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What Is Chapter 7 Bankruptcy For Individuals

Chapter 7 Filing Fees And Administrative Fees

What is Chapter 7 Bankruptcy?- With Maryland Bankruptcy Attorney David Ruben

When you file for Chapter 7 bankruptcy, the courts will charge you:

  • One;case filing fee;of $220
  • One miscellaneous administrative fee of $39
  • One trustee surcharge of $15

Typically, the total fee of $274 is paid to the clerk of the court when you file your paperwork. If you cannot pay this amount right away, you must:

  • Ask the court’s permission to delay paying
  • Pay in four installments of $68.50
  • Complete all payments within 120 days after filing for bankruptcy
  • Ask the court for extra time which will extend your time to 180 days after filing for bankruptcy.

If you and your spouse chose to file together, you only owe one set of these fees. If you don’t pay these fees your case can be dismissed.

The court may waive the requirement that the fees be paid if:

  • Your combined income is less than 150% of the poverty level
  • You can’t afford the fees even with an extension or four payments

Getting A Discharge Is The Goal

The bankruptcy discharge permanently eliminates the filerâs obligation to repay their debt. As long as the filer meets all legal requirements, a discharge will be granted by the court. The bankruptcy discharge is permanent and applies to all debts, except those designated as non-dischargeable in the Bankruptcy Code. First time filers are able to receive a discharge under any type of bankruptcy.

Chapter 7 Vs Chapter 1: Which Should You File

Before filing for bankruptcy, your first step should be contacting a professional to help you determine whether Chapter 7 or Chapter 13 is right for you. And of course, you must refer to the limits above to see if Chapter 7 is even a possibility. Otherwise, read below for some more considerations that might indicate whether Chapter 7 or Chapter 13 is better for your situation.

Chapter 7 might be appropriate if:

  • It would take 5 or more years to pay off your debt even if you took all available measures.
  • You have limited assets.
  • Your problem debts total more than 40% of your annual income, so its unlikely youll be able to repay your creditors.

Chapter 13 might be the right choice if:

  • Youre behind on your mortgage or car loan but would prefer to get current on payments rather than lose your property.
  • You feel youd be able to be current on your debts if you had more time.
  • You have nonexempt property that youd like to keep even at a cost.

Recommended Reading: Do Married Couples Have To File Bankruptcy Together

Alternatives To Chapter 7

Debtors should be aware that there are several alternatives to chapter 7 relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter 13 of the Bankruptcy Code.

In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. §;707.

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

Alternatives To Filing Chapter 7 Bankruptcy

Understanding Chapter 7 Bankruptcy In Las Vegas

If you are wondering;if you should file for bankruptcy, there are many nonprofit consumer credit counseling organizations that have the ability to negotiate more favorable terms with creditors. Its particularly effective with credit-card companies. The repayment program will be managed expertly and fees could be avoided.

Here are some options:

Debt Management Plan; Entering into a debt management program can provide relief from interest rates, late fees and penalties from creditors. Under a DMP, which is negotiated by credit counselors, you promise to pay back the full principal over time in an efficiently managed manner.

The debt management program provides an organized monthly payment plan. It provides an opportunity to handle the debt more efficiently than trying to sort it out yourself. By keeping the payments on track, it will be good for your credit score.

Some caveats: There is generally an enrollment and maintenance fee and the DMP is never a guaranteed option. Creditors have no obligation to participate.

Debt Consolidation This option reduces interest rates and combines all of your debts into one manageable monthly payment. Under debt consolidation, you take out a loan, which is used to consolidate and pay off all of your other debts.

Personal Loan for Bad Credit; Yes, you can get a personal loan with bad credit, depending on your situation. You can expect high interest rates and should only consider this option if you can truly afford the monthly payment.

Also Check: How To Declare Bankruptcy Without A Lawyer

What You Should Do After Filing For Bankruptcy

In addition to following all court orders and plans that have been approved, youll want to get to work rebuilding your credit. Your credit report wont look clean for a while; a Chapter 7 bankruptcy stays on your report for 10 years and a Chapter 13 slides off after 7 years.

And while its true that lenders might cast a wary eye on extending credit to someone with a bankruptcy on their credit report, you can still start implementing better financial wellness habits right away. Some places to begin are:

  • Reviewing your : Make sure all the accounts show that theyve been discharged or are listed as included in bankruptcy rather than as delinquent or outstanding so creditors dont continue to harass you.
  • Applying for an entry-level : A card with a low limit is a good way to get back on your feet credit-wise.
  • Reinforcing smart financial habits: Ideally your credit counseling classes will offer smart strategies for responsible financial management, such as budgeting. One of the most important things you can do for solid credit is to pay your bills on time, every time. Create new habits and youll be well on your way to rebuilding your financial life with your bankruptcy behind you.

