Opening the Book on Chapter 7 Bankruptcy
What Does Filing Chapter 7 Bankruptcy Mean to You?
Chapter 7 bankruptcy is a legal declaration under the U.S. Bankruptcy Code ascertaining that a debtor can’t pay his or her unsecured debts. Unsecured debts are considered any debts (like credit card debts) that are not backed by collateral.
Let Chapter7.Me connect you with a Chapter 7 bankruptcy attorney near you. Simply fill out our free bankruptcy case evaluation form or call 1 (888) 632-0501,
and we’ll do the rest to connect you with a local bankruptcy attorney
who can explain how Chapter 7 bankruptcy may allow you to take control
of your debt.
Chapter 7 is actually the most common type of bankruptcy declared in the United States. Millions of Americans have filed for Chapter 7 bankruptcy, which has allowed many of them to eliminate most—if not all—of their debt.
Both individuals and businesses can seek Chapter 7 bankruptcy protection. In fact, for the year concluding at the end of June 2008, consumer Chapter 7 bankruptcy filings were up nearly 37 percent from the year before, according to the Federal Judiciary.
People who find themselves buried in credit card debt or overdue medical bills are good candidates for filing Chapter 7 bankruptcy, as a local bankruptcy lawyer can explain to you in more detail.
Can You Keep Your Property If You File Chapter 7 Bankruptcy?
When a person files Chapter 7 bankruptcy, he or she is permitted to keep certain property, which is called exempt property.
The specific types of exemptions vary from state to state, but typically include your:
- primary home;
- car;
- work equipment;
- basic living objects like clothes and furniture; and
- many other categories of property.
In most cases, all of your property will be protected by exemptions when you file; however, in some cases, the bankruptcy court will order the selling (liquidation) of a debtor’s non-exempt property.
If the court finds that the proceeds of a property sale would be considerable, the property will be sold (usually at an auction) and the proceeds would go to the creditors to pay back a portion of what the debtor owes.
Chapter 7 bankruptcy is often referred to as a liquidation bankruptcy for this reason; but take note that this liquidation sale doesn’t happen too often because most people filing Chapter 7 bankruptcy don’t have significant non-exempt assets.
What is a Reaffirmation Agreement& What Could It Do for You?
If you have significant non-exempt property, you may be able to keep it if you take advantage of a reaffirmation agreement.
A reaffirmation agreement is an agreement between a creditor and debtor about how to remedy a specific debt that would otherwise not be discharged through the debtor’s Chapter 7 bankruptcy filing.
Usually, the debt is secured collateral that the creditor would have the right to repossess. To prevent the repossession, the debtor agrees to pay some or all of the money owed. As long as the payments are made, the debtor is allowed to keep the property. However, if the debtor misses the agreed-upon payments, the creditor can repossess the property and seek a personal judgment against the debtor.
There are certain requirements that must be met for this allowance, such as:
- the reaffirmation agreement must be entered into prior to the Chapter 7 debt discharge;
- the reaffirmation agreement must be filed with the bankruptcy court;
- the reaffirmation agreement must be voluntary for both parties involved;
- the bankruptcy lawyer must certify that it will not create a serious problem for the debtor; and
- the debtor has the right to cancel the reaffirmation agreement within 60 days after it’s filed with the bankruptcy court or any time before the actual Chapter 7 debt discharge.
Are All Your Debts Forgiven Under Chapter 7 Bankruptcy?
Although most debts are forgiven under Chapter 7 bankruptcy, there are some debts that aren’t dismissed when a person files this bankruptcy.
Debts that are not eligible for a Chapter 7 discharge include:
- child support;
- alimony;
- student loans;
- tax debts;
- some court-ordered fines; and
- debts incurred in fraudulent business deals.
There may be some exceptions to these non-eligible debts. For example, student loans may be discharged through a Chapter 7 bankruptcy filing if a debtor can prove that he or she would suffer undue hardship if those loans weren’t discharged.
This area of Chapter 7 bankruptcy can be complex. A bankruptcy lawyer can be a guide throughout the Chapter 7 bankruptcy filing process.
How Will the Changes in Bankruptcy Law Affect You?
You may have heard that it’s harder to file Chapter 7 bankruptcy since the bankruptcy law changed, but that’s not necessarily the case.
The truth is that most people seeking Chapter 7 bankruptcy aren’t affected by the new bankruptcy law.
The biggest change is that people wanting to file Chapter 7 bankruptcy now have to undergo a Chapter 7 bankruptcy means test, which keeps people with too much disposable income from filing Chapter 7.
Although they’ll still have to take the test, this doesn’t affect people who earn less than the median income level in their state.
Even if a Chapter 7 bankruptcy applicant makes more than the median income level in their particular state, there still may be a chance for them to qualify for filing Chapter 7 bankruptcy.
If the second part of the Chapter 7 bankruptcy means test determines that the applicant doesn’t have much disposable income, they’ll be allowed to continue with the Chapter 7 bankruptcy filing process.
Chapter 7 Bankruptcy & You
Personal bankruptcy law can be confusing at times. There are detailed financial forms a Chapter 7 bankruptcy applicant must fill out. It’s important to fill out these forms properly—you don’t want to miss any opportunity to eliminate your debt.
A bankruptcy attorney can help you sort through the paperwork and may aid in making the most of your Chapter 7 bankruptcy filing.
You probably have questions about your particular financial situation. You may also be questioning whether filing Chapter 7 bankruptcy is the right move for you to make- you can talk to a bankruptcy lawyer to help answer your questions and get more information about bankruptcy laws in your state.
Connect with a local bankruptcy lawyer by filling out our free bankruptcy evaluation form or by calling 1 (888) 632-0501. Our form only takes a few minutes, so get started now.
The above synopsis of bankruptcy laws is by no means all inclusive
and is not intended to provide legal advice. These laws may have
changed since our last update and there may additional laws that apply
in your situation. For the latest information on these bankruptcy laws,
please contact a bankruptcy lawyer in your area.