What Is Chapter 7 Bankruptcy?
The answer to this question lies in the answer to a broader question: "What is the ultimate aim of filing for bankruptcy?"
If filing for bankruptcy is an opportunity for a debtor to emerge out of a financial crisis and start afresh, then Chapter 7 of the Bankruptcy Code is the way to achieve this end in as little as three months. Most clients keep their personal property in a Chapter 7 or if above the exempt amounts allowable, they are allowed to buy back their excess personal property. Under Chapter 7 of the Bankruptcy Code all non-exempt property of the debtor is sold and the proceeds of the same are distributed to the creditors. The debtor then begins with a fresh start toward rebuilding their credit.
How Can I Be Sure Chapter 7 Bankruptcy Is The Best Solution?
Also known as liquidation (converting assets into money) or a straight bankruptcy, Chapter 7 Bankruptcy is the most common form of bankruptcy filing. This type of bankruptcy filing accounts for as much as 65% of all Consumer Bankruptcy filings.
As mentioned before, this is one of the faster ways of starting afresh, and more so if there are no objections from any of the parties involved. Ordinarily, most (if not all) debts would be discharged within three months of the attorney filing a bankruptcy petition. This includes credit card debt, medical bills, signature loans, deficiency balances for repossessions, and deficiency balances on homes that were let go in foreclosure, deed in lieu or short sale. It would not include debt such as student loans, child support or alimony, court fines or penalties and other misc. exceptions to discharge.
How Does Chapter 7 Bankruptcy Work?
Once a case is filed, a trustee is appointed who collects all non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors. Many clients do not have personal property that is in excess of the amounts you are allowed to keep under Florida law (other state or federal laws may apply if you have moved to Florida less than two years prior). Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee. If you are apprehensive about losing assets, make sure you speak with a bankruptcy attorney about what you own so the assets can be properly disclosed and protected if possible.
Under Chapter 7 Bankruptcy, the debtor receives a discharge on all dischargeable debts in approximately three months. Debtors may keep their vehicles by signing a reaffirmation agreement to continue to pay for a car loan. A debtor may continue to keep their home if they are either current in the mortgage or otherwise reach a forbearance or modification agreement with the mortgage company.
Who Can File For A Chapter 7 Bankruptcy?
Individuals with regular income that leaves them with extra money left over every month after paying their living expenses would be better suited to file a Chapter 13 bankruptcy. In a Chapter 13 case, a debtor is placed in a court monitored repayment plan whereby they use their disposable income after paying their monthly expenses to repay creditors. In this fashion, creditors generally receive far less than the full amount of their debt and the repayment is without interest.
The recent amendments to the Bankruptcy Code that were signed into law by President Bush in 2005 (The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) require that debtors must qualify to file a Chapter 7 bankruptcy. This is not at terrible as it sounds. According to recent studies, approximately 85% of debtors who filed their case before BAPCPA sould have qualified to file under the new guidelines. A debtor who does not qualify may still file bankruptcy under Chapter 13 of the Code.
Also, any person who has been granted a Chapter 7 discharge (or completed a Chapter 13 plan) within the last 8 years, cannot file for a Chapter 7 bankruptcy plan, but can file for a Chapter 13 within 4 years.
How Do I File For A Chapter 7 Bankruptcy?
Our law office offers free consultations by phone or in person for clients who want to consider their financial options, including filing for bankruptcy. You will be asked about your income, assets and debts at the consultation and advised as to various options available. If you elect to retain our law firm, you would then be provided with a new client packet to begin providing the necessary information for filing. You do not have to pay all of the attorney’s fees and costs at one time, most of our clients spread these out over several months. Our one rule is that you have to pay in full before we file your case because the court rules prevent us from accepting any payments from you after the filing of your case. Be sure the information you provide during the consultation and thereafter is complete and correct.
After Filing Bankruptcy
After filing for bankruptcy, debtors often wonder when they will stand back up on their feet again. Despite how bleak your financial condition might seem with some good planning and time you can once again be financially secure. After filing for bankruptcy, your credit rating would definitely be affected, but there are things you can do to once again establish your credit.
Since the Bankruptcy Code and the Fair Credit Reporting Act are federal laws, the period during which bankruptcy details will still be included in your credit report is constant for all states. A consumer credit report stores information about bankruptcy for 10 years. The fact is that it takes about 18 months of paying your bills on time to re-establish a good credit rating which would prove that you can manage your finances sensibly. It is possible to have good credit ratings once again. It is often faster to fix your credit by filing bankruptcy then to leave all the bad debt sitting on your credit report where you can still be subject to lawsuits and garnishments and have a poor debt to income ratio precluding new creditors from giving you credit.