Bankruptcy

What does it mean to file bankruptcy?

Consumer/ Individual Bankruptcy is a legal  proceeding where a person (DEBTOR) files a petition with the U.S.  District Court (Federal Court) to stop creditor harassment and, in most  cases, to receive a DISCHARGE.  A discharge is an Order stating you do  not have to pay most, if not all, of your debts.  A debtor files  bankruptcy in order to: liquidate/ discharge (get rid of) their existing  or past debts, OR to pay back some or most of their debts through a  debt repayment plan through the Bankruptcy Court.  The US Trustee's  Office oversees all bankruptcy filings.  Filing bankruptcy involves the  Federal Court System and the US Trustee's Office is a component of the  Federal Court System.
 

What initial requirements must be satisfied to file bankruptcy?

In order to file bankruptcy the US  Bankruptcy Code requires that a debtor complete a US Trustee approved  credit counseling course.  In order to fully complete your bankruptcy  case and receive a discharge the US Bankruptcy Code requires that a  debtor must complete a US Trustee approved Financial Management Course.   Certain documentation is also required to complete your bankruptcy  petition and to forward to the trustee that oversees your bankruptcy  case.  This includes pay stubs from present to the 6 months prior to  your bankruptcy filing, tax returns or transcripts for the most recent  tax year as well as other pieces of information my office will request  from you.
 

What is US Trustee Credit Counseling and Financial Management?

Prior to filing your bankruptcy you must  complete either in person, by telephone or the internet, a US Trustee  approved Credit Counseling Course.  The credit counseling course must be  completed within 180 days BEFORE your case is filed.  My office will  supply you with a list of US Trustee approved credit counseling courses  and will file our Certificate of Completion of that course with the  Bankruptcy Court.  After your case is filed you must also complete a US  Trustee approved Financial Management Course.  My office will supply you  with a list of the US Trustee approved financial management courses and  will file your Certificate of Completion of that course with the  Bankruptcy Court in order that you receive a discharge of your debts.
 

What is Chapter 7 bankruptcy? 

Getting rid of, eliminating or DISCHARGING  your debts amounts to a Chapter 7 bankruptcy filing.  Most or all of  your assets are protected.  
 

You will not lose your house (homestead) or vehicle if the ownership  interest you have in those items, called "equity", is not greater than  that allowed under the Federal or State bankruptcy exemptions.  An  example of equity:  Take the fair market value of your property, or in  some cases the replacement value of your personal property, and subtract  the amount you owe for the loan on that property.
 

In order to keep your home or vehicle(s) through a Chapter 7 filing you  must be on time with your monthly payment obligations, the items must be  insured and you must  have no more equity in those items except that  allowed by Federal or State exemptions.
 

Your gross annual income, taking into account your total family size,  does not exceed that of the State of Wisconsin's median average gross  annual income for the same size of your family and your monthly living  expenses outweigh or come close to outweighing your monthly income.
 

A Chapter 7 is finalized and discharge status is granted from the  Bankruptcy Court once every 8 years from receiving a discharge in a  previous Chapter 7 AND once every 6 years after receiving a Chapter 13  discharge.         
 

What does my gross annual income have to do with filing bankruptcy?

Everything and so does the size of your  family.  The amount of gross annual income determines whether you can  file a chapter 7 at all.  In order to file a Chapter 7 your ANNUAL/  YEARLY GROSS INCOME, which includes all current MONTHLY INCOME but does  not include Social Security benefits and payments to war crimes victims,  must be EQUAL TO or LESS THAN the median annual income level of a  family the same size as yours living in the state you live in.  

The Bureau Median Family Income by Family Size changes throughout the year.
 

ANNUAL/ YEARLY GROSS INCOME:  Your family's annual gross income must not  exceed the average annual income, by family size, as determined by the US Trustee's Office of the US Department of Justice.  Those numbers can be found here:  https://www.justice.gov/ust/eo/bapcpa/20240515/bci_data/median_income_table.htm  

For example for bankruptcy cases filed on or after April 1, 2023, the median family gross income in order to have an unrebuttable presumption that you qualify for a chapter 7 bankruptcy, your income must be equal to or less than the following  the amounts contained in the link above.  

What does this mean to you?

If your gross annual income is greater  than the state you reside in according to family size, your creditors or the US Trustee's Office can file a Motion to  Dismiss your Chapter 7 arguing that you are abusing the bankruptcy  system and that you have an ability to pay some if not all of your debt.   
 

