CHAPTER 7 BANKRUPTCY

Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.

WHAT DO I HAVE TO DO TO FILE A CHAPTER 7 BANKRUPTCY?

In 2005, the bankruptcy code was changed to make it more difficult for debtors to discharge their debts. There are various chapters in the bankruptcy code that apply to certain situations and debtors, but a Chapter 7 bankruptcy is a liquidation of the debtor’s estate, a sale of nonexempt assets, and the discharge of unsecured debt. It also stops all civil proceedings, such as wage garnishments and any other collection procedures. 

Before any consumer can file a Chapter 7 petition, he or she must meet a “means test.” 

Your attorney has to determine if your income is above your state’s median income. If so, your monthly expenses are deducted from your monthly income to calculate your disposable income, or any income remaining that could pay creditors. If your disposable income is more than a certain amount, you can only file a Chapter 13.

Once you do qualify, here are the things you have to do to file your Chapter 7 petition:

1.  Take a mandatory credit counseling class. Many bankruptcy attorneys offer this class or can steer you towards one. There is a small fee but in some cases it can be waived if you are indigent or experiencing a financial hardship.
2.  List your current assets and liabilities. These include income, unexpired leases, executory contracts, and your exempt assets. Your attorney will explain this to you, but it includes furniture, clothing, vehicles, retirement accounts, tools of your trade, and others. Your home’s equity is exempt to a certain amount, which varies depending on your state.
3.  Attend a First Meeting of Creditors (Section 341 meeting) with your attorney. This is usually a very short, perfunctory meeting with the trustee who will ask you some basic questions about your petition and property. Creditors may attend and question you about any secured property you have and if you wish to retain it or not.
4.  Within 45 days of the 341 meeting, you will have to compete a post-filing financial management instruction course, which costs around $30. 
5.  Wait to see if any objections are filed, which must be done within 60 days after your 341 or First Meeting of Creditors. Objections are only filed if there is a suspicion of fraud or if they contend that their debt is secured and not unsecured. The trustee can also object if he or she suspects you were untruthful in your petition, usually regarding a failure to list all your assets or if there is fraudulent or voidable transfer.
6.  If no objections are filed within 60 days of your 341 meeting, you will be granted a discharge shortly.

There are debts that are not dischargeable. Here is a short list:

•  Most past due income taxes
•  Student loans unless you can demonstrate “undue hardship.”
•  Secured loans
•  Child support arrearages
•  Spousal maintenance
•  Debt for personal injury if caused by intoxicated driving
•  Debt for a willful and wanton act that led to personal injury
•  Loans from a government entity
•  Debt for court-ordered criminal restitution to a victim, including court fees
•  Debt for property that was acquired fraudulently, such as maximizing a credit card or taking out large cash advances within 90 days of filing

 

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10 COMMON MISTAKES WHEN FILING A CHAPTER 7 BANKRUPTCY

When filing a Chapter 7 bankruptcy, debtors must disclose all of their assets and debts. These documents are attested to under penalty of perjury and by intentionally failing to disclose all aspects of your estate, which comprises your debts and assets, you risk federal criminal prosecution and dismissal of your Chapter 7 bankruptcy petition.

Debtors also fail to get advice from a bankruptcy attorney before filing, believing that they are following the law and are being clever in hiding certain debts or assets. Here are 10 common mistakes that must never be done when contemplating filing for Chapter 7 bankruptcy:

#1 CHAPTER 7 BANKRUPTCY MISTAKE

Maximizing credit cards and taking out cash. The trustee can ask to look at all your transactions made 90 days before you file. A credit card company may bring this to the attention of the Chapter 7 Bankruptcy trustee as well and may file a suit to determine the non-dischargeability of the debt. If it is determined you had no intention of paying these charges back, you will not be permitted to discharge them.

#2 CHAPTER 7 BANKRUPTCY MISTAKE

Continuing to make minimum payments on your credit cards. So long as you have a record of making payments for these cards and can defend against a charge of fraud, this is a waste of money and should be discontinued.

#3 CHAPTER 7 BANKRUPTCY MISTAKE

Selling or transferring property to a family member. This could be construed as hiding an asset and could be voided as a fraudulent transfer under the bankruptcy laws.  Most of your property is exempt anyway, unless you are transferring real estate or expensive automobiles.

#4 CHAPTER 7 BANKRUPTCY MISTAKE

Paying back loans to family and friends and ignoring other creditors. Again, the bankruptcy court will look at your transactions for a period of time before you file. You cannot favor one or more creditors over others.

