How To File For Chapter 7 Bankruptcy
You can choose to file for Chapter 7 bankruptcy on your own or hire an attorney to help. Some legal aid centers and nonprofit credit counseling agencies may also be able to offer you free assistance. Once you determine that you’re eligible, the process will be largely the same:
When Should I Declare Bankruptcy
When asking yourself Should I file for bankruptcy? think hard about whether you could realistically pay off your debts in less than five years. If the answer is no, it might be time to declare bankruptcy.
The thinking behind this is that the bankruptcy code was set up to give people a second chance, not to punish them forever. If some combination of bad luck and bad choices has devastated you financially, and you dont see that changing in the next five years, bankruptcy is your way out.
Even if you dont qualify for bankruptcy, there is still hope for debt relief. Possible alternatives include a debt management program, a debt consolidation loan or debt settlement. Each one of those choices typically require 3-5 years to reach a resolution, and none of them guarantees all your debts will be settled when you finish.
The decision shouldnt come down to how long Chapter 7 bankruptcy takes the process itself is only 4-6 months. The thing you have to remember is that bankruptcy carries significant long-term penalties. It is stuck on your credit report for 7-10 years, which can make getting loans in the future very difficult.
The flip side of that is there is a great mental and emotional lift when all your debts are eliminated, and youre given a fresh start.
Chapter 13 And Student Loans
A case under chapter 13 is often called reorganization. In a chapter 13 case, you submit a plan to repay your creditors over time, usually from future income. These plans allow you to get caught up on mortgages or car loans and other secured debts. If you cannot discharge your student loans based on undue hardship in either a chapter 7 or chapter 13 bankruptcy, there are still certain advantages to filing a chapter 13 bankruptcy. One advantage is that your chapter 13 plan, not your loan holder will determine the size of your student loan payments. You will make these court-determined payments while you are in the Chapter 13 plan, usually for three to five years. You will still owe the remainder of your student loans when you come out of bankruptcy, but you can try at this point to discharge the remainder based on undue hardship. While you are repaying through the bankruptcy court, there will be no collection actions taken against you. You may have other options, depending on how judges decide these cases in your judicial district. For example, some judges allow student loan borrowers to give priority to their student loans during the Chapter 13 plan.
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Which Debts Are Discharged In Chapter 7 Bankruptcy
Updated By Cara O’Neill, Attorney
Most people file for Chapter 7 bankruptcy to discharge debt. Although some debts are “nondischargeable” and don’t go away in bankruptcy, Chapter 7 will erase many obligations, the most common being medical and .
In this article, you’ll learn:
- how a Chapter 7 discharge will eliminate bills
- what you can expect to erase in Chapter 7, and
- how to classify debt in bankruptcy paperwork.
Learn more about what bankruptcy can and cannot do.
How Bankruptcy Stops Collection Actions Against You
If a creditor decides to sue you for the debt you owe them, the court will enter a judgment against you for the amount of the debt, attorneys fees, and other costs. The creditor may be able to use the judgment to garnish your wages or your bank account, or even attempt to seize your property.
When you file for bankruptcy, however, the court orders an automatic stay, which prohibits such collection actions. And after you finish a Chapter 7 or Chapter 13, you will likely be able to eliminate the creditors right to collect.
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Impact On Your Healthcare Services
Chapter 7 bankruptcy can also affect your relationship with your doctor or make it more difficult to get medical treatment. Legally speaking, hospital emergency rooms are required by law to treat patients regardless of their ability to pay. But you could be denied care at a doctors office due to unpaid bills. Some people elect to pay medical debt even after filing bankruptcy to maintain a relationship with their doctors.
Learn About Wiping Out Lawsuit Judgments In Bankruptcy
By Baran Bulkat, Attorney
Filing for bankruptcy relief will discharge most of your debts, including lawsuit judgments. But exceptions exist. Whether your bankruptcy will discharge a lawsuit judgment will depend on:
- the type of judgment, and
- whether the judgment creditor has placed a lien on your property.
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What Can I Keep In Bankruptcy
In addition to minimum amounts of home or auto equity, the following is a list of assets that are generally exempt from bankruptcy. After all, the process does not intend to take away a persons dignity. Instead, its to help them recover from extreme financial hardship. Keep in mind, the rules surrounding these items can vary from province to province.
- Food & Clothing
Your Car Loan If You Want To Keep Your Car
If you are paying off your car, the loan is secured by your car. When you file for bankruptcy, under the new bankruptcy rules, you can reaffirm your car loan.
The good news is that if you agree with your car loan creditor to repay all or part of your loan, the creditor wont take your car.
Of course, you must make payments according to the reaffirmed car loan.
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The Trustee Will Call A Meeting Of Creditors
The trustee will call a meeting of creditors to speak to you about your financial situation. After you file for bankruptcy, you will receive a notice that informs you where and when this meeting will be held.
Although creditors are also allowed to attend this hearing, in most cases they don’t do so.
What You Keep When Filing For Bankruptcy
Laws were created to help protect your property during bankruptcy, called bankruptcy exemptions however, exemptions vary depending on the process and the state.
Your state determines whether you must use your states exemptions or if you can choose the federal exemptions. If you live in one of the following states, you can choose the state or the federal bankruptcy exemptions:
- Alaska
- Washington
- Wisconsin
If you do not reside in one of these states, you must follow your states bankruptcy exemptions.
Common federal bankruptcy exemptions are listed below. Married couples filing jointly can double the exemption amount and all amounts are shown for cases filed after April 1, 2016, and cases filed after April 1, 2019. These numbers will be adjusted again on April 1, 2022.
