What is Chapter 7 bankruptcy?
The filing of a Chapter 7 bankruptcy releases or “discharges” individual debtors from being required to pay off certain outstanding debts and allows them to keep their exempt assets so that they can continue living their lives. The rules for eligibility are strict and only certain debts are eligible to be discharged.
The primary purpose of Chapter 7 is to give an opportunity for a “fresh start” to individuals who really require it. After debts are paid off the debtor no longer has any obligation for them, and the creditor is not able to pursue a debtor further.
The possibility of receiving a discharge under Chapter 7 is not an option for partnerships or corporations and instead only married couples can get the discharge.
Who is eligible for chapter 7?
Individual debtors can qualify for Chapter 7 relief. If you are an individual, you have to first take a test for means. You also must undergo credit counseling within 180 days prior to when you are able to file. Additionally, you must not have filed an appeal dismissed within the last half-year.
Partnerships corporate, partnerships, and other business entities could be eligible for specific relief under Chapter 7, but not necessarily discharge. It is always advisable to speak to a bankruptcy lawyer to get more details regardless of the kind of bankruptcy you’re looking for.
What is a means test?
Means testing can help determine if someone really needs Chapter 7 relief, meaning they’re struggling to pay the debt independently. The test determines if your earnings is less than the median in your particular state, which means you’re probably not able to pay your debts to consumers.
Median Income
There are two options to be eligible for an Chapter 7 bankruptcy with the means test. The first is when your income per month is lower than the median income of your state for the size of your family. If this is the case you’re automatically qualified to be a Chapter 7.
Geographic Location
The other option is more complicated and based on specific information regarding budgeting dependent on your precise location. If your income median is higher than the allowed amount however, your monthly debt is greater than the amount you have left over by some amount after paying for your basic needs you may be eligible. The thresholds will depend on where you live.
It’s also useful to understand what method your monthly earnings are calculated. You’ll have to use your average income for the previous six months. If your financial crisis began because of an event that took place several months back, your means test may not accurately reflect the current situation.
In certain circumstances it could be in your best interests to delay the filing of Chapter 7 bankruptcy to ensure you’re eligible for the maximum benefits. In this case, it is beneficial to seek legal advice prior to making a decision.
What exactly is credit counseling?
Within 180 days of the filing of Chapter 7, debtors must meet with a credit counseling agency to talk about bankruptcy options and, if necessary, take steps to stay out of bankruptcy.
It should be cost-free or close to being free. The organizations will work in a confidential manner to come up with solutions to pay your debts, usually with a strict budget and a money-management plan. The Department of Justice provides information about state approved agencies that you can utilize as a reference.
What is chapter 7 dismissal?
The bankruptcy dismissal happens when something goes wrong in your case and a judge refuses to hear the case. There are a myriad of reasons why this could happen and a variety of consequences. Most of the time, you’ll need to file under Chapter 13 instead. The most frequent dismissal reasons for Chapter 7 include:
- Providing inaccurate information about your finances
- Failing the means test
- Neglecting to complete the mandatory credit counseling
- Not paying the appropriate filing fees
- Missing documentation
- Missing your meeting of creditors
How does chapter 7 work?
Once you’ve determined that you’re eligible The next step is to submit a petition to the local bankruptcy court of federal bankruptcy. In addition to the request, there are other forms to fill out and various actions you or your attorney need to do. There are also costs for making the filing.
After filing you’ll be legally granted the right to an “automatic stay,” which means that the majority of collectors cannot pursue you.
Within a month the bankruptcy trustee will be meeting with you and your creditors in order to review your financial position. Based on your answers and pre-qualification test results and documents, your case will be approved or rejected.
The bankruptcy trustee will also make sure you’re aware of the implications of seeking a discharge for example, how it affects your credit score. Also, your case may be converted into a different chapter that will give you more financial relief. In order in order to discharge debts you’ll have to meet certain obligations which we’ll go over in the near future.
What happens to credit card debts when you file Chapter 7 bankruptcy?
All debt that is not secured including medical and credit card debts, are able to be cleared out with Chapter 7 bankruptcy if the court accepts your petition. It typically takes four to six months.
