CHAPTER 7 BANKRUPTCY RELIEF
VA Bankruptcy Lawyers
One of the main purposes of Chapter 7 bankruptcy is to give an individual who is hopelessly burdened with debt a fresh start by wiping out their debts. Chapter 7 bankruptcy is also sometimes referred to as a “liquidation” proceeding. The debtor receives a discharge of all dischargeable debts, usually within four months. In the vast majority of cases, the debtor has no assets that they would lose, so Chapter 7 gives the person a relatively quick “fresh start”. If there are non-exempt assets, the debtor will be required to turnover such property to the Chapter 7 Trustee, who then distributes the property for the benefit of the creditors.
Chapter 7 will do the following for you:
- Protects you from Creditors – Once you file for bankruptcy protection, your creditors CANNOT call you and demand payment nor proceed with lawsuits, judgments, or garnishment of your wages or financial accounts.
- Affords you a “fresh start” – Eliminating most of your debts and allowing you an opportunity to re-build your credit from a poor credit score.
- Allows you to keep your car and/or home – Eliminating most of your unsecured debts (i.e., credit card, medical debt and personal loans), and permitting you to keep your home or car so long as you maintain your payments current, while wiping out your personal liability on the mortgage or car note.
- Prevents continued damage to your credit report – Filing for Chapter 7 Bankruptcy stops negative reporting. Your creditors need to report that your debts have been discharged.
When you file for Chapter 7 bankruptcy, an “automatic stay” goes immediately into effect. The automatic stay stops creditors from doing anything to collect the debts you owe (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 BANKRUPTCY
In a Chapter 7 case, a Virginia bankruptcy lawyer from our firm will help you from start to finish. You are provided with a free initial consultation with our attorneys to determine your best options. Once you decide how you want to proceed, our attorneys and paralegals assist you with completing the necessary forms and filing the Chapter 7 Petition with the bankruptcy court. Prior to filing, you will be required to take a counseling class and obtain a credit counseling certificate. After the case is filed, you will be required to timely take a second financial management counseling class. A Chapter 7 Trustee will be appointed by the Court to oversee your case. Within about a month of filing, you have to attend a §341 Meeting of Creditors. At this meeting the Trustee asks you several questions regarding your case, most of which you have already answered when meeting with our office. If you have any assets that cannot be exempted (protected), the Trustee will force you to turn-over the assets (or their cash equivalent). The Trustee’s job is to look for assets that they can sell for the benefit of your creditors. With our years of experience, our VA bankruptcy lawyers will counsel you as to how to best protect your assets. In the majority of cases, debtors are able to keep all of their assets. If all goes well at this meeting, you are discharged of your debts about 60 days after this meeting. It may take 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.
CREDIT COUNSELING AND MONEY MANAGEMENT CLASSES
Within at least 6 months prior to filing for bankruptcy, you must speak with a credit counselor (or complete the course online). A Maryland bankruptcy lawyer at our firm will provide you with the necessary information to contact a court-accredited counseling provider. After filing you must also speak to a credit counselor regarding money management (also can be completed online). These courses are taken at your own expense and must be taken in order to file a case and get a discharge of your debts.
QUALIFYING FOR CHAPTER 7
You can file Chapter 7 once every 8 years from the filing date of a prior Chapter 7.
There is also a two-part test to determine if you qualify for a Chapter 7:
A. Actual Budget – Here the court may look at your actual budget. If your net income exceeds your reasonable expenses (not counting payments on debts you are discharging), you may instead have to consider filing a Chapter 13 reorganization for relief.
B. Means Test –The court will look to the State Median Income for your household size. Your gross household income average for the past six months is compared to the median state income. If you earn in excess of the state median income, and are able to repay 25% of your “nonpriority unsecured debt,” then you will be unable to file for Chapter 7.
DISCHARGEABILTY OF DEBTS
The following debts are non-dischargeable in Chapter 7. If you file for Chapter 7, your creditors can collect on them 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 or spousal support or maintenance;
- Debts owed to homeowners’ or condo associations in cases where you are surrendering your property. In these cases, you are liable for any dues owed on the property from the time when the case is filed until when the property goes to foreclosure and the deed is no longer in your name.
