Chapter 7 Bankruptcy
In Vermont, debtors often resort to filing bankruptcy to discharge, or get rid of, their debt. Filing for bankruptcy allows a person to start over fresh in a financial sense. Two of the most common types of bankruptcies we see in Vermont are Chapter 7 and Chapter 13 bankruptcies. Here, we will go over various details surrounding Chapter 7 bankruptcy, who qualifies for it, and what it is.
What is a Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy is commonly referred to as a liquidation bankruptcy. This type of bankruptcy is used to discharge numerous types of unsecured debt. When people fall behind in paying their bills and do not have the means to pay them and meet their living expenses, this type of bankruptcy can provide a last-resort reset of their finances.
It is important to consider both the benefits and consequences of filing for Chapter 7 relief. Some debtors might have to surrender some non exempt assets. As your counsel, it is our job to preserve your assets in any type of bankruptcy you file. We will assist you within preserving your assets in Chapter 7 by electing all the proper exemptions and with appropriate pre-bankruptcy planning. In the vast majority of Chapter 7 cases, debtors do not surrender any assets.
Filing for relief in Chapter 7 and completing your case will result in a discharge of most unsecured debts, with a few exceptions. Those exceptions are debts for child support and spousal support, criminal fines (including restitution), student loans and certain income taxes. As for debts that are secured by property you own, you typically pay that debt to retain the property, surrender the property or make other arrangements that allow you to keep the property.
A Chapter 7 discharge will be reported on your credit report for up to ten years and this will affect your ability to obtain credit. Those who obtain a Chapter 7 discharge will not be able to file another discharge in Chapter 7 for at least eight years. They are also unable to obtain a Chapter 13 discharge for four years.
How does a Chapter 7 Bankruptcy Work?
When debtors file for Chapter 7 bankruptcy, the Court automatically places a temporary stay, or injunction, on the collection of their debts. This stops all acts to collect a debt, including phone calls, court processes, wage garnishments, foreclosure proceedings, any repossession orders or eviction orders, and generally stop creditors from attempting to collect payments.
The court appoints a Chapter 7 Trustee who will review your bankruptcy filings and certain financial information you must provide to him. This person will oversee your Chapter 7 bankruptcy and liquidate any assets available for liquidation. Any funds a Chapter 7 trustee collects go to pay his or her fees, then they are distributed to priority then unsecured creditors in that order.
Procedures for Chapter 7 bankruptcies typically last around four months after the initial filing. At the end of this period, the court will issue a discharge for your debts, which will not apply to the non-dischargeable debts discussed above.
What is Exempt from a Chapter 7 Bankruptcy in Vermont?
Every state has their own set exemptions for Chapter 7 proceedings. Our state is no different. In Vermont, debtors have various properties that are considered exempt, or protected against Chapter 7 inclusion. These debts include:
Homestead: Real property up to $125,000 is exempt. This includes rents, profits, out-buildings, and issues. Spouses are also able to claim homestead exemption when the deceased owner passes away. Any real property held as tenancy by the entirety may also be exempt against debts owed by a single spouse.
Insurance: Various types of insurance are exempt from collections under Vermont law. This includes any annuity contract benefits up to $350 a month, any supplement life insurance or annuity contract disability benefits, any fraternal benefit society benefits, and any group life or health insurance benefits. Furthermore, disability or illness benefits that are needed for support, health benefits up to $200 a month, and any life insurance benefits for people debtors depend on.
Pensions: Various types of pensions are exempt from Chapter 7 Bankruptcy proceedings. These include teachers’ pension, state employee pension, self-directed accounts up to $10,000, municipal employees’ pensions, and some other types.
Personal Property: Vermont has numerous items that are specifically exempt from bankruptcy proceedings. These include personal belongings, furniture, and other items up to $2,500 in value. Several animals and limits are provided for farmers and owners. These farm exemptions extend to crops, bottled gas, and coal. Appliances and wedding rings are exempt without limits. Furthermore, debtors can have up to $500 in jewelry, personal injury recoveries, and any wrongful death benefits received for another person.
