Chapter 7 Bankruptcy

The price of bankruptcy will include a bad credit report for 10 years, the possibility that companies will refuse to hire you and you can be denied insurance as well as a security clearance and licensing. Keep in mind this is all LEGAL. Bankruptcy carries a stigma for life! Public records containing all of your personal information are kept in storage and available for 20 years after the bankruptcy has been discharged or dismissed.

What are the most common reasons to file for bankruptcy?
What is Chapter 7
Who can file a Chapter 7 bankruptcy?
Means testing
Does All My Debt Get Erased?
Can I keep my car after bankruptcy?
Can I keep my house after bankruptcy?
Exempt Property vs Non-Exempt Property
Is it true I will have to take classes?
When do creditors get notified that I have filed Chapter 7?
What is the benefit of filing a Chapter 7?
Can I go to jail?
Do I have to go to court?
What happens after I file my bankruptcy?
Will my credit rating be affected after bankruptcy?
How long will a Bankruptcy stay on my credit report?
Is there anything I should not do if I am contemplating bankruptcy?

What are the most common reasons to file for bankruptcy?

Most people don’t run up their credit cards with the expectation of wiping out their debt through bankruptcy. Usually they’ve experienced a job loss, large medical expenses, marital problems or other unexpected hardships leaving little or no options.

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Chapter 7

There are two types of bankruptcy that apply to consumer debt. Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Some liens, however (such as real estate mortgages and car loans), survive. The value of property which can be claimed as exempt varies from state-to-state. Other assets, if any, are sold (liquidated) by the trustee to repay creditors.

Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not included such as child support, income taxes less than 3 years old and property taxes, most student loans, and fines/restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing.

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Who can file a Chapter 7 bankruptcy?

• You must reside or have a domicile, a place of business, or property in the United States or a municipality.
• You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
• You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
• You must pass the means test.
• It would not be fundamentally unfair to grant the debtor relief under Chapter 7.

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Means testing

In order to file for bankruptcy a debtor must “qualify”. Congress amended this section of the Bankruptcy Code to provide for dismissal (or conversion) of a Chapter 7 case upon a finding of “abuse” by an individual debtor (or married couple) with “primarily consumer debt.”

To determine whether a presumption of abuse arises under the means test Section §707(b)(2), it is necessary to look at the debtor’s income compared with the median income in the debtor’s state. It should be noted that if the debtor's debt is not primarily consumer debt, then the means test is inapplicable. To learn more visit:

www.usdoj.gov/ust/eo/bapcpa/20061001/bci_data/median_income_table.htm

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Does All My Debt Get Erased?

In essence, the underlying policy of bankruptcy law is to allow an honest debtor the opportunity to discharge his or her debts and have a fresh start with a Chapter 7 filing.

Can I keep my car after bankruptcy?

If there is security put in place within 3 years on your vehicle, you must pay the full amount owed or lose the vehicle. If you owe money on your car or it is leased you must continue to make the payments. You redeem or reaffirm the property in order to keep it. Most leased vehicles have no equity and therefore are entirely exempt.

If you own any cars which are free and clear and worth thousands of dollars, you are probably not going to be able to keep them. It is important you consult with a good lawyer to review your options.

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Can I keep my house after bankruptcy?

Again, each state has its own laws regarding homestead exemption. For example if the homestead exemption in your state is equal to $100,000 the equity in your home is protected up to that amount. Anything beyond that amount you would be forced to sell.

Certain States such as Texas and Florida have unlimited protection. Keep in mind this applies to your principal residence only.

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Exempt Property vs Non-Exempt Property

In a chapter 7 there is exempt property (meaning that you will be allowed to keep it in most states) or non-exempt (meaning you won't). Consult with a good attorney.

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Is it true I will have to take classes?

Yes. You must get credit counseling from a government approved organization within six months before you file for bankruptcy protection. In addition, before you can complete the Chapter 7 Bankruptcy proceedings, you must also complete a financial education course. This is to teach debtors how to better manage money for the future. You can find both government approved organizations at the following link:
http://www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm

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When do creditors get notified that I have filed Chapter 7?

After your bankruptcy is filed, the court mails a notice to all the creditors listed in your schedules. This will take a couple of weeks. You can also have your representative inform the creditor immediately. Once informed the creditors must stop all collection practices or be liable for this conduct through court sanctions.

What is the benefit of filing a Chapter 7?

One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed. This means that debt collection efforts and foreclosure is halted. This will also prevent wage attachment, most civil judgments and under some circumstances a special motion can remove liens. This is complicated and we recommend you consult with a bankruptcy lawyer.

Can I go to jail?

No! There is no such thing as a debtor jail whether you file for bankruptcy or not

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Do I have to go to court?

Yes. About 30 to 40 days after you file the bankruptcy you will have to attend a hearing presided over by the bankruptcy trustee. The is called the First Meeting of Creditors; the trustee will ask questions under oath regarding the content of your bankruptcy papers, assets, debts and other matters. After the trustee is done, your creditors will be permitted to question you. Don’t worry. Your attorney will have already prepared you and is there to represent you. Various creditors may approach you after the hearing to discuss the status of secured property or your desire to retain a credit card. Your attorney will negotiate with them on your behalf with your knowledge and approval.

What happens after I file my bankruptcy?

If you comply and complete the necessary courses, the bankruptcy court will automatically issue the discharge 60 to 75 days after the First Meeting of Creditors.

Will my credit rating be affected after bankruptcy?

Yes. The truth is your credit will suck! You will have to work diligently to become credit worthy. Please see our credit repair section for tips.

How long will a Bankruptcy stay on my credit report?

A Chapter 7 bankruptcy stays on your credit report for 10 years from the date the bankruptcy is discharged. However, it stays on your court records for 20 years, as public record

Is there anything I should not do if I am contemplating bankruptcy?

An attorney can answer this complex question but generally you should be cautious when making certain purchases such as:

1. Luxury purchases over $1000 within 60 days of the bankruptcy filing
2. Cash advances with an aggregate total of $1,000 within 60 days of the bankruptcy.
3. Debts involving materially false financial statements

Do you have a question we haven't answered? Call us!

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