Chapter 7 Bankruptcy
Bankruptcy
Is not The End
A part of the American ethos is that we will do anything we can to legally pay off a debt. That doesn’t stop life from hitting us hard and, for whatever reason, the amounts we owe can still become too much for us to reasonably expect to pay it off.
If you are in this situation, bankruptcy might be your best option. Chapter 7 bankruptcy can be the solution for those really in the hole.
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What Is Chapter 7 Bankruptcy and How Does It Help You?
While bankruptcy should be avoided if possible, Chapter 7 ranks as one of the most popular bankruptcy forms for a reason. Both individuals and spouses can file for it, depending on their circumstances. Basically, it lets you discharge unsecured debts like medical and credit card debt and personal loans or what you still owe on a car or truck that was repossessed.
In addition to getting rid of your debts, another benefit is that creditors cannot start or even continue lawsuits for the debts you owe. So they can’t garnish your wages or place liens on your property. Even those annoying creditor calls will stop as creditors and credit agencies are not allowed to contact you after you file Chapter 7.
Chapter 7 bankruptcy allows you to discharge all unsecured debt if you are eligible and you go through the process required by the bankruptcy Court. Once the bankruptcy process runs its course, your unsecured debts are no longer your problem. You owe nothing to those organizations.
So Called Liquidation Bankruptcy
Chapter 7 is often called liquidation bankruptcy because the trustee of your bankruptcy case can liquidate your property to repay all or part of what you owe. But this is a little misleading; In reality, this happens only in a very small percentage of Chapter 7 cases. Most people are able to keep all of their assets, including valuable items, because they can be exempted from the liquidation process. Your bankruptcy attorney can help you by telling you if you can use your exemptions to safeguard your property from liquidation.
Do you qualify?
You cannot file Chapter 7 if you have received a discharge in a bankruptcy case in the last 8 years. If you have relatively high income, your bankruptcy attorney will help determine how the Chapter 7 Means Test would affect your eligibility for Chapter 7 bankruptcy. This requirement is not a problem for the vast majority of people who need to file bankruptcy and the odds are that it will not cause problems for you. The means test looks at all your income over the last 6 months and compares it to the average income in your state. If it is over the average, then the test compares your expenses to certain limits that the bankruptcy law borrows from the IRS.
If you would have money left over that you could use to pay off your debt, then you might have to file for Chapter 13 bankruptcy instead of Chapter 7 to get a discharge. Keep in mind that Chapter 13 does not automatically mean that you have to pay all of your debts in full but it does require that you make monthly payments over time, usually five years, into your Chapter 13 plan before you can get a discharge.
What Kind of Debts Can I Discharge in Chapter 7?
Chapter 7 bankruptcy lets you discharge most unsecured personal including, but not limited to:
- Medical debt
- Credit card debt
- Consolidation loan
- Lines of credit
- Payday or title loan
- Personal loans
- Balances still owed on cars or trucks that were repossessed
- Personally secured debt from unsuccessful businesses
- Court judgments
- Some tax and tax-related debt, basically income taxes from more than three years ago
Your bankruptcy attorney can help you identify what debts can be discharged and what debts cannot be discharged Chapter 7.
What Debt Does Chapter 7 Not Cover?
Chapter 7 does not automatically write off all debt.
Federal student loans in bankruptcy are a hot topic right now. They are the subject of an exciting new program at the Department of Education. For the first time, there will be clear guidelines on the circumstances in which they can be discharged as a hardship.
Please contact us right away if you have a lot of federal student loans and are wondering about whether you might qualify to discharge them under these new guidelines.
Secured loans are a little complicated. While the debt can be discharged, the lender’s right to recover collateral for secured debt is not covered. Secured debt includes loans like home mortgages and car loans.
Your bankruptcy attorney can help you decide how to deal with your secured debt in Chapter 7 bankruptcy. Usually, you can keep the collateral if you keep making the payments though sometimes you may have to reaffirm the debt. Your bankruptcy lawyer can tell you what this means and help you decide if it is a good idea for you.
You do have the option of walking away from secured debt. Of course, the lender can and, most often, will seize the property. The positive in that scenario is that even though you will no longer have the property, you will no longer owe anything on it.
Chapter 7 cannot discharge other loans or debts, including some taxes, alimony, child support, and personal injury judgments from a DUI.
Is Chapter 7 a Benefit?
While Chapter 7 bankruptcy should be a last resort, after you have tried all you can to get control of your debt, if you implement it, it does help you, at least in terms of discharging those debts. It also can be for many people an important first step to rebuilding their credit and getting back to a normal financial life. Your bankruptcy attorney can help you determine if you will have better credit sooner by filing bankruptcy than trying to repay your debts.
Here are a few benefits of Chapter 7:
- Creditor collection actions all must stop
- Lawsuits to collect debts are suspended until the bankruptcy case is complete
- These lawsuits will be dismissed in most cases once the Chapter 7 bankruptcy is processed
- Wage garnishments will get lifted
- You can start to rebuild your credit
The Chapter 7 Process
For most people, the process starts with hiring a bankruptcy attorney. While you can file a bankruptcy case yourself without an attorney, you may miss critical issues that could cause problems. A bankruptcy attorney is a critical asset because with a bankruptcy attorney’s help, you will know that you are getting all the information that you need.