Why can’t student loans be discharged in bankruptcy？
In general, the filing of Chapter 7 bankruptcy protection does not relieve you of the obligation to pay certain debts, such as student loans, a recent tax deductions, child support and alimony.
There are certain situations however, in which student loans are able to be discharged like if a an illness or injury permanently makes it impossible to repay.
What are the rules and how much documentation is required?
The steps that are required to file the application for Chapter 7 are numerous. The assistance of a lawyer is almost always required. Alongside the steps previously mentioned, you should also provide these papers to the trustee or court:
- Schedules of assets and liabilities
- A schedule of current income and expenditures
- A detailed statement of financial affairs
- A schedule of executed contracts and unexpired leases
- Copies of your most recent tax returns and returns filed during your case
If you are a debtor with mainly consumer debts, you can expect to submit the following:
- A certificate of credit counseling
- A copy of any debt repayment plan developed through counseling
- Evidence of payment in the last two months from employers
- A statement of monthly net income and any anticipated changes
- A record of any interest in federal or state education or tuition accounts
To complete all the official forms, you must have:
- A list of all creditors and the amount and nature of their claims
- Detailed information regarding your income: its source, amount, and frequency
- A list of all your property
- A detailed, item-by-item list all your monthly living expenses
Do I need a lawyer to file chapter 7?
While you are legally able to represent yourself, hiring an attorney is strongly recommended. A lawyer can handle the majority of the details regarding your case, and is accountable for any errors they make and take the burden off of your shoulders.
Otherwise, you could be at possibility of making a major mistake that could result in a dismissal or an increase in financial stress.
How much does it cost to file for Chapter 7 bankruptcy?
The fees vary based on the state you reside in and the law firm you select. Here’s a look at what you can anticipate to spend.
- Cost of filing a case: $245
- Administrative fee Administrative fee: $75
- Trustee surcharge fee: $15
- The average lawyer’s fee is between $1,200 and $2,500 based on the area you reside in.
Can these fees be waived or paid in installments?
Yes, the court can waive fees if you live substantially below the poverty line and you are unable to pay. The courts and a majority of lawyers will accept installment plans.
What are the exemptions in chapter 7?
Creditors have the power to liquidate your possessions to pay debts, however, it is often possible to keep certain assets like your home automobiles, vehicles, and other household items.
Along with the schedules you’re required to file the court, and you’ll have to submit an inventory of these exemptions. The law provides that certain properties are secured from creditors. However you should consult an attorney to get the specifics in your state.
How will my discharge work?
The majority of your debts will become forgiven which means that creditors cannot longer pursue you. However, there are some debts that aren’t eligible to be discharged.
These include alimony debts and child support, as well as certain taxes and debts for federal or state-issued student loans as well as those owed for criminal convictions like the death or personal injury that is due to an DUI. If any fraud is discovered prior to or even after discharge, it may be removed. It is recommended that you speak with an attorney for more information.
Will filing chapter 7 hurt my credit?
Yes. Your credit score is negatively affected for 10 years, but you’ll gradually be able to get it back to normal. There are banks that will swiftly start working with you once again and allow you to rebuild your credit as soon as is possible, provided that you make each payment.
If the bankruptcy you suffered was triggered due to issues like injuries or illness, you may be able to convince creditors to take this into consideration when evaluating your credit. But regardless of whether you are able to be granted credit, you should likely pay higher interest rates on credit loans and credit cards.
You’ll also be able to qualify for credit lines that are smaller which means your borrowing options will be restricted for a period of period of time.
Every year each year, the Chapter 7 bankruptcy will count for less and less, meaning that your credit score will begin to improve. However, future creditors can be able to see the bankruptcy on their credit report for a period of 10 years.
You’ll also need to wait for a couple of years before you are eligible to get a mortgage. usually between two and five years years, depending on the kind of loan you’re looking for. Your credit score and your life will be impacted for a long time to come, which is why it is crucial to consider the advantages and disadvantages prior to making the decision to file bankruptcy.
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