Eliminate Debt - Chapter 7 Bankruptcy
- The Effect Of Filing For Chapter 7 Bankrupcy
- The Process Involved In Filing A Chapter 7
- Dischargeabilty Of Debts
- Protecting Your Property
- House Or Apartment Concerns
- Choosing Chapter 13 Over Chapter 7 Bankruptcy
- The Effects Of Bankruptcy On Your Credit
THE EFFECT OF FILING FOR CHAPTER 7 BANKRUPCY
When you file for bankruptcy, an "automatic stay" goes into effect immediately. The automatic stay stops creditors from doing anything to collect the debts you owe them (unless the bankruptcy court allows otherwise). This will stop all phone calls, letters, lawsuits, garnishments or any other form of collection.
THE PROCESS INVOLVED IN FILING A CHAPTER 7
In a Chapter 7 case, our office will help you from start to finish with your case. During the first step, we assist you with filing the necessary forms with the bankruptcy court. A Trustee will be appointed by the Court to oversee your case. About a month after filing, you have to attend a §341 Meeting of Creditors. At this meeting the Trustee asks you a few questions regarding your case. Despite its name, creditors do not often attend this meeting. If you have any assets that cannot be exempted (protected), the Trustee will force you to give him the assets (or their cash equivalent). The Trustee’s job is to look for assets that he can sell for the benefit of the creditors. With our years of experience, we will counsel you as to how to best protect your assets. If all goes well, you are discharged of your debts 60 days after this meeting. It takes a little while longer for the court Order to be generated and sent to you. At that point your case is over, and you are no longer responsible for your discharged debts. You will then have a fresh start with your finances.
DISCHARGEABILTY OF DEBTS
The following debts are non-dischargeable in Chapter 7. If you file for Chapter 7, these can be collected on once your case is over.
- Debts for most recent income tax debts and all other tax debts. Tax debts are very technical, and certainly require a consultation in person to best advise you as to how to proceed;
- Debts for most student loans;
- Debts that are in the nature of child support or maintenance;
- Debts for personal injury or death caused by you driving your vehicle while intoxicated;
- Debts for most fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution; and
- Debts for which the debtor has given up the discharge protections by signing a reaffirmation agreement in compliance with the Bankruptcy Code requirements.
In addition, other debts may be declared non-dischargeable by a bankruptcy judge in Chapter 7 if the creditor challenges your discharge request. It is a rarity that you would have to retain our office to handle dischargeability issues. They include:
- Debts you obtained through fraud;
- Consumer debts owed to a single creditor and aggregating more than $1,150 for luxury goods or services incurred within 60 days of filing;
- Cash advances aggregating more than $1,150 or more incurred within 60 days of filing;
- Debts for willful and malicious injury by the debtor to another person or another person's property;
- Debts for breach of trust, embezzlement or larceny;
- Debts from a divorce decree or separation agreement, unless after bankruptcy you still cannot afford to pay them or the benefit you would get from the discharge outweighs the detrimental consequences to your spouse, ex-spouse or child.
PROTECTING YOUR PROPERTY
In Chapter 7, you must list all of your assets and then select the assets you are allowed to keep from either a list of state or federal exemptions. Each jurisdiction has its own regulations. Some have elected to use their own state exemptions, while others have elected to keep the federal exemptions. These exemptions allow you to protect some personal property you might own. Exemptions are generally as follows:
- Equity in your principal residence (called a homestead exemption). Some states have little or no homestead exemption, while only a few allow debtors to protect all or most of the equity in their principal residence. The District of Columbia is the only such jurisdiction in the metropolitan area.
- Personal property. You will be able to keep some household goods, furniture, clothing, and collectibles, up to the dollar limits specified in the exemption laws. Most states allow you to keep a vehicle depending on the amount of equity available.
- Retirement plans. Pensions that that meet the requirement of the Employee Retirement Income Security Act are completely protected in bankruptcy. Many other retirement benefits are as well, while some are not protected. For example, IRAs and Keoghs become very technical as to what you can keep.
- Public benefits. Public benefits, such as welfare, Social Security, worker’s compensation proceeds and unemployment insurance, are fully protected.
HOUSE OR APARTMENT CONCERNS
Obviously, one of the biggest concerns you may have when thinking about filing for bankruptcy is the possible loss of your principal residence.
Home Ownership and Bankruptcy
One other concern besides having equity in your property (see above discussion) is the status of your payments on your mortgage. If you are in arrears with your mortgage payments, you will almost definitely lose your property if you file a Chapter 7. The Chapter 7 will stop foreclosure proceedings, but since it does not present a repayment plan, the mortgage company will file a motion with the Bankruptcy Court to lift the automatic stay to begin or resume the process to sell your home. In a Chapter 13, you have an opportunity not to lose your house if you properly immediately restart making the regular payments called for under your loan (after the case is filed) and repay your mortgage arrears through your Chapter 13 Plan.
Renting and Bankruptcy.
If you file for bankruptcy and you are current with your rent, your landlord will not receive actual notice that you filed. However, if you are past due with your rent, your landlord will likely attempt to start eviction proceedings. Filing for bankruptcy will slow down the process, but you must promptly get current with your payments.
CHOOSING CHAPTER 13 OVER CHAPTER 7 BANKRUPTCY
There are various reasons why people elect to file a Chapter 13 instead of a Chapter 7:
- You cannot file for Chapter 7 if you received a Chapter 7 or Chapter 13 discharge within the past six years (unless you paid off at least 70% of the allowed unsecured claims in the case and the plan was proposed in good faith and was your best effort). However, you can file for Chapter 13 bankruptcy at any time (unless your previous case was dismissed with prejudice, in which case you have to wait for a specified time-period).
- You are behind on your mortgage or car note. In Chapter 7, you will either have to surrender the property or get current rather promptly. In Chapter 13, you can pay back what you are behind on through your Plan, and the Court may give you up to 60 months to do so. During this time, you will have to remain current on all payments outside the Plan.
- You have debts that are non-dischargeable in Chapter 7.
- You have valuable property that cannot be exempted.
- You have co-debtors on personal loans. In Chapter 7, the creditors can continue to go after your co-debtors for payment on the debt. In Chapter 13, the creditors may not collect from your co-debtors during the life of your case (there are exceptions). Also, in a Chapter 13 those debts with co-debtors can be paid in full while perhaps seeking to pay other debts at a compromised rate.
- You insist on paying back your debts and want the bankruptcy court to protect your assets while you do so.
Our firm makes every effort to place our clients in the chapter that will most effectively deal with their individual circumstances.
THE EFFECTS OF BANKRUPTCY ON YOUR CREDIT
Bankruptcy no longer has the personal stigma attached to it that it once did. In fact, clients often state that they receive more credit card applications and offers for car loans after filing their case than before. Creditors are often attracted to your situation after your discharge.
By making on time payments on new debt incurred subsequent to your bankruptcy, you can regain your credit rating within a relatively short time from your discharge. In fact, in many cases filing bankruptcy may actually help your credit score because discharging your debts greatly improves your debt to income ratio, which is a major factor creditors look at in judging your "creditworthiness". This can occur even though the filing will still be noted by the credit reporting agencies for 7 to 10 years.
We can help you master the strategies you need to repair your credit score. We believe that "Bounce Back from Bankruptcy, 3rd Edition" by Paula Langguth Ryan may be particularly helpful in helping you out after bankruptcy. It can be purchased here. We also recommend that you order a credit report shortly after your discharge and every year after that to make sure that your credit score is improving. This website may be useful in obtaining your credit report.
