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1. What is the difference between a Chapter 7 and a Chapter 13 bankruptcy? In a Chapter 7 bankruptcy, also called a "liquidating bankruptcy", all of the debtor's assets and liabilities are listed on bankruptcy schedules. Any assets in excess of the statutory exemption thresholds are liquidated and paid to creditors in the order specified by the Bankruptcy Code. To the extent that non-exempt assets are insufficient to pay creditors in full, any remaining non-secured, non-priority debts are discharged. There are no debt limits for a Chapter 7 bankruptcy. A Chapter 13 bankruptcy, also called a "wage earner plan", is a proceeding that allows a debtor to keep all property and submit a plan to repay a percentage of unsecured debt out of future earnings over a period of time of at least 3 years but not more than 5 years. A Chapter 13 has debt limits of $269,250.00 of unsecured debt and $807,750.00 of secured debt.
2. What tax debts may not be discharged in a Chapter 7 bankruptcy?
Income taxes that are not at least 3 years old; Income taxes for which no return was filed or the return was filed less than 2 years prior to bankruptcy;
Income taxes that have not yet been assessed for at least 240 days; Income taxes that are due to a fraudulent return; Income taxes for which the taxpayer willfully attempted to evade or defeat such tax;
The employee portion of payroll taxes; Income tax withholding portion of payroll taxes; Trust Fund Recovery Penalty; Sales taxes that are not at least 3 years old, assessed at least 240 days and for which a tax return has not been filed for at least 2 years;
The employer portion of payroll taxes that is not at least 3 years old, assessed for less than 240 days and for which a return has not been filed for at least 2 years.
Student loans; Alimony and child support payments; and, Secured Debts. 3. How often may I file for bankruptcy? A Chapter 7 bankruptcy may be filed once every 6 years - measured from the date of filing. A Chapter 13 bankruptcy that is completed may be filed once every 6 years from the date of filing unless the debtor paid more than 70% of unsecured creditors. A Chapter 13 bankruptcy that is dismissed may be re-filed again as long as the court does not find bad faith on the part of the debtor. 4. Is it possible to discharge IRS or State of California taxes in a bankruptcy? Yes, but it depends upon the kind of tax and the type of bankruptcy proceeding. Federal and State income taxes may be discharged in a Chapter 7 bankruptcy if certain time limitations have been met for each tax year in issue. However, the tax cannot be due to a fraudulent tax return and the taxpayer must not have attempted to evade or defeat the tax. Unsecured, non-priority taxes may be discharged in a Chapter 13 bankruptcy by payment of a percentage of the tax over a period of three to five years. Some taxes that are non-dischargeable in a Chapter 7 proceeding may be discharged in a Chapter 13 under its "super discharge" provisions if all requirements are met.
5. How long does a bankruptcy remain on my credit record?
Each credit reporting agency has its own policies on how long a bankruptcy will remain on a person's credit report. However, generally speaking, most credit reporting agencies do not remove a bankruptcy filing from a credit report for ten (10) years.
Nevertheless, most people can overcome the damaging effects of a bankruptcy to their credit record with a combination of obtaining new, post-petition credit and the lapse of time
6. How long does the bankruptcy process take?
The average Chapter 7 "no asset" bankruptcy takes approximately 3 to 4 months from date of filing until entry of the order of discharge. This does not take into consideration pre-bankruptcy planning and post-bankruptcy abatement of taxes and release of tax liens. A Chapter 13 bankruptcy "wage earner" plan takes from 3 to 5 years to complete.
7. If Congress succeeds in passing the Bankruptcy Reform Act, how will it affect my ability to file bankruptcy?
The main thrust of the Bankruptcy Reform Act is to make it more difficult for the average person to qualify for a liquidating Chapter 7 bankruptcy. The proposed bankruptcy amendments would apply a complicated "means based" test that, for all intents and purposes, would throw most people into a Chapter 13 payment plan for 3 to 5 years.
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