- 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 $500 for luxury goods or services incurred within 90 days of filing;
- Cash advances aggregating more than $750 or more incurred within 70 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.
PROTECTING YOUR PROPERTY
In Chapter 7, you must list all of your assets. Our office will attempt to protect the assets you are allowed to keep from either a list of state or federal exemptions. Each jurisdiction has its own specific exemptions, so consult your DC bankruptcy, MD bankruptcy and VA bankruptcy lawyer. Some states 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 include the following:
- Equity in your principal residence (called a homestead exemption). Some states have little or no homestead exemption, while 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 D.C. metropolitan area. Maryland has a substantial homestead exemption which can be used to protect your residence as well.
- Personal property. You will be able to keep most household goods, furniture, clothing, and collectibles, up to the dollar limits specified in the exemption laws. Most states also allow you to keep a vehicle depending on the amount of equity in the vehicle.
- Retirement plans. Pensions that that meet the requirement of the Employee Retirement Income Security Act (ERISA) are completely protected in bankruptcy. Many other retirement benefits arealso protected, while others are not protected. You should consult with our office to determine what you can keep.
- Public benefits. Public benefits, such as welfare, Social Security, worker’s compensation proceeds and unemployment insurance, are fully protected.
HOME OWNERSHIP AND BANKRUPTCY
Obviously, one of the biggest concerns you may have when thinking about filing for bankruptcy is the possible loss of your principal residence. If you are don’t have equity in your property (see above discussion), the other concern 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 propose 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. If you are current with your payments and have no equity, you should be able to keep your property.
If you are behind on your mortgage payments, you may want to file Chapter 13. You will be able to save 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.
Finally, if you are in a position where you are unable to keep your home, you will be able to surrender the property to the mortgage company and discharge your mortgage debt. Our office can assist you with this difficult process.
RENTING AND BANKRUPTCY.
If you are past due with your rent, your landlord will likely attempt to start or continue with eviction proceedings. Filing for bankruptcy will slow down the process, but you must promptly get current with your payments, if you plan on continue living there.
CHOOSING CHAPTER 13 OVER CHAPTER 7 BANKRUPTCY
There are various reasons why people elect to file a Chapter 13 instead of a Chapter 7:
- Ineligibility – You cannot file for Chapter 7 if you received a Chapter 7 or Chapter 13 discharge within the past eight years or the past six years, respectively, (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). However, from a Chapter 7 discharge you have to wait 4 years to be able to discharge debt in a Chapter 13 in a compromise Plan.
- You are behind on your mortgage or car note – In Chapter 7, you will either have to surrender the property or get current immediately. In Chapter 13, you can pay back what you are behind 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 significant tax debt – This debt is likely non-dischargeable in Chapter 7. Chapter 13 will allow you to repay this debt without incurring additional interest or penalties.
- Other non-dischargeable debts – An example would be if you have monies owed relating to divorce or separation per court order or property settlement agreement (that is not in the nature of spousal support or child support), which are debts that are non-dischargeable in Chapter 7. In a Chapter 13, you can propose a Plan to pay these debts at compromise rate.
- Non-exempt assets – You have valuable property that cannot be exempted.
- You have co-debtors on some of yoru debts – 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 may be able to be paid in full while perhaps seeking to pay other debts at a compromised rate (there are exceptions).
- Personal choice – You insist on paying back your debts and want the bankruptcy court to protect your assets while you do so.
Each DC, Maryland and Virginia bankruptcy lawyer at 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 filing. Creditors are often attracted to your situation after your discharge. Individuals often qualify to by cars immediately after filing and homes two years after a bankruptcy was filed.
By making on time payments on new debt incurred after 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. An Alexandria bankruptcy lawyer at our firm will also recommend that you order a credit report shortly after your discharge and every year thereafter in order to make sure that your credit score is improving. This website may be useful in obtaining your credit report at no cost to you once a year: www.annualcreditreport.com