Who Files For Bankruptcy Protection
Interviewer: Is there a particular type of person — age gender, circumstance, income — that files for bankruptcy?
Marilyn Minger: In my experience, it really crosses all those categories you mentioned. There are people in different walks of life that need bankruptcy protection for different reasons. I think most people hesitate to file bankruptcy, they don’t really want to file. Often they feel like they’ve failed. And they’re embarrassed about it. In all my over 15 years of practicing bankruptcy law, only two people have come into my office trying to scam the system. Everybody else has needed to file, for one reason or another. I just try to help people understand that they’ve gotten to the point they’re at, and let’s see if there is a way, possibly through bankruptcy, that will improve their situation.
Does Gender Affect a Person’s Perception of the California Bankruptcy Process
Interviewer: Do men see bankruptcy differently versus women?
Marilyn Minger: I don’t think any generalizations can be drawn about the way men and women generally view bankruptcy.
Interviewer: What are the top reasons people tell you that they want or need to file for bankruptcy?
Marilyn Minger: The basic reason is that their debt has just overwhelmed them and they just can’t keep doing it anymore. They don’t have the money to pay their bills and there are certain bills that bankruptcy can take out of the equation or reorganize to a more manageable level. Now the chapter under which an individual or married couple files a bankruptcy depends on their individual circumstances. But the basic motivator is unmanageable debt which is creating a threat of loss of property or income.
What’s the Difference Between a Chapter 7 and a Chapter 13 Bankruptcy
Interviewer: You hear a lot about chapter 7 and chapter 13 bankruptcies. What, basically, is the difference?
Marilyn Minger: Chapter 7 is called a liquidation and chapter 13 is called a reorganization. Chapter 7 often lasts a period of months. Chapter 13 often last a period of years. Chapter 13 generally is more expensive in terms of fees.
Under a chapter 7, if the debtor qualifies, after a period measured in months, the debtor’s dischargeable debt goes away. Dischargeable debt generally is unsecured debt such as credit card debt, medical bills, car repossession deficiencies and things like that. Under a chapter 13, the debtor gets to reorganize how he or she is going to repay his or her debts, and after a period measurable in years, some debt may be discharged. In a chapter 13 “plan of reorganization” the debtor gets to tell his or her creditors how he or she intends to repay them. If the court accepts the plan, then that is how those creditors get paid. Creditors have an opportunity to object to the plan, but once the court “confirms” or accepts it, the creditor has no further recourse to collect on the debt as long as the debtor performs under the plan.
The Chapters of Bankruptcy Under Which an Individual May File
Interviewer: How does an individual determine under which chapter he or she should file?
Marilyn Minger: Individuals may file bankruptcies under chapters 7, 11, 12, and 13 of the Bankruptcy Code. Chapters 7 and 13 are the most common chapters that individuals use. Sometimes chapter 7 may thought to be the most desirable type of bankruptcy. And in some respects it is. It can be a relatively short process (about 90 days), after which the debtor’s general unsecured debts generally are discharged, which means that they go away. It also generally is the least expensive in terms of filing fees and attorney’s fees. One cannot file a chapter 7 without “qualifying,” however. To be able to qualify for a chapter 7, an individual or married couple must not have excessive income under their particular circumstances. A “means test” is applied to the debtors’ circumstances, looking at their income for the last six months, the extent and character of their debt, their household size, their expenses, and other factors that may be considered. An individual with predominantly business debt may file a chapter 7 without passing the means test.
If a debtor has too much income to qualify for filing a chapter 7, he or she may be able to file a chapter 13. Filing under chapter 13 may be advisable when the debtor earns too much (or has earned too much in the prior six months) to file a chapter 7, is behind in payments secured by property he or she wants to keep, or owns more property than he or she is allowed to keep under a chapter 7, but wants to keep it anyway. Under a chapter 13 the debtor files a plan with the court on how they plan to “reorganize” their debt so that they can pay off what they are required to in a three- to five-year plan.
Chapter 12 is similar to a chapter 13, but is reserved for family farmers and fisherman.
Chapter 11 also is a chapter under which a debtor tries to reorganize his, her or its debts. Entities other than individuals may use chapter 11, and it is the chapter under which we often hear of large corporations reorganizing under the Bankruptcy Code. Individuals also may file under chapter 11, however. There are limitations on how much debt a chapter 13 debtor may have. Currently it is $360,475 of unsecured debt and $1,149,525 of secured debt. If an individual or married couple has debts exceeding the limits of chapter 13, they may choose to file under a chapter 11. Also, plans of reorganization under chapter 11 may last more than five years, which may be an important factor in a reorganization. There is much more complexity to a chapter 11, however, and much more expense for the debtor.
We are a debt relief agency helping people file for bankruptcy relief under the Bankruptcy Code.