#5 CHAPTER 7 BANKRUPTCY MISTAKE

Do not ignore pending lawsuits or those that have resulted in judgments. A bankruptcy filing only stays a legal proceeding when the petition is filed, so a judgment that places a lien on your property or your failing to appear in court to pay a fine or for any other legal proceeding will result in more work for your attorney and more fees.

#6 CHAPTER 7 BANKRUPTCY MISTAKE

Not listing all of your creditors. It does not matter if you intend to pay back a particular creditor. Merely contact the creditor and let him or her know that you must include them by law and will pay them back after your Chapter 7 bankruptcy is completed and you have been granted a discharge.

#7 CHAPTER 7 BANKRUPTCY MISTAKE

Not listing all your assets. This is a huge mistake. If you own real estate, other than your main residence, or expensive automobiles and fail to list them, you could be charged with criminal fraud, face prison time, and have your bankruptcy dismissed.

#8 CHAPTER 7 BANKRUPTCY MISTAKE

Not listing all your assets. This is a huge mistake. If you own real estate, other than your main residence, or expensive automobiles and fail to list them, you could be charged with criminal fraud, face prison time, and have your bankruptcy dismissed.

#9 CHAPTER 7 BANKRUPTCY MISTAKE

Not taking the compulsory consumer credit education classes. These classes must be taken and not taking them can result in a dismissal of your petition. If you are indigent, you may be able to take them at no cost.


#10 CHAPTER 7 BANKRUPTCY MISTAKE

Not turning over your income tax refund to the trustee upon demand from the Chapter 7 Bankruptcy Trustee. This is also required, although painful, if the refund is not exempt.   It is not worth the risk of having your petition dismissed and being relieved from thousands of dollars in debt.


THE PROS AND CONS OF BANKRUPTCY

Although the economy has been showing signs of recovery, many people are still struggling with debt, even if they have recently started a new job. Foreclosures are still proceeding at alarming rates, and poverty levels are at historic highs. There remains millions of people with no health insurance and facing thousands of dollars in medical expenses they have no hope of every repaying.
Bankruptcy is an option for individuals struggling with crushing debt, but many people fear the perceived stigma of bankruptcy and its consequences for their assets and their future ability to obtain credit or to buy a new home.

There are many misconceptions about bankruptcy. Although a bankruptcy will appear on a consumer’s credit reports for up to 10 years, many people find that lenders and banks are willing to give home loans just a few years after discharge if the individuals have been proactive in restoring their credit.

Bankruptcy- What Property is Lost?
In most cases, no property is lost in a bankruptcy. There are listed exemptions in varying amounts, depending on which state you live in, that clearly state how much equity in certain property or assets are protected. For example, a home’s equity is protected up to certain limit, but most states exempt well over a hundred thousand dollars. Your furniture, clothing, retirement plans, pensions, bank accounts, and one automobile are exempt up to a certain amount, but most debtors are able to exempt these assets. If you have a car loan, you can continue paying on it.

If you have real estate that is not your primary residence, it is not exempt and will be sold by the trustee. People with vacation homes should carefully consider this before filing, or should explore a Chapter 13 filing with a bankruptcy attorney.

Bankruptcy and Foreclosures
A Chapter 7 filing will only delay any foreclosure proceedings, although it may give time for a homeowner to sell the home or try to modify the home loan. A filing automatically stays the proceedings, although the lender will file a motion to lift the stay. In a Chapter 13, the homeowner must demonstrate that he or she can continue to make current mortgage payments while making up the arrearages over the life of the repayment plan, which can be up to 60 months.

A Chapter 7 will discharge any amounts still owing on the mortgage. If the homeowner chooses a Chapter 13, any second or subsequent mortgages will likely be discharged, or no further payments on those mortgages need be paid at the end of the repayment plan.

Bankruptcy and Other Considerations
Most reasons for filing for bankruptcy are to discharge credit card balances and medical bills. Many retirees on fixed incomes or those who have lost their retirement plans to fraud or municipal bankruptcy rely on credit cards and accumulate massive debt. The average credit card balance for people over 65 exceeds $10,000 and is unlikely to ever be paid off. 

Most credit card balances and medical bills are unsecured debt and will be discharged in a Chapter 7 filing. Although all debtors must pass a “means test” before filing a Chapter 7, which is based on the mean income for a particular jurisdiction, most fixed income debtors or those on unemployment or who are underemployed will qualify. 

Debtors with vacation homes or other real estate or who have good jobs with considerable salaries should consult with a bankruptcy attorney, since their real estate holdings are at risk of being lost in a bankruptcy, although a Chapter 13 enables them to retain the property so long as they meet the monthly payments. Other debt resolution plans may be more appropriate for these debtors.