If you’re confused about bankruptcy laws, you’re not alone. Bankruptcy laws vary depending on the type of case a consumer files, such as Chapter 7 bankruptcy, vs. Chapter 13 Bankruptcy.
Chapter 7 bankruptcy primarily covers individuals, but can also pertain to a partnership, a corporation, or another business entity. Chapter 7 bankruptcy allows the qualifying debtor relief regardless of the amount they owe or whether they have assets or not. Chapter 7 liquidates all of your non-exempt assets, discharges your non-exempt debts, and proverbially wipes the slate clean. It’s meant to give people the equivalent of a financial fresh start. However, there have been recent changes to the bankruptcy laws, some of which make it more difficult for people to file for Chapter 7 bankruptcy.
In order to be automatically eligible to file for Chapter 7, in the previous six months you must have earned less than the median income for a family of four in your state. You must also obtain credit counseling and a budget analysis. If your income doesn’t meet the means test, and if you can pay $100 per month toward your bills, you have to file Chapter 13 instead of Chapter 7.
Filing Chapter 7 bankruptcy will stop collection proceedings for certain specifically determined debts. Once the judge rules a discharge, the bankruptcy clerk will give those specific creditors notice of the bankruptcy case. Then they may not take any further legal action, such as sending you letters or calling you, start new lawsuits, or garnish your wages, as long as the stay is in effect. The trustee that is appointed to oversee the Chapter 7 disbursement will gather and sell assets that are not exempt and use them to pay your creditors. Your property may be subject to liens and mortgages that are expected to be paid to creditors.
If you’re an individual filing Chapter 7 bankruptcy, there are a number of things you must submit to the courts:
With Chapter 7, you’re typically allowed to keep certain types of property, like your home and your car (unless you’ve used them as collateral for other types of debt). Other types of assets are put into the care of a trustee, who will sell them and pay off your eligible creditors. You have a bit of wiggle room on some items. If you owe money on your car, for example, you can work with the lender to reaffirm the loan and continue to make payments following the bankruptcy.
While Chapter 7 bankruptcy is designed to give people a fresh start, some types of debts are exempt from the bankruptcy proceedings. You’ll be out from under the burden of credit card debt, medical expenses, personal loans, leases, and judgments. On the other hand, unpaid taxes, child support, student loans, and criminal fines will still be on the books.
When a Chapter 7 discharge is denied, it is usually due to lack of keeping accurate financial records, not adequately explaining how assets were lost, or a crime such as perjury, ignoring an order from the bankruptcy court, or hiding or destroying property that would have been part of the settlement to debtors.
The most important consideration when filing for Chapter 7 bankruptcy is that you need an attorney who understands bankruptcy law. Filing for Chapter 7 bankruptcy is fairly straightforward, but the chances for a successful bankruptcy proceeding depend largely on filing at the right point in time and in the right way. If your case is dismissed, you won’t be eligible to file again for two years. That’s why it’s critical to get the advice of an attorney who is experienced in bankruptcy law.
With his or her help, you’ll truly get the fresh start that you and your family deserve. Lemberg & Associates attorneys understand bankruptcy law and can help you through the complicated process. Our concern with your filing is that you can feel the relief of gaining a second start and feel the weight of debt and obligations lifted from your shoulders.