Chapter 7 Bankruptcy

There are three types of bankruptcies which could affect the average consumer. Chapters 7, 11 and 13. A chapter 7 bankruptcy is the type of bankruptcy where the consumer’s (debtor) debts are forgiven and he or she is essentially given a clean slate.

Some debts can be reaffirmed such as a car loan or home mortgage if that is in the best interest of the creditor and they qualify. There are income limits that must be met before filing a chapter 7 bankruptcy. This is referred to as the means test (see link below) In a chapter 7 bankruptcy the court issues a stay or protects the debtor from being pursued by the creditors. When the chapter 7 bankruptcy is filed, the creditors must stop contacting the debtor, stop garnishing wages etc. If necessary I will send a letter to an aggressive creditor prior to filing to advise them that I have been retained and will be filing a chapter 7 bankruptcy in the future.

Chapter 11 bankruptcy is typically used by a business to reorganize. It is used to protect the business from creditors and it usually involves repayment of some of the debts to the creditors. Chapter 13 bankruptcy is also a repayment plan. It is generally used for debtors who make too much money or who have too many assets. Again, the court protects the debtor from his or her creditors.

My office helps debtors with chapter 7 bankruptcies only.

Some common questions and concerns

Will I destroy my credit?
Bankruptcy in many ways helps your credit. If you’re considering bankruptcy then chances are you can’t dig yourself out of the hole you’re in as it is. Bankruptcy allows you to start over. Many clients find that they are able to establish good credit ratings shortly after completing bankruptcy.

How long does bankruptcy take?
As soon as you provide us with your information and we are able to file for bankruptcy, the court issues what is called a “stay” and you are legally protected from any further creditor action against you, including collections and garnishments. Beyond that, the entire process takes a few months including one mandatory court appearance about a month into the process.

Do you take payments?
I will work with you on a payment plan if you qualify for a chapter 7 and have the ability to make timely payments. At this time the federal court charges $335 to file the case. In addition, there are costs associated with obtaining the debtor’s triple credit report and costs associated with the two mandated counseling sessions that the debtor must do (usually on-line). All of these costs are approximately $500. And the attorney fee is generally 2 to 4 hours at $250 an hour depending the complexity.

Do I have to go to court?
Generally you will have one court appearance at which the bankruptcy trustee and creditors may ask you questions regarding your debts, income and your intentions. This meeting is approximately one month after the bankruptcy is filed. Usually there are not creditors present.

Who will I be dealing with during this process?
I will personally meet with you and answer all of your questions and I will prepare you for and I will be be with you in court for the 341 creditor’s examination hearing.

Will filing a chapter 7 bankruptcy harm my credit?
You cannot charge your way out of financial trouble. Filing any type of bankruptcy will show up on your credit report. However, the bankruptcy process gives you a new start and in addition you will very likely be offered new credit after a few months for the simple reason that you cannot file for bankruptcy again until 7 years have elapsed.

Can I keep my car or my home if I file for bankruptcy?
You can “reaffirm” certain debts such as a car, home, boat etc., if you qualify and if the lender agrees to same. These reaffirmed debts are excluded out of the bankruptcy process.

Do I have to turn over my paychecks to the bankrputcy court:
No. In a chapter 7 bankruptcy, you will continue to have control over your money and manage it yourself.

What about my personal property such as jewelry, guns, furniture etc?
You are entitled to certain exemptions under the bankruptcy rules. The court allows you a certain amount of money or credit for the types of things most people own so that you can keep those items. It is only when there are excessive assets that the trustee may attempt to obtain control over those assets in order to pay the creditors.

Can I keep my pension or Social Security Benefits?
Generally yes. Pensions and 401K’s; IRA’s are usually protected from creditors.

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