What is bankruptcy?
Bankruptcy is a legal proceeding in which an individual (or a corporation) who cannot pay his or her bills can get a fresh financial start by either eliminating debts or reorganizing their debts for repayment. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. When an individual files for bankruptcy, their creditors are prevented from seeking to collect debts until the debts are sorted out according to the law.
How does bankruptcy work?
Generally, an individual 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. Any property that the debtor holds will most likely be sold for cash with which the debtors will be paid. Nevada has a list of exemptions to property that can be sold in a Chapter 7 bankruptcy filing. Chapter 7 is usually geared towards people who have little income and do not have a lot of assets.
For those consumers who have more assets and/or income, they may still qualify to file under Chapter 13 of the bankruptcy code. 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 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 temporarily halts a foreclosure proceeding.
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)
- Clothing that is reasonable
- 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 $500,000.
- Homestead equity in debtor’s primary residence up to $550,000. 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 or 50 times the minimum wage ($362.50), whichever is higher.
- 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 $1000.
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
- Student loans
- For Chapter 7 filings, taxes and tax liens
- 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
How Nevada Legal Services Helps with Bankruptcy
Nevada Legal Services provides assistance to Nevadans interested in filing for bankruptcy in 2 ways.
In our Las Vegas Office, our intake specialists will evaluate your case to determine if a bankruptcy filing can stop harassing creditors or ease your financial burden. Our Las Vegas Office has several attorneys who can file a Chapter 7 Bankruptcy for low-income individuals. If our attorneys cannot assist you in filing bankruptcy, you may qualify for placement with a volunteer pro bono attorney at no cost to you.
In our Reno Office, we hold monthly Bankruptcy Education Seminars that anyone interested in filing for bankruptcy may attend. Following the seminar, if you still want further assistance filing the bankruptcy, we will evaluate your case to see if you might qualify for assistance with a pro bono attorney. If you are not eligible for assistance from a pro bono attorney, we also offer self help assistance in filing the bankruptcy on your own with guidance from our panel of pro bono attorneys along the way.
If you live outside of Reno, please feel free to call our pro bono program to see if we are holding a Bankruptcy Education Seminar near you or you would like to see if you qualify for pro bono placement for help filing your bankruptcy.