Chapter 7 Bankruptcy

Personal bankruptcy. It may sound like a bleak option, but it is very different from a business bankruptcy. Personal bankruptcy is a way to get out of burdensome debt. In other words, this is a way for you to make a fresh financial start.
Few people know that filing bankruptcy is actually a right of the U.S. Constitution. In America, you can relieve your debt when you are no longer able to meet obligations to lenders and creditors.
There are two types of personal bankruptcy—Chapter 7 and Chapter 13, both designed to get you out from under debt. Your lawyer can help you choose which filing your situation is best suited to. Each type solves a different debt problem.
The amount of money you earn, the property you own, and the debt you owe all factor in. If you have an average or low income, Chapter 7 filing is the best scenario. If you have a higher income, you’ll likely file Chapter 13. Both filings usually require you to go through credit counseling; the U.S. Trustee Program website has a list of federally-approved credit counselors.
Under Chapter 7, you can have your debt dismissed without having to repay it. Most states require you to prove that your income is less than the state’s median income. Furthermore, your assets will be liquidated to offset that cost and repay some of the debt. What exactly is a liquid asset? These are non-exempt assets that will quickly convert into cash—checking accounts and savings accounts top the list.
The court will require you to turn over these assets, which will be distributed per the court’s plan among the creditors you owe money to. States vary on exempt assets, or assets that cannot be used to repay creditors. For example, in many states, your homestead cannot be taken from you. Any debt that remains after all non-exempt assets become liquid is discharged.
Chapter 13 involves a partial or full debt repayment over a three to five year period. The court will require you to submit a plan for how you will make the repayments, and a formal hearing will be convened to approve your plan. You will make payments directly to the court who will then repay your creditors on your behalf. When you complete all payments, the court will formally discharge your debt. Chapter 13 does not require you to liquidate any of your assets. Furthermore, federal law states that you can’t have more than $922,975 (secured debt) and $307,675 (unsecured debt). If you have more debt than these amounts, you just pay off these amounts and any remaining debt is dismissed.
Secured debt is tied to assets; lenders can secure a lien against those assets and take the asset if you are behind on payments. With unsecured debts, your assets are safe–lenders can’t take them as collateral for the debt.
Whether filing for Chapter 7 or 13, either way, the court will issue an automatic stay order once you file for bankruptcy. This provision keeps creditors from contacting you, and safeguards your house from being sold at auction. Your employer can no longer deduct wages from your paycheck either. Your car cannot be repossessed. Any lawsuits seeking reimbursement will also end.
Bankruptcy filing wipes out debt from medical bills, utility bills, personal loans and things like gym memberships or other monthly memberships.
Filing for bankruptcy does fix the above problems, but it won’t solve all your problems. If you’ve taken a loan, the lender can petition the court for a temporary lift to the automatic stay so they can proceed with either a lawsuit or some other action. This is mainly done with mortgage lenders who petition the court for a lift to proceed with a foreclosure sale. The lender request will usually be granted if the court has enough evidence that the mortgage company cannot make the payments or that there is not enough equity in the property to cover those payments.
If you have past-due alimony or child support payments, bankruptcy will not help you there. You will still owe those payments. The same goes for any fines like parking tickets, student loans or back taxes—bankruptcy filing won’t help you there either.
Advice from an attorney is highly recommended given the complex nature of bankruptcy laws and the variance from state to state. You may not be sure whether to file for Chapter 7 or Chapter 13, and that’s all the more reason to consult with an attorney. Give our firm a call. Personal bankruptcy filings are one of our specialty areas of expertise. We will help you with your financial filings.