Most agencies offer bankruptcy courses online, but some also offer the courses by telephone or in-person.
Filing bankruptcy is not the end of the world. For most people filing Chapter 13 bankruptcy in Arkansas is the first step on the road to financial recovery. A bankruptcy case gives you the fresh start you need to take control of your finances after a financial crisis makes it difficult to pay your debts that are still within the statute of limitations.
We answer your questions about bankruptcy in Arkansas so that you have the information you need to decide whether bankruptcy is right for you. This article should help clear up any confusion regarding Chapter 13 bankruptcy in Arkansas, but if you are interested in learning more, you can read this article on the costs of filing bankruptcy in Arkansas.
In our Arkansas bankruptcy guide, you learn about:
- Means Testing in Arkansas — How Does the Means Test Impact My Bankruptcy Case?
- Arkansas Bankruptcy Exemptions
- Chapter 7 vs. Chapter 13 Bankruptcy in Arkansas
- Arkansas Credit Counseling and Debtor Education Courses
- Bankruptcy Courts and Trustees for Arkansas
- Alternatives to Filing Bankruptcy in Arkansas
Means Testing Arkansas
How Does the Arkansas Means Test Impact My Bankruptcy Case? Congress revised the Bankruptcy Code in 2005, lawmakers were under a great deal of pressure to include provisions aimed at reducing bankruptcy fraud. One of those provisions was the introduction of the Arkansas Bankruptcy means test.
The purpose of the Means Test is to determine whether an individual has sufficient income to repay some of his or her debts. Individuals who “fail” the Means Test usually qualify for a bankruptcy discharge under Chapter 7. If someone “passes” the Means Test, they usually must file under Chapter 13 to receive a bankruptcy discharge. A bankruptcy discharge releases you from the legal liability for a debt.
Let’s look at how to calculate the Means Test and what it means for your Chapter 7 or Chapter 13 case.
Calculating the Means Test
The Means Test calculates three figures that are used in bankruptcy cases — current monthly income (CMI), disposable income, and median income.
1. Current Monthly Income
Your CMI is the average of your household income for the past six months. You use all household income, except for income under the Social Security Act, and divide by six to calculate your current monthly income.
If your spouse is not filing bankruptcy with you, you must add his or her income in the Means Test, unless you are separated and your spouse does not live in the home. The income is based on household income because median income is based on the number of people in your household.
2. Annual Median Income
Annual median income (AMI) is calculated by multiplying your CMI by twelve.
3. Disposable Monthly Income
Disposable monthly income (DMI) is calculated by subtracting allowable monthly expenses from your CMI. The maximum total of some expenses is based on national standards, such as utilities, food, clothing, housekeeping supplies, out-of-pocket health care expenses, transportation costs, and miscellaneous personal care products. The national standards are updated and revised, so always make sure you use the most current information.
Other expenses that you may include when calculating disposable monthly income include:
- Taxes and withholding
- Rent or mortgage payments
- Term life insurance payments
- Daycare costs
- Health insurance premiums
- Car loan payments
- Court-ordered child support or alimony payments
- Some retirement account contributions
- Limited charitable contributions
- Education costs for children
There could be other monthly expenses that you might be able to include in the Means Test, depending on your circumstances. The court may require proof of expenses for any items that exceed a certain amount.
The Chapter 7 Means Test
Your annual median income is compared to the median income for a household of your size in Arkansas (see the table below for the current median income figures for Arkansas). If your AMI is above the AMI for a household of your size, you “fail” the Chapter 7 Means Test and may not be eligible for a bankruptcy discharge in Chapter 7.
However, there is a second chance. If your disposable income is below a certain amount or is a negative number, you can still file Chapter 7 in Arkansas. There is an exception too. If your debts are primarily business debts, the Means Test does not apply. You may still qualify for a bankruptcy discharge in Chapter 7 even though your median income and disposable income are higher than allowed for a debtor with primarily consumer debts..
The Chapter 13 Means Test
If you fail the Means Test and your disposable income is high enough, you must file under Chapter 13 to receive a bankruptcy discharge. The Means Test figures impact your Chapter 13 case in two important ways.
Blue notebook with white numbers on cover sitting next to a laptop; image by Volkan Olmez, via Unsplash.com.
First, if your annual median income is above the Arkansas median income, you are required to file a five-year Chapter 13 plan. Second, in most cases, a debtor must pay all disposable income toward unsecured debts. Therefore, if your disposable income on the Chapter 13 Means Test is $400 per month, the amount you pay to your unsecured creditors must equal at least $400 per month.
Other factors impact the amount of your Chapter 13 plan payment, such as mortgage arrearage (past due mortgage payments), car loans, back taxes, unpaid domestic support (alimony & child support), and non-exempt assets.
Arkansas Bankruptcy Exemptions
Another important factor to consider when filing bankruptcy in Arkansas is bankruptcy exemptions. When you file bankruptcy in Arkansas, it does not mean that you lose everything. Bankruptcy exemptions protect the equity in specific property from being used to repay your debts. In other words, bankruptcy exemptions let you keep most of your assets when you file for bankruptcy relief.
In Arkansas, you may choose between federal bankruptcy exemptions found in 11 U.S.C. §562 or Arkansas bankruptcy exemptions. You must be a resident of Arkansas for at least 730 days to choose Arkansas bankruptcy exemptions.
If you have not lived in Arkansas for that long, your state of residence for the majority of the 180 days before the 730-day residency requirement determines if you use federal exemptions or the bankruptcy exemptions from another state.
In most cases, debtors choose Arkansas bankruptcy exemptions if they own a home because the Arkansas homestead exemption is more generous than the federal homestead bankruptcy exemption. However, there could be cases in which the federal exemptions might work best.
