors that are not based in NZ will be sent a report if they are listed in your bankruptcy, but they can continue to chase you for any money you owe them.
Your assets in New Zealand become the property of the Official Assignee. If you have assets outside of NZ, the Official Assignee may have your NZ bankruptcy recognised in the overseas country and may deal with those assets also.
You can return to NZ during your bankruptcy, but if you want to leave again you will need to apply for permission.
The public register can be searched from overseas. Several credit reporting companies operate in more than one country so your credit rating outside of NZ may be affected.
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Figuring Out Which Debts Are Discharged
The reason it does not state which debts are discharged is that it is simply impossible.
The bankruptcy code provides numerous exceptions to which debts are discharged. These exceptions are codified in section 523 of the Bankruptcy Code.
To further complicate matters, each bankruptcy chapter incorporates various parts of section 523 differently, so a debt that is discharged in a Chapter 13 case, for example, may not be discharged in a Chapter 7 or 11, etc.
Some of these exceptions, such as debts incurred through fraud, require the creditor to actively object within a very specific time frame and then prevail at trial, in order for the debts to not be discharged. But many others are automatically not discharged if certain conditions are met, and those conditions frequently have many exceptions of their own.
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A good example of this is tax obligations. For a quick look at how income tax dischargeability is determined, my taxes in bankruptcypage might be helpful.
A lot of the criteria for determining whether a debt is discharged is subject to argument and can only be decided by a Judge if brought in front of the judge by one of the parties specifically. Without that, the best the court can do is issue a general discharge that applies to all those debts which do not have a specific exception from discharge in the bankruptcy code.