WHAT IS CHAPTER 7?

Chapter 7 can help you from having to pay off debts and start a new chapter in your life.

If you choose to file a Chapter 7 case, you may be asked by a creditor to reaffirm a debt.  You may want help deciding whether to do so.  A creditor is not permitted to coerce you into reaffirming your debts.

CHAPTER 7: A Fresh Start

Chapter 7 Benefits

• You are discharged (or excused) from some or most of your debts.
• You can start your financial life over again.
• Filing fees are low, and you can pay them off in installments.
• Creditors can no longer contact you or garnish your wages.
• Filing for Chapter 7 can help you protect your residence from
a hostile creditor.
• You can file for Chapter 7 even if your finances are already being managed by a financial counselor.
• Your employer is usually not notified of your Chapter 7 filing.
• In most cases you keep what you need to start over, such as appliances, furniture, clothes and the tools of your trade.

HOW CHAPTER 7 WORKS

In a Chapter 7, or liquidation case, the bankruptcy court appoints a trustee to examine the debtor's assets and divide them into exempt and nonexempt property.  Exempt property is limited to a certain amount of equity in the debtor's residence, motor vehicle , household goods, life insurance, health aids, specified future earnings such as a social security benefits and alimony, an certain other personal property.  The trustee may then sell the non exempt property and distribute the proceeds among the unsecured creditors.  Although a liquidation case can rarely help with secured debt (the secured creditor still has the right to repossess the collateral), the debtor will be discharged from the legal obligation to pay unsecured debts such as credit card debts, medical bills, and utility arrearages.  However, certain types of unsecured debt are allowed special treatment and cannot be discharged.  These include some student loans, alimony, child support, criminal fines, and some taxes.

It’s a good idea to let a bankruptcy attorney lead you through the steps of filing for Chapter 7 because it may seem complicated if you are not familiar with the law.  For example, the date you file is important because of the status of your bank accounts, your rent and other assets you may have, including bills you’ve already paid.

SOME COMMON QUESTIONS ABOUT
FILING FOR CHAPTER 7 BANKRUPTCY

• Am I eligible to file?

You are eligible to file if:

You live in, own property in or do business in the United States and you haven't been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds.
 
You are not eligible to file if:

You’ve filed and been granted a discharge under Chapter 7 in the past eight years.

You’ve been granted a discharge in a Chapter 13 case filed within the last two years, unless 70% or more of the claims were paid off.

You fall under certain other categories, such as concealing property, disobeying court orders, making false statements or other unacceptable actions.

• Will Chapter 7 excuse all my debts?

You can be discharged of most debts of any kind, any amount, including out-of-state debts. But there are some debts which Chapter 7 does not excuse, such as:

Certain tax debts and debts incurred to pay federal taxes.

Certain debts for alimony, support and certain other divorce-related debts, including property settlements.

Certain debts for student loans unless the court decides otherwise.

Debt for personal injury or death caused by driving while intoxicated or under the influence of a drug.

These are a few examples.
Ask a bankruptcy specialist to go over the complete list.

• What does Chapter 7 do to my credit rating?

Truthfully, it does worsen it. Still, some banks and financial institutions welcome business from people who have recently filed a Chapter 7 plan because it will be six more years before a person can file under Chapter 7 again. If you’ve had to file because of an illness or injury, many credit rating agencies will take that into account.

• Will anyone discriminate against me for having filed Chapter 7?

It’s illegal for private or government employers to discriminate against a person who has filed a Chapter 7 bankruptcy. No local, state or federal agency can refuse you a driver’s license, a permit, a student loan or any similar grant. Filing a Chapter 7 is not a criminal proceeding, and you can’t lose any of your civil rights by filing.

• Will I lose all my property?

You’ll be able to keep what you need to make a new start in life. Property you have may be exempt, which means creditors can’t take it. You can even keep some property that you may owe money on, such as the tools of your trade, your furniture and your clothes. A licensed attorney can advise you of ways to keep the things you need.

• Do I have to appear in court?

You do, about a two months after your case is filed. This is simply a hearing, although you are under oath. Your trustee or hearing officer will ask you questions about your debts. Usually no creditors are there, but if they do appear, you must answer their questions.

• What if I have no property for the trustee to collect and convert to cash?

A good portion of all Chapter 7 cases are like this, and we call them “no-asset” cases. If you don't have any assets from which to pay creditors, the trustee notifies your creditors that they may as well not file a claim. If assets are discovered later, creditors get a chance to file claims.

• What’s the difference between a secured and an unsecured creditor?

Secured creditors are creditors who hold a valid mortgage or lien against property you own, such as your car or house. Unsecured creditors do not have valid liens against your property. The court usually allows a secured creditor to repossess property unless the property is worth far more than what you still owe on it. Unsecured creditors must wait for payment from the proceeds of the sale of your property, and administrative expenses and other expenses are paid first.

• Can my creditors still try to collect a debt from me even after it has been discharged?

No, and the creditor who tries will risk being held in contempt of court. Furthermore, you may be able to sue that creditor for damages.

• What if there are some debts I really want to make sure get paid?

Even if a debt is discharged, you can choose to pay it. And choosing to pay one doesn’t mean you have to pay all your discharged debts.