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Dealing With Your Car Loan
If you own a car that you still owe on, youâll have to let the bank and the court know what you want to do with it one one of your bankruptcy forms.
If you want to surrender the car to the lender and discharge the debt, you donât have to do anything other than stop making your payments. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.
If you want to keep the car, you can either reaffirm the loan or redeem the car. If youâre reaffirming your loan, the bank will send you a reaffirmation agreement after your case is filed. You have to complete and sign the agreement and return it to the bank within 45 days from your 341 meeting. The bank files the signed agreement with the court for approval.
To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum.
What To Do After Forgetting A Creditor
Regardless of the type of bankruptcy you filed, the first thing you should do when you realize youve left out a creditor is inform your bankruptcy attorney. They can help you take the necessary steps to rectify the error. If you havent yet reached the end of your bankruptcy, you can simply file a form with the bankruptcy court to add the missing creditor.
If youve already reached discharge and receive a collection notice from a creditor that was left out of your bankruptcy, contact your bankruptcy attorney immediately. They can help you determine whether or not the creditor has the right to collect based on the type of bankruptcy you filed. If the creditor is unsecured and you filed a no asset Chapter 7 bankruptcy, they can help you officially inform the creditor that the debt has been discharged. Otherwise, they can help you determine if any other factors, such as the statute of limitations, affect your responsibility for the debt. Regardless of whether the case is open or closed, contact your attorney with this information as soon as you become aware of it.
Its important to contact your attorney as soon as you remember a creditor was left out. Willfully leaving a creditor out of your filing is a form of perjury, which is a felony, and can leave you open to criminal charges and dismissal of your bankruptcy case.
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The Chapter 7 Discharge
A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004.
The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records failed to explain satisfactorily any loss of assets committed a bankruptcy crime such as perjury failed to obey a lawful order of the bankruptcy court fraudulently transferred, concealed, or destroyed property that would have become property of the estate or failed to complete an approved instructional course concerning financial management. 11 U.S.C. § 727 Fed. R. Bankr. P. 4005.
Differences Between Chapter 7 And Chapter 13 Bankruptcy
There is more than one process whereby you can file for bankruptcy. The two types people most favor are Chapter 7 bankruptcy and Chapter 13 bankruptcy. The type of bankruptcy also affects what items may be kept or taken from you.
A chapter 7 bankruptcy enables you to legally discharge, or no longer be liable for, most debt that you owed as of the date you filed for the bankruptcy. This process takes about three months after you file the bankruptcy petition. You could lose some of your property by taking this route. If you had transferred property before filing for bankruptcy, the transfer may be reversed to you.
A chapter 13 bankruptcy enables you to enter into a payment plan to pay off your debt over a three-to-five-year period. Congress has even extended the plan period to seven years, with some exceptions, as a result of the covid crisis. This process protects your property and prevents wage garnishment, and you are able to pay back your outstanding debt through your payment plan. You have to make a payment out of your disposable income every month.
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What Are The Pros And Cons Of Filing Chapter 7 Bankruptcy
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In a Nutshell
Filing for bankruptcy offers a powerful way to eliminate debt and get a fresh start. But, as with everything there are downsides to filing bankruptcy, too. Use this article to explore the advantages and drawbacks of Chapter 7 bankruptcy.
Written byAttorney Andrea Wimmer.
Chapter 7 bankruptcy is one of the most powerful debt relief options available in the United States. It has helped many people get out of poverty and get a clean financial slate. It gives you a fresh start by erasing your debts. But filing bankruptcy is a personal decision and itâs important to fully consider whether itâs the right option for you. This article explores the pros and cons of filing Chapter 7 bankruptcy.
Exceptions To Discharge From Personal Bankruptcy In Nine Months
The length of your bankruptcy will be nine months unless one or more of the following is true:
- You fail to perform all your bankruptcy duties, such as making regular payments of surplus income to the Trustee
- You have surplus income
- You have been bankrupt before
- There is an objection filed to your discharge
How much longer your bankruptcy lasts will depend on the details of your case. Twenty-one months is typical when the bankrupt individual makes a higher salary .
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Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
Debts That Cannot Be Discharged
The United States and Arizona bankruptcy courts do not allow for certain debts to be included in a bankruptcy. While proceedings are ongoing, the debtor will get a reprieve from the debt until the bankruptcy is over. When it is over, the debtor must begin paying the creditor as per the original terms of responsibility.
- Family Obligations
- These include back child support, alimony, or any other court-appointed obligations
Click here for an article on what bankruptcy can and cannot do.
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How Your Creditors Are Paid
The official receiver will take control of your assets unless an insolvency practitioner is appointed. An insolvency practitioner is usually an accountant or solicitor.
The person who takes control of your assets is known as the trustee. The law says you must cooperate fully with them.
The trustee will sell your assets and tell the creditors how the money will be shared. Creditors must then make a formal claim. You cannot make payments directly.
If you have assets, money from the sale of these will be used to pay the costs of the bankruptcy process before creditors are paid. If your case is administered by the official receiver the following fees will all be deducted from the money realised:
- an administration fee of £1,990 if you applied for your own bankruptcy or £2,775 if someone else applied
- a general fee of £6,000
- 15% of the total value of assets realised
- a fee charged at an hourly rate where money is paid to creditors
If there are insufficient assets in your case the official receiver will still process your bankruptcy.
Next, money will be used for:
- certain debts in relation to employees, if you had any
- your other creditors
- interest on all debts
Any money left over will be returned to you. If everyone is paid in full you can apply to have your bankruptcy cancelled .