If your gross annual income is greater than the state you reside in, according to family size you can avoid a Motion to Dismiss your Chapter 7 by hiring my office to make sure you are filing  the correct chapter to begin with.  
 

If your income is above the state's median family income that you reside in you may be a very good candidate for filing a CHAPTER 13 BANKRUPTCY.
 

If your annual income is equal to or less than the median family income of the state you reside in there is no presumption of abuse in filing a  Chapter 7.  You may be a very good candidate for filing a CHAPTER 7  BANKRUPTCY.
 

What income is included in calculating gross annual income?  

The average monthly income you have  received in the past 6 months prior to your bankruptcy filing, not  including Social Security Disability or death benefits and payments to  victims of war crimes.  Gross annual income is important to determine  whether you should even file a Chapter 7 at all. Your net monthly income  is important to determine whether your regular monthly expenses even  outweigh your net monthly income.
 

Remember, your gross income is total income BEFORE any deductions.  Net income is your total income AFTER certain deductions.
 

Isn't my net income important at all?

Only after looking at your gross annual income.
 

Once my office determines your gross annual income we will next  calculate your current net monthly income in order to determine whether  you have any disposable income.
 

In this aspect your current net monthly income, which includes ALL  sources of income is weighed against current monthly expenses.  If after  calculation your current net monthly income does not outweigh your  current monthly expenses and you have disposable income you may have  problems filing a Chapter 7 bankruptcy.
 

If you are married but only 1 spouse is filing due to legal separation  or living apart for a valid reason and is not attempting to evade the  bankruptcy laws, the non-filing spouse's income is not included as part  of current monthly income.  But if the spouse that is not filing the  bankruptcy provides income to the filing spouse this IS considered part  of calculating current monthly income and is included in the bankruptcy  filing.
 

What is "means testing"?

Your total current gross monthly income  for the past 6 months is calculated to project your average gross annual  income for the year.  If the gross annual income for your family size  is more than the median family income by family size in the State of  Wisconsin your gross average monthly income averaged for the past 6  months will be subtracted from using the IRS' standards for allowable  monthly expenses and not necessarily your actual monthly expenses.  
 

The means test is basically a way to determine whether a family who  makes more money than the average family in the State of Wisconsin  qualifies to file a Chapter 7 or not by using a standard set of expenses  and not your own individual expenses.  
 

If after subtracting the IRS' national and local standards for allowable  expenses the remaining amount of disposable monthly income is:
 

$166.67 or MORE...your filing of a Chapter 13 AVOIDS the presumption of an abusive filing under Chapter 7.
 

$100 or MORE...it is presumptively abusive to file a Chapter 7 if you  can pay at least 25% of your unsecured debt through a 60 month Chapter  13 Plan.
 

LESS than $100...filing under a Chapter 7 is not presumptively abusive.   This does not mean the US Trustee's Office can not challenge your  filing as being abusive.  
 

The Law Offices of Chomi Prag, LLC is prepared to address these calculations in your case.
 

What is Chapter 13 bankruptcy?

Paying back some or all of your debt  through a structured payment plan which runs between 36 to 60 months is a  CHAPTER 13 bankruptcy filing.
 

Chapter 13 is debt repayment, where your debt is structured into a repayment and consolidation plan so you can effectively deal with all your debt within 36 to 60 months.  A Chapter 13 trustee will take the funds you  pay into your plan and disburse the funds in accordance with your Chapter 13 Plan.
 

Secured creditors USUALLY get paid a LOWER INTEREST RATE through your  plan, as compared to the the interest you were paying before you filed  the Chapter 13.  Secured creditors will get paid back replacement value  of the item or vehicle.  If you purchased the vehicle within 910 days  (2.5 years) prior to the bankruptcy filing your vehicle will get paid  back at the balance owed right through your Chapter 13 Plan.
 

Unsecured creditors do not get paid interest, only a percentage of what  is owed to them.  Filing a Chapter 13 bankruptcy will STOP interest,  late fees and penalties on your credit card and other unsecured debt!
 

If you are making car payments, they will be integrated into your  Chapter 13 Plan payment.  This means you will no longer make your car  payment directly and your vehicle will  be paid in full before the end  of your Chapter 13 Plan.
 

If you are leasing a vehicle, this payment may not be included in your  plan and will remain your responsibility to pay outside the chapter 13.  
 

Why do people file Chapter 13?

A person may file a Chapter 13 to save a  home from foreclosure or sheriff sale or maybe because he or she has  fallen behind on their monthly mortgage payments or vehicle payments.
 

