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FRIENDLY, AFFORDABLE AND KNOWLEDGEABLE Chapter 7 Chapter 13 Loan Modifications

What Debts Must I Continue to Pay During My Chapter 7 Bankruptcy?

While in Chapter 7 bankruptcy, you must continue to pay child support, spousal support, utilities, mortgage, rent, income tax, and insurance. If you belong to a homeowners' association, you must pay it. Chapter 7 is for individuals or business entities. Your checking account should not be in a lienholder's bank. Because you can lose your insurance by filing for Chapter 7 bankruptcy, your insurance policies should be paid a year in advance. Rental cars, leased furniture, leased business equipment, and home appliances not paid for in full are examples of items that can be returned to their owners. You can discharge the deficiency balance.

Post-Petition Payments and Chapter 7

Post-petition payments are due after you file your initial petition for Chapter 7 or those that you'll continue to pay after your debts are discharged. Medical bills incurred prior to filing your petition may be discharged. Bills from the same doctor while you're waiting for your final discharge must be paid. Examples of post-petition payments are student loans, debts for extravagant purchases, and court judgments and expenses.

Automatic Stay During Chapter 7


The automatic stay of the court is frequently used to solve specific financial problems. The court puts an automatic stay on creditors' actions which benefits you, the debtor, if you are being evicted, in foreclosure, failed to pay child support, your utilities are being shut off, or your wages are garnished. The automatic stay ends when your debts are discharged.

Means Test of Eligibility for Chapter 7


The means test form helps you determine if you’re eligible for debt relief through the federal court. The means test uses the combined monthly income of you and your spouse and asks how many dependents you claim on your federal income tax. Subtracting the sum of your living expenses from your combined monthly income gives you your disposable income. Your living expenses include your monthly:

• Food and clothing costs
• Health care costs
• Rent or mortgage payment
• Payments on loans secured by collateral
• Costs of owning and operating your motor vehicles
• Federal, state, and property taxes
• Unemployment, Medicare, and Social Security payments
• Utility bills including your telephone and Internet

U.S. Department of Justice


If your loans exceed the equity you pledged as collateral, you can be prosecuted. Your trustee works with the U.S. Department of Justice. Your creditors will get an opportunity to respond to your initial petition. The trustee will compare your initial filing with your list of debts and information that your creditors file. If you lied about your income or your other financial obligations to get a loan, you can be prosecuted.

Secured Debts and Chapter 7 Bankruptcy


State law clarifies what property, or the dollar value of your property, that you can exempt from liquidation or sale. However, if you own an expensive car, the trustee may sell your car to pay your creditors. For example, if you own a car worth $20,000 and the state law allows you to exempt $10,000 for a car you need for transportation to and from work, you can either return the car to the lender or the trustee can sell it. If you have enough equity in your car, the trustee can pay your past due child support or your property taxes to leave you unencumbered after the discharge of your financial obligations. The court can discharge your credit card debt. You benefit from the automatic stay and can discharge your unsecured debt.

Can Small Business Owners File Chapter 7 Bankruptcy?

If you’re a small business owner, the court can help you return leased equipment to its owners and auction other assets to pay your creditors. A small business owner files a Chapter 11 to sell nonessential assets to pay off delinquent accounts at a reduced rate and reduce the principal or increase the duration of remaining loans, sales contracts, or leases. Chapters 11 and 13 distribute your payments over three or five years to reduce your monthly installment payments. You may even be able to remove liens from your mortgage or business property.

Our Long Island Bankruptcy Team Can Help

Our experienced Long Island bankruptcy attorney can help you decide how to solve your financial problems. If you don't pass the means test, you can't file for a chapter 7 discharge. If you owe income or property taxes, child support, or federal student loans, you may not benefit by filing for Chapter 7. If most of yours are secured debts, our attorney can help you file a Chapter 13 to modify the terms of your loans and other financial obligations. The trustee of the court can sell some of your personal property to pay your creditors in order of priority. Taxes and child support are of the highest priority. Your secured loans are paid before your unsecured bills. The judge represented by your trustee can pay off your arrearages and discharge your unsecured debts. A lawyer can help you convert your Chapter 7 petition to a Chapter 13 and repay your secured creditors lower monthly payments over a period of three to five years.
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