What is Bankruptcy?

Bankruptcy is a means for individuals and businesses to resolve their debts in times of financial hardship. This can involve discharge of the entire debt or a plan to repay as much as possible during a period of up to 5 years.

The United States Constitution Article 1, Section 8, Clause 4 States:

“The Congress shall have power… To establish … uniform Laws on the subject of Bankruptcies throughout the United States;”.

Congress does provide for the right to file Bankruptcy pursuant to Title 11 of the United States Code. Individuals and businesses have a moral, constitutional, and legal right, if qualified, to file for Bankruptcy protection.

What Bankruptcy type is best for me?

Generally, most individuals will only qualify for one chapter or the other. There are various factors that will determine which chapter is best. A good Bankruptcy attorney will help you make the correct choice.

Chapter 7  

To qualify for Chapter 7 Bankruptcy, you must be at or below the State median income for your household size. If you are above the State median income, then you will perform what is known as the means test. If you have no or nominal disposable income under the means test, then you would qualify to file for Chapter 7 Bankruptcy. If you have too much disposable income, you will have to consider Chapter 13 Bankruptcy. Chapter 7 will discharge your obligation to pay dischargeable debts.

Chapter 13

If you do not qualify for Chapter 7, you have the option of filing Chapter 13, personal reorganization. Chapter 13 Bankruptcy requires that you have disposable income to make some payments for what is usually a 3 – 5 year period. Any balance that is not paid in full during this time will be discharged at the end of the plan.

If your unsecured debt exceeds $394,725 and your secured debt exceeds $1,184,200, then you will not qualify to file Chapter 13 and would have to consider Chapter 11.

Chapter 13 is also an option for people who fall behind with secured debts, such as a mortgage on their home. They may have enough income to pay their monthly bills outside of bankruptcy, but do not have sufficient funds to bring the mortgage or other secured debt current. Chapter 13 will allow them 3 to 5 years to bring the loan current rather than losing their home to foreclosure or other asset to repossession or property execution.

How will bankruptcy help me?
From the moment your Bankruptcy petition is filed, you are under the protection of the Bankruptcy Stay. Creditors cannot act against you, without first obtaining permission from the Bankruptcy Court. No creditor can start a lawsuit or continuing one that’s already in process. If the Bankruptcy concludes successfully, the debt will be discharged, and the creditor will never be entitled to obtain judgment. This is significant for several reasons. Most important, avoiding judgments will help your future credit profile. Also, a lien cannot be filed against your property and there will be no wage garnishments or bank executions. You are living your new and brighter financial future.

Bankruptcy relieves the stress of unpaid bills and harassment from collection agencies. It provides a better quality of life for your family. Lifting the weight of debt comes with incredible peace of mind and a better night’s sleep.

Most debt, including medical expenses are dischargeable in Bankruptcy. Below is a list of common debts that are not dischargeable in Bankruptcy.
Bankruptcy will not normally wipe out:

• Money owed for child support or alimony;
• Most fines and penalties owed to government agencies;
• Most taxes and debts incurred to pay taxes which cannot be discharged, HOWEVER, Bankruptcy can discharge income tax if it is for a tax year that is more than 3 years old, the return was filed at least 2 years before filing Bankruptcy and the tax has been assessed;
• Student loans, unless you can prove to the court that repaying them will be an ‘‘undue hardship’’;
• Debts not listed on your bankruptcy petition;
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
• Debts resulting from ‘‘willful and malicious’’ harm;
• Debts incurred by driving while intoxicated;

Can I keep my assets?
Your assets become property of the Bankrupt Estate when the petition is filed. You can use Federal Bankruptcy exemptions or your state’s exemptions to protect certain property to a specified value. Almost all our clients over the past 31+ years have been able to keep all their assets by properly claiming the appropriate exemptions.

How bad does Bankruptcy effect my credit?
On the one hand, Bankruptcy is not a positive on your credit profile. However, not filing is often more damaging to your ability to obtain credit. If you qualify to file Bankruptcy, you have credit problems. You are probably past due on payments to creditors. Your credit score can be damaged even when your payments are current if the outstanding balance on credit cards is too high. These derogatory marks will continue your credit report indefinitely, until brought current or discharged in bankruptcy, and then for another 7 years. Bankruptcy can speed the process of repairing your credit.

Proper Bankruptcy planning should produce a positive impact with your future finances. You should have disposable income to provide a better quality of life for your family. Proper planning can also help your credit score improve significantly, even in the first year. Managing your finances properly going forward will help you qualify for a mortgage within a few years of discharge. Bankruptcy is not the end of your financial life; it is the beginning of a brighter financial future.

If a creditor, or anyone, obtains Judgment against you, they are motivated to collect on the Judgment. When someone decides to file for Chapter 7 Bankruptcy, the Bankruptcy Trustee is legally obligated to recover as much as he / she can for the creditors. If the debtor is cash poor, one-way creditors and Trustees can collect is to liquidate the debtor’s assets.