Other times people file a Chapter 13 because their income is too high to file a Chapter 7.
 

Debtors with INCOME GREATER THAN THE STATE THEY RESIDE IN must be in a Chapter 13 that continues for 5 years (60  months) unless all creditors can be fully repaid in less than 5 years.
 

Debtors with INCOME BELOW THE STATE THEY RESIDE IN must be in a Chapter 13 that lasts for AT LEAST 3 years (36  months), unless creditors can be fully repaid in less time.
 

In general your monthly Chapter 13 payment comes directly out of your  paycheck, by a weekly/ bi-weekly/ monthly/ semi-monthly wage deduction  NOT by wage garnishment.  If you receive income from a source other than  employment you will be responsible for making your chapter 13 plan  payment every month.
 

You only receive discharge status from the bankruptcy court for your  chapter 13 filing once every 2 years after receiving a previous chapter  13 discharge, or 4 years or more after receiving a chapter 7 discharge.
 

OTHER IMPORTANT ASPECTS INVOLVED IN CHAPTER 13 FILINGS
 

Past 4 years of TAX RETURNS must be filed prior to the filing of your  Chapter 13 Plan.  In order to complete your Chapter 13 you must be on  time with all domestic support obligations.  Domestic support  obligations include child support, alimony/ maintenance, family support  or any support owed to or recoverable by a spouse.
 

Can I pick which chapter bankruptcy I file?

Not necessarily.  
 

If your have filed bankruptcy in the past, depending on the length of  time, you may have to file a Chapter 13 rather than a Chapter 7.
 

If your income is too high you may have to file a Chapter 13 rather than a Chapter 7.
 

If your actual monthly expenses do not outweigh your actual net monthly  income you may have to file a Chapter 13 rather than a Chapter 7.
 

If you have too much equity in a piece of property you may have to file a Chapter 13 rather than a Chapter 7.
 

If you want to keep a house and/ or car and are behind on those payments  and you wish to keep those items you may have to file a Chapter 13  rather than a Chapter 7.
 

If you do not have monetary funds to pay your creditors through a  Chapter 13 you may have to file a Chapter 7 rather than a Chapter 13.
 

How often can you file bankruptcy?

If you file bankruptcy more than once  during a 12 month period you do not receive the full benefits the  Bankruptcy Code has to offer.  Filing a second bankruptcy case within a  12 month time period may result in the presumption of a "bad faith"  filing.  This means that it is possible your case will be dismissed and/  or you will not receive a discharge order from the Bankruptcy Court.  In most situations a person files a bankruptcy in order to receive a discharge.
 

You can only file a Chapter 7 and receive a discharge once every 8 years  from receiving a previous chapter 7 discharge and 6 years after  receiving a Chapter 13 discharge.
 

You can only file a Chapter 13 and receive a discharge once every 2  years after receiving a previous Chapter 13 discharge and 4 years after  receiving a Chapter 7 discharge.
 

Can I get rid of all my bills/ debts through bankruptcy?

Sometimes.
 

Generally speaking, if you want to keep certain things you will have to  pay for those certain things.  These are called "secured debts".
 

Secured debts include objects such as real estate, vehicles, jewelry,  furniture, computer, etc.  These debts are secured because the company/  bank (creditor) that financed your ability to obtain these items has a  lien on these items.  This means if you do not pay the company/ bank who  financed these items for you that company/ bank has a legal right to  get that property back from you.  More than likely you signed a  "security agreement" allowing the for the company/ bank to have such a lien.
 

lf you want to return these items back to the creditor you will not have  to continue paying on that debt.  REALIZATION:  More likely than not,  after returning the item back to the company/ bank there will be a  "deficiency" or balance owed on that item.  The creditor does not want  the item you returned to them.  They need to sell that item to recoup  the loss of not having you pay them back for the item and therefore the  creditor will sell the property.  But many times the property isn't  worth as much as you financed it for.  Therefore, you will still owe the  creditor even AFTER the creditor has the item back in their possession.   
 

Other debts are non-dischargeable and you can not get rid of that debt through a bankruptcy.
 

What kinds of debts are not dischargeable through bankruptcy?

Generally, owing the government money  (ie:  recent or untimely filed tax returns, tickets, fines), criminal  restitution, damages caused by drunk driving or drugs, most student  loans, alimony and child support, repeated bounced checks and creditors  not listed in your bankruptcy at all.    
 

What if I can't afford to keep making my vehicle, secured loan or mortgage payments?

