Debt Discharge (relief from your payment obligations)
Chapter 7 bankruptcy
is a process by which an appointed trustee will sell or otherwise liquidate your
“non-exempt” assets, if any, for purposes of paying your creditors.
As part of the process creditors will usually receive, as
proceeds of liquidation, only a fraction of what they otherwise would be
owed. If all your assets are
“exempt”, unsecured creditors will receive nothing.
Under Chapter 7 debts eliminated will normally include credit
cards, medical bills, signature loans (unsecured debt, to which no
repossession or foreclosure right attaches) and deficiencies relating to
repossessed personal property (automobiles, for instance, so long as
they are not recently purchased). A
Chapter 7 bankruptcy could possibly eliminate your obligation to pay deficiencies on formerly owned
real estate already foreclosed
however, are non-dischargeable. These
cannot be eliminated in a Chapter 7. They generally include student
loans, “drunk driving” personal injury awards, unpaid child support,
penalties, liabilities for fraud and recently incurred taxes. When a
bankruptcy is filed an injunction, called the automatic stay, usually goes
into effect. An automatic
stay prohibits creditors from proceeding with collection activities
(including obnoxious phone calls, garnishments and foreclosures), unless
creditors obtain the bankruptcy court’s approval (called a relief from
In Bankruptcy You May Keep Exempt Assets
protect certain property from being liquidated by the Trustee.
Exemptions typically include up to $70,200 of equity in your Alaska primary
residence, up to $3,900 of equity for a single vehicle worth less than
$26,000 in total, most items of personal household property (up to
certain dollar limits), trade tools up to $3,640 in value, jewelry and
pets (also subject to dollar limits) and several other categories
(including, but not limited to, IRAs, 401K plans and Limited Entry
Not all property is
exempt, however. “Non-exempt property” is often sold by the Trustee
in order to pay creditors. Non-exempt property generally includes bank
deposits (checking and savings accounts and any pending but not yet
received PFDs*), investments (except for retirement accounts), business
interests (in an LLC or corporation, for instance), boats and
recreational vehicles and other property having significant value.
Consultation with an experienced bankruptcy attorney is critical to
being able to classify assets under available exemptions.
Alaska debtors can also, as an alternative to the exemptions
outlined above, take advantage of “federal exemptions” that allow
the use of a wild-card designation to exempt from liquidation assets of any sort up to specific dollar limitations (often in
excess of $10,000.00).
Secured debts are
those that are tied to particular assets that secure them (by lien or mortgage,
for example). Car loans are usually secured debt. If you want to stop making car payments and have your loan discharged,
you’ll have to give back the car since it is collateral for your
If you want to keep your car, you may be able to agree to continue making
payments in exchange for the right to keep the vehicle. This is done by
reaffirming the debt. Reaffirmation has serious ramifications; you
should consult with a bankruptcy attorney to make certain it is the
right thing to do.
The Means Test
Before filing for
Chapter 7 bankruptcy, you will have to qualify by analyzing your finances
means test. Your monthly income (as calculated under very specific
rules) is compared to the median income in your state for a family that
is the same size as yours. If your income is at or below the median
income, you may qualify for Chapter 7 bankruptcy. If your income is
higher than the median income, then you may still be able to file for
Chapter 7 bankruptcy protection. However,
your eligibility will depend on a comparison of your disposable income
to your allowed expenses.
Permanent Fund Dividend