When you are hiring a bankruptcy attorney, look for someone who is in a firm, rather than someone who runs a one person shop. They will have other attorneys and staff that will help them make sure your case goes smoothly.
Look for someone who is responsive and has the time to talk to you about your case and your questions. If someone doesn’t get back to you promptly on your initial request for information or who is impatient or who makes you feel rushed, pressured or hurried when you talk to them, it is not a good sign about how they will handle your case if you hire them.
Ask your friends and family for a referral. Many people have had to file bankruptcy in the past and they may know someone who helped them out.
Do some research and check out the reviews online for the attorneys you are thinking of hiring.
Here is some additional information about how a bankruptcy case works.
Mandatory Credit Counseling Certificate
Everyone who files bankruptcy has to get a certificate from a credit counselor about whether there are other options available. It is still up to you whether to file bankruptcy and can do so even if the counselor says that you have other options.
This requirement is to protect you. This part of the law was passed so that you are not just relying on your attorney to decide if filing Chapter 7 makes sense or if you should choose another option.
This counseling certificate is obtained online. You choose a service from a list your attorney will provide and create an account. Then you pay a modest fee, usually under $25.00, and fill out some information about your debts and your income and expenses.
The counseling process is complete with a phone call to the service and a person there discusses your options with you and issues the certificate to show that you completed the process.
Court Filing
Your attorney will use information that you provide and will ask you questions in an interview to prepare the bankruptcy forms to be filed with the bankruptcy court. You will have to provide information about your bills, copies of bank statements, tax returns and pay stubs or other proof of income such as social security letters or profit and loss statements for a business. A good bankruptcy attorney will have experienced and professional legal assistants who will help the attorney review your forms for thoroughness and accuracy before you sign them.
Phone In Court Hearing- The Meeting of Creditors
Everyone who files bankruptcy must participate in a court hearing called the meeting of creditors. This is done in a phone call right now though there is a plan to start doing these hearings by a video line. This hearing is about 30 days after you have filed your bankruptcy forms. The name is misleading because it is rare for any of the people or companies you owe to participate. The only exception is if you have a car loan with a local credit union. They will often call in to ask if the car is still insured.
Even though the creditors usually fail to show up for this meeting, you, however, must call in for the hearing. If you do not, it will be rescheduled and if you ultimately fail to participate, your bankruptcy case will be dismissed without a discharge.
Budget Classes
Before your discharge can be entered, you must get a second counseling certificate. This is also done online and focuses on financial management issues like budgeting and rebuilding your credit.
Get Your Discharge
About 60 days after the meeting of creditors, you will receive your discharge. Your attorney will get a copy and you will get a notice from the court that your discharge was entered and your bankruptcy case closed.
Rebuild Your Credit
You can now start to rebuild your credit. The discharge of your debts usually will improve your debt to income ratio which is an important part of your credit score.
Build on this improvement by making sure to budget carefully and pay all of your bills on time. If you have reaffirmed a car loan, one of the benefits is that it will definitely help you rebuild your credit.
It is important to check your credit about 4 to 6 months after your discharge to see if there are any amounts listed as still owing. Get used to using www.annualcreditreport.com because you can get a copy of each of your three major credit reports once each year. This lets you check one of them for free every four months.
Look for any opportunities to get new credit such as secured credit cards, personal loans or small lines of credit with your credit union or bank.
Final Thoughts
Chapter 7 bankruptcy is not something to be taken lightly. If you hire a good attorney and follow the process to the letter, you will get your discharge. Then, you can get started living your life with a lot less debt hanging over your head.
Do You Need a Chapter 7 Attorney?
It is a good idea to have a bankruptcy attorney, though it is not required. Bankruptcy law has many rules that are complex and difficult to understand. When done right, a Chapter 7 case can seem very simple and easy to do yourself. But common situations can lead to real problems if not handled correctly. It may not be that your case will be thrown out if you do not follow the procedure exactly or provide the necessary information, but you can lose assets or have the bankruptcy trustee trying to recover money that you repaid to family or friends. A good attorney who specializes in bankruptcy can make sure that you are not making things worse by filing bankruptcy and also let you rest assured that everything has been filed correctly and the process followed exactly so that you can get your bankruptcy discharge and rebuild your credit.
What Is Chapter 7 Bankruptcy and How Does It Help You?
While bankruptcy should be avoided if possible, Chapter 7 ranks as one of the most popular bankruptcy forms for a reason. Both individuals and spouses can file for it, depending on their circumstances. Basically, it lets you discharge unsecured debts like medical and credit card debt and personal loans or what you still owe on a car or truck that was repossessed.
In addition to getting rid of your debts, another benefit is that creditors cannot start or even continue lawsuits for the debts you owe. So they can’t garnish your wages or place liens on your property. Even those annoying creditor calls will stop as creditors and credit agencies are not allowed to contact you after you file Chapter 7.
Chapter 7 bankruptcy allows you to discharge all unsecured debt if you are eligible and you go through the process required by the bankruptcy Court. Once the bankruptcy process runs its course, your unsecured debts are no longer your problem. You owe nothing to those organizations.
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01
Court Filing
Provide information about your bills, copies of bank statements, tax returns and pay stubs or other proof of income.
02
Get Your Discharge
About 60 days after the meeting of creditors, you will receive your discharge.
03
Rebuild Your credit
Budget carefully and pay all of your bills on time.