Public Benefits: Social security, unemployment compensation, veterans benefits, and workers benefits are exempt from bankruptcy proceedings. Additionally, aid provided to the disabled, blind, aged, and general assistance are also exempt.
Wages: Wages are exempt from bankruptcy in situations where debtors had received welfare benefits within 2-months prior to filing. Furthermore, up to 75% of earned by unpaid wages are exempt.
Miscellaneous: Property of business partnerships, alimony, and child support are all exempt from these proceedings. Tools of the trade up to $5000 are exempt as well.
Wildcard: An exemption in the amount of $400 is provided for any property a debtor has. Additionally, unused exemptions for motor vehicles, tools of the trade, appliances, any clothing, crops, and even household furniture up to $7,000 is exempt from bankruptcy proceedings.
These adjustments are adjusted periodically, which can result in additional items being considered exempt. It is crucial that debtors utilize all available exemptions during their bankruptcy and use the most recent figures and calculations.
In Vermont, debtors sometimes have the option of using federal exemptions instead of state-imposed exemptions. Rather than opting for the exemptions listed above, debtors can opt for exemption limits on any equity they have in property. In general, this is the difference between the value of a property and what is owed on it. For example, if a debtor has a motor vehicle worth $10,000, and a loan of $9,500, it has an equity value equal to $500.
Property that is secured by a loan, such as a home or motor vehicle, and you are current on the payments, you may elect to keep making payments on the loan so long as the equity is covered by your exemptions. If all the equity is not covered, the trustee has the ability to elect to liquidate the asset and redistribute the proceeds from it.
Working with a reputable bankruptcy attorney will ensure you are afforded the protection you are entitled to throughout your filing.
In Vermont, you may also opt to use the federal exemptions as an alternative to the Vermont exemptions, if those exemptions happen to be more favorable to you than the Vermont exemptions.
What is the Difference between a Chapter 7 and Chapter 13 Bankruptcy?
Although a Chapter 13 bankruptcy and a Chapter 7 bankruptcy are both common, they have some key differences that can help you determine which option is best for your situation.
Unlike Chapter 13 bankruptcies which allow you to develop a more affordable repayment plan with creditors, a Chapter 7 bankruptcy is designed to wipe out certain debts within several months. These bankruptcies require a court-appointed trustee who can sell your nonexempt property to pay for your creditors. Those who opt for Chapter 7 must also have low income to qualify.
Qualifying For Chapter 7 Bankruptcy in Vermont?
In order to qualify for relief in Chapter 7, you must either have below annual median income for your family size based on the actual income earned in the six months prior to the month in which you submit your petition to the court.
There are also some restrictions in place. Those who want to file a Chapter 7 bankruptcy cannot have filed one within the past 8-years and cannot have filed a Chapter 13 bankruptcy within the past six years.
If a debtor has their case dismissed while trying to file a Chapter 7 or Chapter 13 bankruptcy, they have to wait at least 181 days before trying to file again.
After you File Chapter 7 Bankruptcy
After filing a Chapter 7 Bankruptcy, debtors will be able to keep all of their property unless it is specifically non-exempt. Most debtors do not have any non-exempt property. When people have debt secured by their homes, automobiles, or other property, they will be required to pay them back.
Upon filing a request for relief, all debt collections will be barred by order of the Federal Bankruptcy Court Automatic Stay. This is temporary until further order of the court. This provides debtors protection from losing their homes and vehicles so they can move forward.
Our Team can Help You
If you are interested in filing a Chapter 7 bankruptcy in Vermont, it is crucial that you work with a skilled and knowledgeable legal team. Doing so will ensure you are in the best position possible to protect your assets and create a fresh financial start.
Over the years, our bankruptcy attorneys at Kohn Rath Danon . & Scharf, LLP have helped countless people on their path to financial freedom. Our team has over 150-years of combined experience protecting the legal rights and best interests of individuals throughout Vermont. We provide aggressive legal representation to ensure debtors are in the best position possible to move forward and start over new. Contact our law firm today at (802) 482-2905 to discuss your situation with our team.