What is bankruptcy?
Bankruptcy allows debtors who cannot pay their bills to get a fresh financial start by either eliminating debts or reorganizing their debts for repayment. Federal law provides the right to file for bankruptcy protection and bankruptcy court handles all bankruptcy cases. When debtors file for bankruptcy, the law prevents their creditors from seeking to collect debts until the court or trustee administers the bankruptcy estate.
How does bankruptcy work?
Generally, an individual debtor filing for bankruptcy can either file under Chapter 7 or Chapter 13 of the Bankruptcy code. Chapter 7 allows you to eliminate most, if not all, of your unsecured consumer debt. This includes credit card debt, medical bills, past due utility bills, and other unsecured loans. The debtor keeps all exempt property and any unexempt property will most likely be sold for cash for the trustee to pay to the creditors. Nevada has a list of exemptions that a debtor may use in a Chapter 7 bankruptcy filing. You must have lived in Nevada for at least 2 years to claim Nevada exemptions.
For those debtors with a house or a car to save from repossession or foreclosure, Chapter 13 may help. Chapter 13 essentially reorganizes your debts by making an affordable payment plan for the debtor to repay creditors. A trustee collects these payments from the debtor and is responsible for paying the creditors. The trustee also assures that the debtor is abiding by the terms of the payment plan. The bankruptcy is not complete, or “discharged,” until the terms of the repayment plan are met. The plans last 3 or 5 years. The benefit of a Chapter 13 filing is that the debtor is usually allowed to retain their property. However, the debtor must have a sufficient, regular source of income and agree to the terms of the repayment plan. Chapter 13 allows the debtor to cure the arrearage on any house or car payment during the plan period.
Can I file for bankruptcy?
Generally speaking, if an individual makes over the median income level, he or she will be required to file under Chapter 13. Individuals will also be required to meet a means test that will be used to measure their ability to repay their debts.
What property will be exempted from my bankruptcy proceeding?
- One car with equity up to $15,000 (not exempt from car finance company)
- Necessary household furnishings, electronics, goods, and appliances up to $12,000.
- Private libraries, works of art, jewelry, musical instruments up to $5,000.
- Life insurance with annual premiums of $15,000 or less.
- Pensions, IRA, 401(K) plans, etc. up to $1,000,000.
- Homestead equity in debtor’s primary residence up to $605,000. If you owned your home for approximately 3 years and 4 months before filing the Petition, you may only exempt $146,450. Also, the property is not exempt from the mortgage company.
- Equipment, inventory, and tools needed to carry on debtor’s business up to $10,000.
- Child support and alimony received.
- Security deposits paid to a landlord.
- 75% of earned wages if you earn more than $770 per week and 81% if you earn less
- Public benefits.
- Social Security Income the debtor has not spent.
- Personal injury settlements up to $16,150 (pain and suffering and lost wages compensation are not capped and are exempt.)
- Portion of tax return derived from the earned income tax credit.
- “wild card” exemption of $10,000.
What kinds of debt cannot be discharged through bankruptcy?
There are several types of debt that generally cannot be discharged. Some examples include:
- Any type of domestic support obligation such as child support or alimony or any debt included in a divorce decree
- For Chapter 13 filings, certain taxes such as withholding taxes if you had employees
- Debts obtained through fraud
- Debts for willful and malicious injury
- Debts incurred for fraud while working in a fiduciary capacity, or for embezzlement