The good news for debtors is that much of their property is safe. There are Federal Bankruptcy Exemptions that protect certain property when someone files Bankruptcy. The State of Connecticut also provides protection from collection by Creditors outside of Bankruptcy. In some cases, the Connecticut exemptions are more beneficial than the Federal Bankruptcy Exemptions. When this is the case, a Debtor in Bankruptcy can elect to use the Connecticut exemptions in lieu of the Federal Exemptions.

Below is a list of the Connecticut exemptions. Some of these exemptions have been increased. Some provide significantly better protection than existed prior to October 1, 2021. Connecticut General Statute Sec. 52-352b (Exempt property) was amended effective October 1, 2021, by Public Act No. 21-161 – House Bill No. 6466.

Two of the most important changes help debtors better protect their residence and vehicles.

Prior to October 1, 2021, a Debtor could protect one vehicle to the value of $3,500.00 (up to two vehicles with a value of $7,000.00 for a married couple). Now a Debtor can protect two vehicles to an aggregate value of $7,000.00 (four vehicles to an aggregate value of $14,000 for a married couple). See Connecticut General Statute Sec. 52-352b(j) in bold below. Note, the exemption applies to the equity in the vehicle. Thus, if the vehicle is worth $20,000.00 and is subject to a lien for $13,000, the $7,000 exemption protects the vehicle from judgment creditors and the Bankruptcy Trustee. However, the Debtor must continue to pay on the car loan, or the lienholder can repossess the vehicle.

Prior to October 1, 2021 a Debtor could protect their residence to a value of $75,000.00 ($150,000.00 for a married couple). Now a Debtor can protect their residence to a value of $250,000.00 ($500,000.00 for a married couple). See Connecticut General Statute Sec. 52-352b(t) in bold below. Again, the exemption applies to the equity in the residence. Thus, if the home is worth $750,000.00 and there is a mortgage and or other liens for $250,000, the $500,000.00 exemption protects the home from judgment creditors and the Bankruptcy Trustee. However, the Debtor must continue to pay on the mortgage, or the lender can foreclose.

Sec. 52-352b The following property of any natural person shall be exempt:

(a)  Necessary apparel, bedding, foodstuffs, household furniture and appliances;

(b)  Tools, books, instruments, farm animals and livestock feed, which are necessary to the exemptioner in the course of his or her occupation, profession or farming operation;

(c)   Burial plot for the exemptioner and his or her immediate family;

(d)  Public assistance payments and any wages earned by a public assistance recipient under an incentive earnings or similar program;

(e)  Health and disability insurance payments;

(f)   Health aids necessary to enable the exemptioner to work or to House Bill No. 6466

sustain health;

(g)  Workers’ Compensation, Social Security, veterans and unemployment benefits;

(h) Court-approved payments for child support;

(i)  Arms and military equipment, uniforms or musical instruments owned by any member of the militia or armed forces of the United States;

(j)  Up to two motor vehicles to the value of seven thousand dollars in the aggregate, provided value shall be determined as the fair market value of the motor vehicles less the amount of all liens and security interests which encumber them;

(k)  Wedding and engagement rings;

(l)  Residential utility deposits for one residence, and one residential security deposit;

(m)  Any assets or interests of an exemptioner in, or payments received by the exemptioner from, a plan or arrangement described in section 52-321a, as amended by this act;

(n) Alimony and support, other than child support, but only to the extent that wages are exempt from execution under section 52-361a;

(o) An award under a crime reparations act;

(p) All benefits allowed by any association of persons in this state towards the support of any of its members incapacitated by sickness or infirmity from attending to his usual business;

(q)  All moneys due the exemptioner from any insurance company on any insurance policy issued on exempt property, to the same extent that the property was exempt;

(r) Any interest of the exemptioner in any property not to exceed in value one thousand dollars;

(s) Any interest of the exemptioner not to exceed in value four thousand dollars in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the exemptioner under which the insured is the exemptioner or an individual of whom the exemptioner is a dependent;

The cash surrender value of any life insurance policy issued upon the life of a citizen or resident of this state, unless the life insurance policy was assigned to or was affected for the benefit of the creditor or unless the purchase, sale, or transfer of the life insurance policy is made with the intent to defraud the creditor;

(t) The homestead of the exemptioner to the value of  two hundred fifty thousand dollars, provided value shall be determined as the fair market value of the real property less the amount of any statutory or consensual lien which encumbers it, except that, in the case of a money judgment arising out of a claim of sexual abuse or exploitation of a minor, sexual assault or other willful, wanton, or reckless misconduct committed by a natural person, to the value of seventy-five thousand dollars; and

(u) Irrevocable transfers of money to an account held by a debt adjuster licensed pursuant to sections 36a-655 to 36a-665, inclusive, for the benefit of creditors of the exemptioner.