Chapter 7 Bankruptcy

Many individuals who turn to bankruptcy fall under the provisions of Chapter 7 of the Federal Bankruptcy Code. Not surprisingly, this type of bankruptcy is commonly referred to as Chapter 7 and may also be called “straight” or “liquidation” bankruptcy. The most important feature of Chapter 7 bankruptcy for many debtors is that most if not all of your debts get canceled, although some of your assets may be sold in order to pay creditors. Notice this is quite different from Chapter 13 bankruptcy, in which filers are responsible for paying all or part of their debts off within three to five years. Who can file Chapter 7 bankruptcy? In order to file Chapter 7 bankruptcy, you cannot make over a certain amount in income; if your income is over a certain amount, there is a “means test” you have to pass, which determines whether you would be able to repay debts based on your income minus expenses over the next five years. If you have filed Chapter 7 bankruptcy in the last six to eight years (depending on the type of bankruptcy filed previously), you will not be eligible for Chapter 7 bankruptcy. You may also be prohibited from filing Chapter 7 bankruptcy if the court believes you have defrauded your creditors by concealing assets or other methods. You also have to attend credit counseling through the U.S. Trustee Program before filing. What happens after you file for bankruptcy? The most important thing that happens when you file that bankruptcy petition is that your creditors are immediately prohibited from trying to collect what you owe them. This is known as the “automatic stay,” and is probably one of the best features of bankruptcy from a debtor’s perspective, although there are some restrictions on what is “stayed” and what is not. You should consult a bankruptcy attorney for complete information on this. Because of the automatic stay, you probably won’t have to worry about wage garnishment by certain creditors, your bank account’s funds disappearing, or your car, house, or other property being seized to pay for your debts. After you file for bankruptcy, there will be a creditors’ meeting at which you will have to appear; this should be the only time you have to appear at the courthouse although other appearances are possible. Will I lose my car/house/other property? Bankruptcy laws vary by state, and one of the main areas that differs is what property is exempt in bankruptcy filings. Even where property is not exempt, it is often essentially worthless for raising money to pay creditors. Accordingly, the vast majority of bankruptcy filers don’t lose property. Because this is a highly sensitive area of law, though, be sure to contact a bankruptcy attorney about your mortgage or car payments before making any decisions regarding bankruptcy. What do the bankruptcy court and bankruptcy trustee do? The role of the bankruptcy court via the bankruptcy trustee is to control your property and debts, which means after you file for bankruptcy your property and debts are no longer yours to manage; you can’t sell anything to pay debts or select certain debts to pay, etc. Sometimes you can acquire property after the filing of bankruptcy and do with it what you wish, but be sure to check with a bankruptcy attorney before making any major purchases. The bankruptcy trustee’s role is to make sure that your creditors receive as much as possible of the debts owed; a trustee may go through your financial transactions leading up the bankruptcy filing for anything to sell in order to pay off debts. Are all debts wiped out by bankruptcy? No. Some debts are never or hardly ever erased in bankruptcy, and these can include the following: * Income tax debts less than three years old * Child support * Student loans * Other debts declared nondischargeable because of fraud, etc.