Who Qualifies For Chapter 7 Bankruptcy Should I File

There is a difference between who is allowed to file and who should file. Most people who earn under the median income for their state, based on their household size, are able to file. This is because they pass the âmeans test,” according to bankruptcy laws. The means test takes into account your average monthly income over the last 6 months.

If you donât have a job or earn near the minimum wage, you will likely qualify for Chapter 7 bankruptcy. If you don’t pass the means test, you can file a Chapter 13 bankruptcy but not Chapter 7.

Folks looking for a fresh start typically fall into one of three categories:

  • Those who should file for Chapter 7 bankruptcy right now;

  • Those who should wait a little bit of time and then file for Chapter 7 bankruptcy;

  • Those who should not file for Chapter 7 bankruptcy.

Recommended Reading: Will Bankruptcy Get Rid Of Irs Debt

How Does Chapter 7 Bankruptcy Work

When you file for Chapter 7 bankruptcy, the court places an automatic temporary stay on your current debts. This stops creditors from collecting payments, garnishing your wages, foreclosing on your home, repossessing property, evicting you or turning off your utilities. The court will take legal possession of your property and appoint a bankruptcy trustee to your case.

The trustee’s job is to review your finances and assets and oversee your Chapter 7 bankruptcy. They will sell certain property the bankruptcy won’t let you keep and use the proceeds to repay your creditors. The trustee will also arrange and run a meeting between you and your creditorscalled a creditor meetingwhere you’ll go to a courthouse and answer questions about your filing.

The list of property you don’t have to sell or turn over to creditors , and the total value that you can exempt, varies by state. Some states let you choose between their exemption list and the federal exemptions. But most Chapter 7 bankruptcy cases are “no asset” cases, meaning all of the person’s property is either exempt or there’s a valid lien against the property.

At the end of the process, approximately four to six months from your initial filing, the court will discharge your remaining debts . However, some types of debts generally aren’t dischargeable through bankruptcy, including child support, alimony, court fees, some tax debts and most student loans.

What Is Bankruptcy Different Types And Why People File

What Is Chapter 7 Bankruptcy?
Steve Fiorillo

Bankruptcy is usually seen as such an extreme situation, mostly associated with a failing business being forced to close down than anything else.

But as the amount of debt individuals and families are forced to accrue in order to survive increases, bankruptcy has become more common. A recent study showed a large increase of older Americans filing for bankruptcy, as different combinations of loans continue to put the average household in tens of thousands of dollars of debt.

It’s important to consider before filing: What is bankruptcy, what different types are there, and what could cause someone to file for it?

Also Check: What Happens When Chapter 13 Bankruptcy Is Dismissed

The Cons Of Chapter 7 Bankruptcy

The major downside to Chapter 7 bankruptcy is obvious: potentially having to give up many of your treasured things. But there are other drawbacks you may not think of.

  • It will ruin your credit and stay on your credit report for up to 10 years.
  • If youre behind on your mortgage or car payments, then you will likely have to forfeit them.
  • Youll lose any luxury possessions and nonexempt property you own.
  • It wont automatically absolve you of the responsibility of alimony, child support or repaying student loans and mortgage liens.

Doesnt Filing For Bankruptcy Ruin My Reputation And My Life

Not if it gets you out of debt. You might be able to run from creditors for a while, but eventually the stress of that overwhelms people. Bankruptcy lets you stop running and start over again. It may take a few years for you to get loans and obtain credit again, but at least youll have that opportunity. Bankruptcy is meant to give people who made financial mistakes a second chance. In todays turbulent economy, that is a good thing.

Read Also: Has Mark Cuban Ever Filed For Bankruptcy

Chapter 7 Title 11 United States Code

This article has multiple issues. Please help improve it or discuss these issues on the talk page.

Chapter 7 of Title 11 of the United States Code governs the process of liquidation under the bankruptcy laws of the United States, in contrast to Chapters 11 and 13, which govern the process of reorganization of a debtor. Chapter 7 is the most common form of bankruptcy in the United States.

Which Should I Usechapter 7 Or Chapter 13 Bankruptcy

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Most people who file for bankruptcy choose to use Chapter 7 if they meet the eligibility requirements. Chapter 7 is a popular choice because, unlike Chapter 13, it doesn’t require filers to pay back a portion of their debts. Learn when Chapter 7 bankruptcy is a better choice than Chapter 13.

Chapter 13 will make more sense if you’re behind on your mortgage and want to keep your house. You can repay the missed payments over time using the Chapter 13 repayment plan. You can also force a creditor to allow you to repay nondischargeable debts, like back taxes or support arrearages, over three to five years. Find out more about when you’d use Chapter 13 bankruptcy instead of Chapter 7.

