CHAPTER 7 BANKRUPTCY
CHAPTER 7 BANKRUPTCY EXPLAINED
A Chapter 7 Bankruptcy, also known as a “liquidation”, is a powerful tool that can help you eliminate debt, stop creditor harassment, protect assets, and get a fresh start.
A Chapter 7 Bankruptcy has the potential to eliminate, or discharge, debts such as credit card debts and medical bills which are not secured by a creditor’s interest in collateral.
Most of my clients prefer to file under Chapter 7. The two things that would hinder you from filing a chapter 7 would be that either your income is too high to pass the means test, or that you are behind on a secured debt such as your house mortgage or car note, but you want to keep that asset.
Assuming that you are current on secured debts, the next step is a means test. Your gross income from all sources for the past six months is plugged into a calculator. If you are below the median income, you pass automatically. If you are over the median income, certain expenses may deducted that may bring you under the guidelines of the means test. The median income for 1 person is $34,808, for 2 people in a household is $48,029, and continues to increase for every head on bed or dependent that the debtor can claim as part of the household. Even if you are over median certain expenses can help bring you under the limit. Please do not assume that you are over median without having a means test performed by a competent bankruptcy professional.
If you fail the means test, your only alternative is to file under Chapter 13. If you pass, then you must complete a fairly thick and detailed packet from which your petition and schedules are drafted. You will then take the first of two required classes. The first class is called the Financial Management Course, it takes about 45 minutes and can be done online or over the phone. Once your schedules and petitions are complete, you will sign off on them, and they will be filed electronically with the proper court.
Something that I wish to clarify, and hopefully alleviate some of your fears, is what you stand to lose by filing bankruptcy. The law provides for certain protections, known as exemptions, that will allow you to keep most, if not all of your assets, and allow you to make a fresh start. Which set of laws will govern what exemptions apply, but generally speaking things like your homestead, 1 car per licensed driver, tools of the trade, qualified retirement programs, certain government benefits, and many more are most likely going to be exempt from seizure by the trustee (someone appointed by the court to oversee the case, rarely will you actually see an actual bankruptcy judge) for the benefit of creditors. About 90% of all chapter 7 bankruptcies are what are called no asset bankruptcies, meaning that the trustee has determined that there are no non exempt assets to be seized for the benefit of creditors.
Once a bankruptcy is filed, something called the Automatic Stay is invoked. That means that all collection activity must cease. From a practical standpoint this means that the harassing phone calls will stop within a day or two of filing. Any collection activity such as the continuation of lawsuits, foreclosures, or vehicle repossessions are halted unless the creditor asks special permission from the court by filing what is called a Motion to Lift Stay. In a case where you plan to abandon a property or vehicle this might be the desired result. Most collection lawsuits are non-suited or abated upon filing. Full disclosure with your attorney is very important as we need to make sure that the courts, creditors, and opposing counsel are advised of the Bankruptcy filing.
Once you have the bankruptcy filed, you must take the debtor education class, which takes about two hours to complete. This may also be taken online or by phone.
Generally, about six weeks after filing your petition with the court, you will be required to attend a meeting of the creditors, also known as a 341 Meeting. In Ft. Worth these meetings are held in the Fritz G. Lanham Federal Building downtown. This is several blocks from the Federal Courthouse, and if everything goes to plan you will not see the inside of a courtroom. Meetings are conducted by a court appointed trustee, and generally last about 15 minutes. Creditors are aware of the meetings, and are free to come and ask questions while you are under oath and being recorded, but rarely show up.
The court will set a deadline for objections to discharge, generally 12-14 weeks from filing date, and if no creditors object by that deadline then you will receive an order of discharge about a week later.
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I am a debt relief agency. I help people file for Bankruptcy.