Most of the Arkansas bankruptcy exemptions are found in the Arkansas State Constitution and state statutes. However, the list may not be complete, and it is not a substitute for legal advice from an experienced Arkansas bankruptcy lawyer. You may also look at the statute of limitations on debt for Arkansas.
The values for bankruptcy exemptions are subject to revision. Because exemptions protect your property from being sold by a Chapter 7 trustee or used to increase your Chapter 13 plan payment, it is generally best to consult an experienced bankruptcy lawyer before filing bankruptcy in Arkansas.
Chapter 7 vs. Chapter 13 Bankruptcy in Arkansas
It can be difficult to decide whether it is better to file a Chapter 7 or a Chapter 13 bankruptcy case. There are pros and cons of each case. Learning more about each of the different chapters of bankruptcy can help you decide if you need a Chapter 7 or Chapter 13 case.
The Means Test and Choosing a Chapter of Bankruptcy
The Means Test may decide for you which chapter of bankruptcy to file. If your median income and disposable income exceeds the maximum limits for a Chapter 7 bankruptcy in Arkansas, you may not have any other choice for bankruptcy relief but a Chapter 13 case.
Some people choose to file a Chapter 13 case even though they may qualify for a Chapter 7 bankruptcy. The reasons for choosing Chapter 13 over Chapter 7 generally involve some of the pros of filing Chapter 13.
Filing a Chapter 7 can potentially help with judgments when facing a wage garnishment in Arkansas.
Arkansas Chapter 13 Bankruptcy
A Chapter 13 bankruptcy in Arkansas allows you to restructure your debts. You pay a Chapter 13 trustee one payment each month instead of paying your creditors. The Chapter 13 trustee pays your creditors according to the terms of the confirmed Chapter 13 plan. In most cases, a Chapter 13 plan includes all your debts except for monthly living expenses, ongoing mortgage payments, and continuing child support or alimony payments.
Some advantages of filing Chapter 13 in Arkansas include:
- You can save your home from foreclosure
- You may be able to lower your car payment or even reduce the amount owed on the title loan
- Some debtors are able to get rid of a second mortgage for less than they owe on the account
- You can pay back taxes, unpaid child support, and back alimony payments over 60 months
- Filing Chapter 13 protects property that might have non-exempt equity from being liquidated in Chapter 7
- Unsecured creditors may receive just pennies on the dollar to get rid of those debts
However, there are a few downsides to Chapter 13. You are committed to a three to five-year bankruptcy repayment plan. During the plan, you cannot incur new debts or dispose of assets without court approval. Also, you must keep your mortgage payment outside of the plan current or face losing your home.
One of the common alternatives to bankruptcy is Arkansas debt relief, but consider taking a debt relief calculator before pursuing that option to compare the cost to Chapter 13 bankruptcy.
Arkansas Chapter 7 Bankruptcy
A Chapter 7 bankruptcy in Arkansas is usually referred to as “straight” bankruptcy. You must meet the income requirements to file under Chapter 7 or have primarily business debts to receive a bankruptcy discharge. All assets become part of the bankruptcy estate.
A Chapter 7 trustee reviews your property to determine if any property has equity above the bankruptcy exemptions and valid liens. If so, the Chapter 7 trustee could sell the property and use the money to repay your unsecured debts.
Most Chapter 7 cases filed in Arkansas are no-asset cases. In a no-asset case, the Chapter 7 trustee abandons all assets. You get to keep your property and get rid of your debts. Within four to six months, you could be debt-free.
However, a Chapter 7 bankruptcy case cannot save your home or car if you cannot afford to catch up and keep the payments current. Also, if you owe taxes, back support payments, or other debts that are not dischargeable in a bankruptcy case, you must deal with those debts immediately.
Also, the cost to file bankruptcy in Arkansas is $338 for a Chapter 7 bankruptcy.
Arkansas Credit Counseling and Debtor Education Courses
When you file a Chapter 7 or Chapter 13 bankruptcy case, you must complete two required bankruptcy courses. The first course (Credit Counseling Course) must be completed before you file your bankruptcy case. The Credit Counseling Course is available from several agencies approved by the United States Trustee’s Office.
The second bankruptcy course (Debtor Education Course) must be completed after you file your bankruptcy case. If you fail to complete the course before the deadline, the court could deny your discharge. The Debtor Education Course is also available from several agencies approved by the United States Trustee’s Office.
Most agencies offer bankruptcy courses online, but some also offer the courses by telephone or in-person. The fees for the courses are set by the company and range from $9.99 to $50. You can shop around to find the lowest rate. Many companies offer a discounted rate for the second course if you complete both courses with the same company.
If you cannot afford to pay for the bankruptcy courses, ask the company about waiving the fees. Individuals who meet the income requirements can have the fees waived.
Bankruptcy Courts and Trustees for Arkansas
Arkansas is divided into two bankruptcy districts:
Each district serves multiple counties. The court provides access to official bankruptcy forms and local bankruptcy forms for individuals filing bankruptcy without an attorney in Arkansas. You can also find other information on the court’s website, such as a list of all bankruptcy trustees serving in Arkansas.
Chapter 13 Trustees Arkansas
There are three Chapter 13 trustees in Arkansas, which you can find below:
- Mark T. McCarty, serving the Delta, Northern, Harrison, and Central divisions
- Jack W. Gooding, serving the Hot Springs, El Dorado, Texarkana, and Central divisions
- Joyce Bradley Babi, serving the Fort Smith, Fayetteville, and Central divisions
Chapter 7 Trustees Arkansas
You are assigned an Arkansas bankruptcy trustee at random. The bankruptcy trustee administers your case for the court. Trustees are independent individuals who are not employees of the United States Trustee’s Office nor the bankruptcy court.