Chapter 7 Bankruptcy – What Is It and How Does It Work?

A chapter 7 bankruptcy is often called the “fresh start” provision of the bankruptcy code because it  allows you to wipe out all of your debt and get a fresh start. In a chapter 7 bankruptcy, we show the Court that you are unable, based upon your budget, to pay the debt that currently hangs over you.  Approximately 90 days after we file your chapter 7 bankruptcy, you are granted a discharge which means that your are no longer liable for  the debt.

How much does it cost?

The cost for filing Chapter 7 Bankruptcy varies from case to case.  After you meet with us for your free consultation, we quote you the total cost for your specific case.  This cost includes your filing fee, attorney fee, and both classes that are required by the Code.

While a Chapter 7 bankruptcy is as simple in theory as described above, there are a number of factors to consider. For example, not every kind of debt can be discharged in a Chapter 7 bankruptcy. Debts arising from drunk driving or intentional acts are not dischargeable in bankruptcy.   Also, most student loans, child support, post-petition HOA fees, post-petition timeshare fees, and tax debts less than 3 years old cannot be discharged in bankruptcy.

Also, if you have secured debt (debt tied to collateral like a car note or a mortgage) you have to decide if you wish to keep the property.  If so, you must reaffirm the debt which means you must continue to pay the debt if you want to keep the collateral.

What is a reaffirmation agreement?

A reaffirmation agreement is basically a binding legal agreement between you and the creditor of the collateral you wish to keep.  By signing a reaffirmation agreement, you agree to give up your chapter 7 bankruptcy rights to wipe out the debt and legally treat it as if you never filed bankruptcy.   Basically, you continue to make your regular monthly payments and in return are allowed to keep the property.

Does the creditor have to let me reaffirm?

No.  Creditors are not required to let you reaffirm but almost always do when you are current on your payments.  The reason for this is that you are putting them in a great position by reaffirming with them.  After a reaffirmation agreement is filed, a creditor now knows you cannot file another Chapter 7 bankruptcy against them for at least 8 years (you must must wait at least 8 years before the bankruptcy code allows you to refile a chapter 7).

Will the Chapter 7 trustee come to my house?

No.  I have been practicing since 1998, and I have never had a case where the Trustee actually went to a person’s house.  However, it is possible in a rare case where someone has household items that the trustee believes to be worth thousands of dollars.  Also, it is possible that a Chapter 7 trustee will send a real estate expert to drive by your house if they think you have not listed an honest value for the house in the Chapter 7 petition.

When is it better to file Chapter 13 Bankruptcy?

When you have a car that you have owned for more than 2.5 years and you owe more on the car than its worth, you should take a look at how much your Chapter 13 payment would cost compared to your current monthly bills.  In a chapter 13, if you have owned the car for more than 2.5 years, you only pay back the value of the car instead of the total amount owed.  Also, the interest rate on paying a car back in a Chapter 13 bankruptcy ranges from 5 to 7 percent on average.

If you are behind on house payments, Chapter 13 bankruptcy allows you to take the arrears (the payments you are behind) on your house and spread them out over a longer period of 36 to 60 months.

Also, if you have two mortgages on your house, you might be able to wipe out the second mortgage in a Chapter 13 bankruptcy.  To view my blog on this topic, click here.

What is the means test?

Basically, if you have made more money in the past six months than an average family of your size, you might be barred from filing chapter 7 bankruptcy.   Chapter 13 bankruptcy might be your only option under the Code.  To give you an answer about your particular situation, I need to review your last six months pay stubs.   Call me today at 706-295-0030.

These are complex questions and you should discuss them with me. It does not cost you to come into my office and let me examine your situation. I hope you will call today.

Related Posts:

1.  Why do you have to pay all of the fees before you file Chapter 7?

2.  How can I wipe out my second mortgage in chapter 13?

3.  What is the means test?

4.  Should I file bankruptcy if I’m willing to let my house go?

5.  Squeezing into a chapter 7 is a bad idea.

6.  What can the trustee take away from me in a chapter 7?

7.  Should I reaffirm my car?

8.  Homeowner association dues are a nightmare in chapter 7.

—————–

DISCLAIMER
The information contained on this page is for information only. It is not intended to be legal advice, nor should you make legal decisions based on this information. Please consult with me to see how the law applies to your particular situation.