You might think your bankruptcy case is a simple because you have ordinary financial problems. But even common debt issues can complicate a bankruptcy case. Knowing if your bankruptcy will be simple or not is important. It can help shape your expectations of what is to come, and determine whether you need to hire a lawyer to represent you.
So how do you know if your Chapter 7 bankruptcy is really a simple case? Read on to find out.
What Is a Simple Bankruptcy Case?
Only a small number of bankruptcies are actually simple cases. In most instances, there are legal issues which complicate your situation and make forming your bankruptcy strategy more difficult. This can result in higher attorney's fees, more paperwork, or more decisions to make before you file.
Your case may be a simple bankruptcy if:
- your income is less than the state median income for your household size (compare your income to the state median income)
- you don't have many assets and you can exempt them all (learn about what it means to exempt your property in bankruptcy)
- you only have unsecured debt (such as credit card debt, medical bills, and personal loans)
- you can discharge (wipe out) all of your debt (find out which debts you can discharge in bankruptcy)
- you have filed all of your tax returns, and
- you have no other complicating factors.
Things That Complicate Your Bankruptcy Case
Many common problems can complicate your bankruptcy case. While bankruptcy attorneys deal with these issues all the time, they are always different depending on your particular circumstances and require additional work. Some examples of things that could complicate your bankruptcy are listed below.
Your income exceeds the median income for your state. Because of this, you must take the means test to qualify for Chapter 7, and if you fail, you may have to file for Chapter 13 instead of Chapter 7. Chapter 13 bankruptcies are never simple bankruptcy cases.
You are behind on your mortgage payments. If you need to use a bankruptcy to stop a foreclosure, bring your mortgage current, or reduce or eliminate junior mortgages, your bankruptcy case is not simple. (Learn about your mortgage in Chapter 13.)
You are behind on your car payments. Using bankruptcy to bring car loans current, recover a repossessed vehicle, or reduce your car loan balance or interest rate will complicate matters.
You owe back taxes. You can discharge some tax debt in bankruptcy and bankruptcy can otherwise be helpful for dealing with tax problems. But having tax debt does complicate your case and requires a detailed analysis before you file.
Your student loans are delinquent. In many cases you won't be able to get rid of student loans in bankruptcy. But if you do have a shot at discharging your student loans, you will need to file a lawsuit in the bankruptcy case, called an adversary proceeding, to make that happen.
You are divorced and have obligations under a divorce court order or property settlement agreement. These debts are not discharged in a Chapter 7 but may be discharged in Chapter 13 (which is never simple).
You owe back child support. Child support creditors have special rights in bankruptcy that may allow them to continue to collect against your exempt assets and continue to deduct payments from your wages.
You have a business that you want to keep operating. In many cases, your business will not continue to operate after you file for Chapter 7. A careful analysis of what business assets you can claim as exempt and how this will impact your ability to do business after you file for bankruptcy will be necessary.
You have judgments against you. If all the state requirements have been met, a judgment can create a lien against your property. You can avoid, or eliminate, some judgment liens in bankruptcy but it does not happen automatically. You will need to file a motion and, possibly, attend a court hearing.
Your wages are being garnished. Wage garnishments should stop as soon as your creditors are notified of your bankruptcy filing. But if you take extra steps, you may be able to recover funds that were garnished before you filed for bankruptcy.
You have moved to a different state within the last two years. This can affect which exemption laws you are allowed to use to protect your property in bankruptcy.
You used credit cards to pay taxes. These debts may not be discharged in your bankruptcy unless the tax debt would have been discharged.
You had a bankruptcy case that was dismissed within the last year. You may need to take extra steps to get or keep the protection of the automatic stay (which prohibits collection actions during the bankruptcy) if you have had a prior case (or more than one) dismissed within the last year.
You have been denied a discharge in a prior case. You can’t discharge the same debts in a later Chapter 7 case but you may be able discharge them in Chapter 13.
You were involved in transactions that the bankruptcy trustee can undo. These might include:
- giving away assets within two years before filing for bankruptcy, or selling them for less than their actual value
- buying luxury items with your credit card within the 90 days before your bankruptcy filing
- taking out a cash advance within 70 days of your filing
- paying back a particular creditor within 90 days of filing for bankruptcy, or a relative or close friend within a year before you file for bankruptcy.
- selling off assets that are not exempt and using the money to buy exempt assets or pay off loans on exempt assets.