Bankruptcy Information in Virginia

Bankruptcy involves some math.

Bankruptcy is a legally declared inability, or impairment of ability, to pay in full debts owed to creditors. It originated in England and was originally planned as a remedy for creditors, not debtors, allowing creditors to seize all assets of a debtor and imprison the debtor, forcing the family to pay off any remaining fines. The modern version focuses on the remodeling of financial and organizational structures of debtors in financial distress, permitting for the continuation of their businesses. Each state has its own bankruptcy laws. In Virginia, two types of bankruptcy can be declared: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy in Virginia

Chapter 7 bankruptcy, also known as a straight bankruptcy, is a liquidation of the debtor's assets. The debtor turns over all non-exempt property to a trustee who liquidates the assets and uses the proceeds to pay off creditors. Usually, within four months, the debtor receives a discharge of all applicable debts. The advantage of filing for this type of bankruptcy is that it provides immediate relief from all debts--essentially, a fresh start.

Eligibility for Chapter 7

In Virginia, debtors must undergo a means test to qualify, which also requires the payment of any overdue tax returns. The IRS uses the means test to determine who can and cannot file for Chapter 7 bankruptcy. Generally, if a debtor's income from the last six months is less than the median income of the state, he or she is eligible and is able to file for Chapter 7. The USDA reports that as of 2008, the median household income of Virginia was $61,210.

Exempt Properties

Each state has a list of exempt and non-exempt properties. In Virginia, the debtor is allowed to keep the following: Motor vehicles (up to a certain value), necessary clothing, necessary household goods and furnishings, household appliances, jewelry (up to a certain value), pensions, a portion of the equity in the home, tools of the profession (up to a certain value), a portion of unpaid but earned wages, public benefits, and damages awarded for personal injury.

Filing and Hearing

To file for Chapter 7 bankruptcy in Virginia, the debtor files an official petition, schedules, and a statement of financial affairs in bankruptcy court. He must provide a full list of creditors; the amount and type of their claim; the source, amount and frequency of his income; a list of property owned; and a detailed list of monthly living expenses. One advantage of filing for bankruptcy is the automatic stay: As soon as a debtor files, creditors are prevented from collecting on any debts.

Approximately a month after the petition is filed, the trustee holds a "341 meeting." The debtor must be at this meeting and must provide any information that is asked for. Debts are discharged if creditors have stopped demanding repayment within 60 days of the 341 meeting.

Chapter 13 Bankruptcy in Virginia

Chapter 13 bankruptcy, known as reorganization or wage-earner bankruptcy, is filed by people who want to pay off debts over a period of 3 to 5 years. Usually, debtors who choose this type of bankruptcy have non-exempt property that they wish to keep, or predictable, stable income sufficient to pay for both debts and reasonable expenses.

Requirements for Chapter 13 Bankruptcy

To be eligible for Chapter 13 bankruptcy in Virginia, debtors must have a stable, fixed income with "disposable" income, which is income left over after basic requirements such as food and utilities have been paid for. Effective April 2010, debtors cannot have more than about $1.01 million in secured debt and $336,900 in unsecured debt.

Filing For Chapter 13 Bankruptcy

In Virginia, the debtor must first file a petition and statement of financial affairs in bankruptcy court, providing a list of creditors, assets and liabilities, and current income and expenses.

The statement must list income from employment or business operations including amounts and sources; other sources of income; payments made to creditors; lawsuits; all property, both seized and repossessed; gifts and charitable donations; losses from fire, theft, gambling, etc.; payments made for debt counseling or bankruptcy; transfers of property made within the last two years; property transferred to a trust within the past 19 years; financial accounts that were closed within one year; safe-deposit boxes; setoffs to creditors; property held for another person; all premises occupied during the past three years; any businesses owned; and the names of any spouses if the debtor lived in a community property state.

References

• Bankruptcy Information FAQ
• Chapter 7 Bankruptcy Basics
• Exempt vs. Non-exempt Property Under Chapter 7
• Chapter 13 Wage Earner Bankruptcy Basics
• VA Unemployment and Median Household Income