Bankruptcy does not make it any easier to afford these items.  
 

You have an option to give the property back to the creditor.  If you  can't or don't want to keep paying for the car, house, furniture,  jewelry you can surrender it.   Most of the previous items mentioned  must also be fully insured if being financed and you wish to retain the  items.
 

After you surrender the secured debt/ property to the creditor you owe  the deficiency to the creditor.  NOW this is an UNSECURED DEBT.  You no  longer have possession of that property.  Get rid of that deficiency you  owe in your Chapter 7 or lower the balance owed in a Chapter 13.
 

What happens once a creditor sues me in court?

A creditor files suit in order to obtain a judgment to collect money you owe to them.
 

After a civil or small claims judgment has been entered against you the  NEXT STEP for the creditor is to START GARNISHING YOUR WAGES, ATTACHING  the judgment to your banking account(s) and attaching the judgment to your house.  
 

Not all creditors take this NEXT STEP, but most do.  There is a very  strong possibility that your wages will be garnished in the very near  future after the judgment has been entered against you.
 

ADVICE:  Contact The Law Offices of Chomi Prag, LLC to prevent attachments or wage garnishments from occurring.
 

What does filing bankruptcy do about wage garnishments?

Filing a Chapter 7 Bankruptcy can STOP the  wage garnishment and discharge the debt owed.  Filing a Chapter 13 can  STOP the actual wage garnishment from coming out of your paycheck and  possibly reduce the amount owed,  but you will more than likely end up  paying back the creditor who was garnishing your wages a certain  percentage through a Chapter 13 plan.  
 

In most cases it is NOT possible to go back and get the money the creditor took from garnishing your wages.  
 

What about debt consolidation services I see advertised on TV?

Credit counseling and financial management  courses approved by the US Trustee's Office are classes to educate you  about debt and help you manage your finances.  Many places you see  advertising are companies that work directly with credit card companies  and offer you very minimal relief from your debts, if any relief at  all.   
 

Credit counseling services do not provide their services for free  either.  "Non-profit" status does not mean an organization works for  free or does not make a profit.   Debt consolidation services may be an  option for people who have money to pay credit card companies.
 

But clients who have retained Attorney Prag's services o have tried credit consolidation services have repeated the same opinions over and over again to the following tune:
 

"Balances owed on my credit cards never went anywhere."
"Debt collectors still keep calling me and I am paying the consolidation service."
"Creditors are still suing me in court and garnishing my wages."
"I can never talk to anyone at the company."
"The company isn't even local."
"I wasted my money trying to pay the credit card companies through this  consolidation service and am now filing bankruptcy anyway."
"The company can't help me with anything besides credit cards.  I have medical bills and they can't help with those."
"I can't afford these high payments to consolidate my credit card debt."
"The consolidation plan never ends."
"They work for the credit card companies and are representing their interests, not mine."
 

Before wasting your money, email The Law Offices of Chomi Prag, LLC to inquire about filing bankruptcy.
 

What is the downside to filing bankruptcy?

In the future, if you want to borrow money you may be charged a higher interest rate than a person who has not  filed a bankruptcy.  Consequence:  You MAY have to do more shopping  around to get the best interest rate when it comes to financing.  
 

The bankruptcy can possibly show up on your credit report for up to 10  years.  This does not mean that you won't get financed for as long as a  bankruptcy shows up on your credit report.
 

Filing a bankruptcy is part of public records.  Although not made widely  known to the public, filing bankruptcy is not a secret, and neither is  any other court proceeding.
 

A couple common MYTHS associated with the word "bankruptcy" include:  
 

Filing bankruptcy admits financial defeat or equates to one being  "poor".  Many well known celebrities have filed for protection using the  Bankruptcy Code!  YOU do not have to be destitute to obtain relief  using the Bankruptcy Code.  
 

Filing bankruptcy means a person is shirking from their responsibilities  and is morally and financially irresponsible.  This may be what  creditors and sometimes even friends or family may lead you to  believe.  The truth is quite the contrary!  Attorney Prag's clients are very responsible, hard working  people who are neither morally nor financially challenged. 
 

Will I be able to obtain financing after filing bankruptcy?

Yes, as a matter of fact, past clients who received discharge from their debts in bankruptcy were able to finance a home and/ or vehicle at decent interest rates and not very long after their bankruptcy was completed!
 

Credit card companies will continue to send you offers even though you  filed bankruptcy and sometimes even while you are in bankruptcy process.