Of course, no one plans to file for bankruptcy or even wants to file for bankruptcy, but there are many times when unexpected expenses can leave you with few choices. In fact, for many individuals in the state of Idaho, filing for bankruptcy may be the best choice for getting out of debt, and having a fresh financial start. Whether or not you should file for bankruptcy depends on your individual circumstances, and it is always a good idea to thoroughly evaluate all your options before deciding on bankruptcy. Consider the types of debt you have, and whether filing for bankruptcy will help you achieve your ultimate goal—which is usually wiping out your debt. Many people are unaware that there are some debts which cannot be discharged in a bankruptcy filing, plus it is always worth talking to your creditors to determine whether they might be willing to work with you, prior to deciding to file for bankruptcy.
What are the Alternatives to Filing for Bankruptcy?
While bankruptcy may be your best option, consider the following alternatives before making a decision:
- If your primary issue is harassment from creditors, consider taking advantage of federal and state debt collection laws which protect consumers.
- If you have assets you might could liquidate, or some extra income, you might consider negotiating with creditors for smaller payments, which will give you a little time to get back on your feet financially. You might also consider asking your creditors to settle your debts for less than you owe. Either way, you have nothing to lose by asking, and everything to gain.
- Consider seeking help from a non-profit credit or debt counseling agency who will work with you to help repay your debts, and will negotiate with your creditors on your behalf.
- Surprisingly, there is an option not many people would actually consider an option. If you are deeply in debt, own no property and have very little income, your best course of action might be no action at all. Anyone who attempts to sue you, and obtains a court judgement against you won’t be able to collect anything—because you don’t own anything they could take. This lack of action is not without consequences, so always talk to an experienced Idaho bankruptcy attorney before deciding on any of these bankruptcy alternatives.
Chapter 7 or Chapter 13 Bankruptcy?
If you have made the decision to file for bankruptcy, you will then determine whether you will file for Chapter 13 bankruptcy or Chapter 7 Bankruptcy. Chapter 7 bankruptcy is designed to totally wipe out your unsecured debt (credit cards and medical bills). To qualify for Chapter 7, you must have very little—or no—disposable income. If your income level is too high to qualify for Chapter 7, you will have to file under Chapter 13 laws, which is basically designed for those debtors with a regular income who are able to pay back at least some of their debt. Further differences between the two types of bankruptcy include:
- Individuals and businesses can file for Chapter 7, while only individuals or sole proprietors can file for Chapter 13.
- Under Chapter 13, you must not have more than $394,725 of unsecured debt, while under Chapter 7, your disposable income must be low enough to be eligible.
- Chapter 7 bankruptcy usually takes from six (6) to eight (8) months, while Chapter 13 takes from three to five years.
- Chapter 7 bankruptcy allows you to quickly discharge most debts, and get a fresh start, while Chapter 13 bankruptcy allows you to keep your property and catch up on missed mortgage payments.
Do You Qualify for Chapter 7 Bankruptcy?
Once you have determined that Chapter 7 bankruptcy is the best option for you, you will then have to determine whether you meet the eligibility requirements. This is done through a “means test,” which deducts specific monthly expenses from your current monthly income (your average income over the six months prior to your bankruptcy filing), to determine your monthly disposable income. The higher your disposable income, the less likely you are to be allowed to file for Chapter 7 bankruptcy.
Only those filers who have primarily consumer debt must take the means test, not those with business debt. Using a specific formula, you will determine whether your income is more or less than the median income in the state of Idaho. If you make more than the median Idaho income, you will have to determine whether you would have enough left over, after subtracting specific expenses, to pay back some of your creditors. If you make less than the median Idaho income, you have passed the means test, and you don’t have to complete the remainder of the test—you can file for Chapter 7.
If you don’t pass the Chapter 7 means test, you will have to file for Chapter 13 bankruptcy, under which you will make monthly payments over a three-to-five-year period, and will be under a strict budget which is monitored by an Idaho court.
Debts Which Cannot Be Discharged Under Chapter 7 Bankruptcy
There are certain debts which cannot be discharged under Chapter 7 bankruptcy, including:
- Unpaid spousal support;
- Unpaid child support;
- Recent income tax debt (within the past three years) and all other tax debt;
- Your student loans (with a very few exceptions);
- Any fine or penalty you have been assessed for violations of the law;
- Traffic ticket fines, and
- Any debts you forgot to list in your bankruptcy papers.
What You Can Keep Under Chapter 7 Bankruptcy
Under Chapter 7 bankruptcy, you may be allowed to keep specific secured debts, such as your car, your furniture or your house, by “reaffirming” those debts. In order to reaffirm the debts you will be required to sign a Reaffirmation Agreement, which prohibits you from filing bankruptcy for that specific debt for the next 8 years. You still owe the debt and you must continue to pay it in the same manner as before you filed for bankruptcy. To reaffirm the debt, however, you must bring it into current status.
This means if you are several months behind on your house payments and you want to keep your house, you must pay those back payments, then reaffirm that specific asset. You are allowed to “selectively” reaffirm debts, meaning you can keep your car and let the house go, or keep your house and let your furniture go, or you can choose to keep all of those, so long as you can bring the debts current, and are willing to sign a Reaffirmation Agreement.
Idaho Chapter 7 Bankruptcy Exemptions
There are certain properties which are protected from your creditors when you file for an Idaho bankruptcy. The exemption limits are based on the difference between what the property is worth, and what you currently owe on the property. If you own a car with a value of $10,000, yet you owe $9,000, then you have an equity value of $1,000 in the car. If you choose to keep a non-exempt property, you will pay the trustee the value of the property. The state of Idaho allows you use certain federal bankruptcy exemptions as well as Idaho exemptions. Below are the exemptions you may be entitled to under Chapter 7 bankruptcy:
- Homestead to $100,000;
- Disability benefits, death benefits, group life insurance benefits, and fraternal benefit society benefits;
- Hospital care, medical care or surgical care benefits;
- Any spousal support or child support needed for your monthly support;
- Household goods and furnishing up to a value of $7,500. If you are married and filing jointly, the amount goes up to $15,000.00
- One firearm up to a value of $750.00. If you are married and filing jointly, each of you will receive an exemption for one gun.
- Building materials;
- Burial plots;
- Up to $1,000 worth of jewelry;
- A vehicle worth up to $7,000. If you are married and filing jointly, each of you will receive an exemption for a vehicle;
- Any necessary health aids;
- Any personal injury recovery amount needed for support;
- Public assistance;
- Tools of your trade, including implements and books;
- Arms, uniforms and accoutrements required by peace officers, national guard personnel or military personnel, and
- Any aggregate interest in tangible personal property, up to $800.
It is very beneficial to speak to a Boise bankruptcy attorney, rather than attempting to file for bankruptcy on your own. There are many filing deadlines, and a significant amount of paperwork which must be filled out properly. Your attorney can help you determine whether filing for Chapter 7 bankruptcy is right for you, then can guide you through the process.