Also Check: What Is The Number One Cause Of Bankruptcies In America

Is Chapter 7 Bankruptcy Right For You

Make sure you know the difference between Chapter 7 bankruptcy vs Chapter 13 bankruptcy. Chapter 7 makes sense when:

  • You dont have many assets.

  • Your problem debts total more than 50% of your annual income.

  • Your problem debts can be discharged, or forgiven, by Chapter 7. These include debts such as medical bills, credit card debt and personal or payday loans.

  • It would take five years or more to pay off your debt, even if you took extreme measures.

Some debts typically cant be erased in bankruptcy, including recent taxes, child support and student loans. Bankruptcy still may be an option for you, though, if erasing other kinds of debt would free up enough money to pay the debts that cant be erased.

The other common form of consumer bankruptcy, Chapter 13, may be better if you have more assets or secured debts, and can repay some or all of what you owe.

Other debt relief options are available, too, such as a debt management plan through a agency. Take advantage of the free initial advice that credit counselors and many bankruptcy attorneys offer before deciding on a path.

What Happens When I File A Chapter 13 Case

In a Chapter 13 case, you do not have to liquidate assets in order to pay your creditors; instead, you develop a plan to repay all or a portion of your debts over time, which allows you to keep most or all of your property. During the period the plan is in effect, you make your regular payments to the trustee assigned to your case who, in turn, distributes the money to your creditors. The applicable commitment period for payment under a Chapter 13 plan is three years for debtors whose family’s current monthly income is less than the state median for a family of the same size and five years if it is greater. Your Chapter 13 plan must pay your unsecured creditors at least as much as they would receive if your nonexempt assets were liquidated under Chapter 7. Also, your plan payments for unsecured debts must be equal to your disposable income . In other words, you cannot retain a cash reserve each month.

In order to be eligible to file for Chapter 13 bankruptcy, you must have regular income and meet certain debt limitations for your unsecured and secured debts . Individuals, sole proprietorship businesses, or spouses can file a Chapter 13 Bankruptcy. Just like a Chapter 7 case, filing a petition for Chapter 13 bankruptcy with the bankruptcy court automatically stays most debt collection actions against you. You must file your repayment plan either with your petition or within 14 days after filing your case.

Recommended Reading: How To File Bankruptcy In Wisconsin

How Do You File Chapter 7 Bankruptcy

You can probably complete the process within six months. You’ll have to follow several steps.

  • You must complete pre-file bankruptcy counseling from a qualified nonprofit credit counseling agency within 180 days before filing.

  • Find an attorney:Before diving into the various forms required to file Chapter 7, find a qualified bankruptcy attorney to help. Its hard to find money for a lawyer when you need debt relief, but this is not a DIY situation. Missing or improperly completed paperwork can lead to your case being thrown out or not having some debts dismissed.

  • File paperwork: Your attorney will help with filing your petition and other paperwork. But its on you to gather all relevant documentation of your assets, income and debts. An automatic stay goes into effect at this point, meaning that most creditors cannot sue you, garnish your wages or contact you for payment.

  • Trustee takes over: Once your petition is filed, a court-appointed bankruptcy trustee will begin managing the process.

  • Meeting of creditors: The trustee will arrange a meeting between you, your lawyer and your creditors. Youll have to answer questions from the trustee and creditors about your bankruptcy forms and finances.

  • Your eligibility is determined: After reviewing your paperwork, the trustee will confirm whether youre eligible for Chapter 7.

  • Education course: Before your case is discharged, youll have to take a financial education course from a qualified nonprofit credit counseling agency.

  • What Does The Process Look Like

    What is Chapter 7 Bankruptcy?

    With your help, your attorney will prepare your petition, schedules and statements, and all remaining and necessary documents in order to file a Chapter 7. After receiving these documents together with the filing fee, the court will process it, and you and the creditors you have listed will be given a notice, bearing the date until which they can raise objections to your case.; The moment that your case is filed, you are under the protection of the court and the majority of creditors cannot continue or initiate collection efforts for debts .

    A 341 meeting will be set with the Chapter 7 trustees, your party, and your creditors . You will be given a date, time, and venue. After examining your case, it can either be concluded, or the trustee will require other documents.

    Although the success rate of Chapter 7 bankruptcy in Phoenix AZ is considerably high, there are still cases when it you will have to go to court. Among the reasons is a creditor might file a complaint against you.

    Read Also: Will Filing Bankruptcy Affect My Car Loan

    Submit Documents To A Bankruptcy Trustee

    Youll need to submit proof of the information you submitted in your initial petition to your bankruptcy trustee. The trustee will be in charge of executing your bankruptcy. Theyll round up your property, sell it, challenge creditors if needed and monitor your eligibility for Chapter 7 throughout the proceedings. ;

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