The purpose of filing for bankruptcy is to give you a chance for a fresh financial start when your debts become overwhelming. In 2005, Congress updated the bankruptcy laws, adding a few obstacles to the bankruptcy process to limit bankruptcy to people who are genuinely unable to pay all or most of their debts. Although bankruptcy laws are federal, states such as Virginia determine who is eligible to file for bankruptcy and how much property you can exempt from the bankruptcy process.
Under the 2005 Bankruptcy Act, you are now required to undergo mandatory credit counseling to establish your right to file for bankruptcy. The counseling session takes place within six months of filing your bankruptcy petition. The counselor will determine if your financial situation warrants a bankruptcy filing under Chapter 7 or under Chapter 13. All of your debts except those excluded by law, such as school loans and taxes, are forgiven and discharged if the court approves your Chapter 7 bankruptcy petition. Under Chapter 13, you'll have to work out a court-approved repayment plan to pay off at least some portion of your debts.
Your income largely determines whether you can file under Chapter 7 or under Chapter 13. If your family income is below the Virginia median income, you can file under Chapter 7. As of 2012, the median income figures for Virginia are $50,605 for an individual, $64,288 for a couple, $71,644 for a family of three, and $87,498 for a family of four. If your income exceeds these amounts, you still might qualify for Chapter 7 if your net income is not high enough to make significant payments on your debts.
Both the Bankruptcy Act and state statutes determine which property and assets you can exempt from your creditors during the bankruptcy process. The law gives individual states the right to "opt-out" of federal exemptions in favor of state exemptions and Virginia has elected to do so. Many people who file under Chapter 7 are able to keep everything they own, including up to $5,000 in household goods and furniture, $1,000 in clothing, $10,000 in equipment for your profession, and 75 percent of disposable wages and retirement benefit plans, such as IRAs and pensions. If you are paying off a mortgage or car loan, you'll have to keep making payments to retain your house and auto. The same exemptions under Chapter 7 apply to Chapter 13 as well. Exempt assets are not included in the assets used to pay off creditors under your repayment plan.
For a Chapter 7 bankruptcy, you must file several forms with the U.S. Bankruptcy Court for your district. All forms are available on the court's website or from a legal document services provider. The forms require you to itemize your current sources of income, major financial transactions in the previous two years, monthly living expenses, all of your creditors, all of your assets and possessions, tax returns for the previous two years and deeds and titles to any real estate or vehicles you own. Under Chapter 13, you file the same documents and add a repayment plan that states the amount of money you can pay each month to your creditors. Monthly payments last from three to five years under a repayment plan.
- Virginia Cooperative Extension: Deciding if Bankruptcy is Right for You
- Bankruptcy Law Network: What I Can I Keep When I File for Bankruptcy in Virginia
- U.S. Department of Justice: Census Bureau Median Family Size Income by Family Size
- U.S. Bankruptcy Court: Bankruptcy Forms
- LegalConsumer.com: How to File Bankruptcy in Richmond, Virginia
- David C. Jones Law Firm: Means Testing
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