What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy May Eliminate Credit Card & Medical Debts
If you're struggling with massive amounts of credit card debt, medical bills or any other types of unsecured debt, know that you may have more power than you think via one specific portion of the U.S. Bankruptcy Code: Chapter 7 bankruptcy.
While examining the following information is a great way to start learning about Chapter 7, a bankruptcy lawyer can help examine your case. To connect with a local bankruptcy lawyer, simply fill out the below free form or call 888-632-0587. Don't delay--take charge of your situation today.
Unfortunately, struggling with consumer debt is nothing to new to America. Over the last decade, consumer debt has gone up by 22 percent to approximately $2.56 trillion while credit card debt has skyrocketed 15 percent to $8,565 per the average American household, according to the Federal Reserve Board.
Furthermore, medical debt has been causally link to 50 percent of all consumer bankruptcy filings, according to a 2005 Harvard study.
With these stats in mind, the appeal of filing Chapter 7 bankruptcy is its discharge, which is the elimination of unsecured debts.
What Types of Debts can be Discharged through Chapter 7 Bankruptcy?
Did you know that filing bankruptcy under Chapter 7 of the U.S. Bankruptcy Code may discharge certain unsecured debts of yours, including credit card debts, medical bills, most personal loans, payday loans, garnishments, some older tax debts, judgments from car accidents and even deficiencies on repossessed vehicles.
But what does unsecured debt refer to and how may this apply to you?
As you may be able to tell from the examples above, unsecured debt refers to debt that is not tied to a piece of property or another item. For example, credit card debt is typically not tied to an item like your home.
On the other hand, mortgage debt is tied to your home; mortgage debt is thus known as a secured debt, and failing to pay your mortgage could thus lead to your home being foreclosed. If you are facing foreclosure or car repossession because you are behind on your secured debts, learn how filing Chapter 13 bankruptcy may be able to help you.
Types of Debts that Can't be Discharged through Chapter 7 Bankruptcy
Certain types of your unsecured debts will not be discharged in Chapter 7 bankruptcy, including child support and most student loans and tax debt. A local bankruptcy attorney can examine your debts and inform you in any of them cannot be included in a Chapter 7 filing.
Chapter 7 Bankruptcy & Liquidation
You may have heard of the term "liquidation" before, but may not know exactly what it means in relation to Chapter 7 bankruptcy. During a Chapter 7 bankruptcy, a bankruptcy trustee has the option of "liquidating" or selling off your non-exempt assets in order to pay off your creditors for your unsecured debts and ultimately discharge (excuse) most of those debts.
The good news is that most Chapter 7 petitioners do not have any non-exempt assets, meaning that there is no liquidation or sale of their property.
So Which of Your Items May Be Exempt from Chapter 7 Liquidation?
Generally speaking, Chapter 7 liquidation exemptions include your primary residence, vehicle, tools, work equipment, and certain items and numerous other categories of property.
While a bankruptcy lawyer can provide you with more details on your state's bankruptcy exemptions (the specifics of each state's bankruptcy exemptions vary), you should know that exemptions work to protect most of your property during Chapter 7 bankruptcy.
What about Your Home and Car in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy does not offer a discharge for secured debts like your car loan or home mortgage loan. Thus, if you want these secured debts completely discharged in your Chapter 7 bankruptcy, you would have to surrender over your car and home.
With that said, you may be able to work out a reaffirmation agreement with your creditors during your Chapter 7 case in which you agree to continue to make payments in exchange for keeping your home or car.
As mentioned earlier, many Chapter 7 bankruptcy filers do not have their homes or cars liquidated (sold off to pay creditors) during their case as these items are generally exempt from such an action.
Chapter 7 Bankruptcy Eligibility
This is the golden question that many people interested in filing Chapter 7 bankruptcy typically ask their bankruptcy lawyers.
As part of the new bankruptcy law in 2005, a means test was implemented with the goal of making it harder for people to file Chapter 7 bankruptcy. While the Chapter 7 means test may seem intimidating on the surface, you should know that it is not like most tests that you have taken in your life and that most people who want to file Chapter 7 are still able to do so.
The Chapter 7 means test consists of two parts in the following order: 1) a comparison of your income with your state's median income for a family the same size as yours and 2) a calculation of your disposable income and your unsecured debts. If your income is at or below the median income in your state, you pass the Chapter 7 means test, meaning that you are eligible to file Chapter 7 bankruptcy.
If you don't pass the first part of the means test, this does not mean that you may not file Chapter 7 bankruptcy. Rather, it simply triggers the second part of the means test.
For more on the Chapter 7 means test, it is a smart idea to get in touch with a local bankruptcy lawyer who can help you examine your situation in more detail as it may apply to this type of personal bankruptcy.
Chapter 7 Bankruptcy & the Automatic Stay – Tell Creditors to Stay Away
If you are to file Chapter 7 bankruptcy, you should also take comfort in the fact that upon the filing of your petition, an automatic stay will take effect.
The automatic stay is a court order which stops all collection actions against you and prevents creditors from contacting you about your debts during your bankruptcy case.
What does this mean to you?
This means that debt collectors and creditors may no longer be able to harass you with threatening phone calls, letters or other means about your credit card and other unsecured debts. If they do, they will be in violation of the automatic stay, and you may be entitled to a monetary settlement!
How Long Until You Receive Your Chapter 7 Discharge?
If you file Chapter 7 bankruptcy, you may receive your discharge in as little as six months (or even shorter than that). As Chapter 7 bankruptcy cases move relatively quickly, you need to completely understand what happens during the Chapter 7 process.
Who Does Chapter 7 Bankruptcy Best Work for and Where Do You Fit in?
Generally speaking, Chapter 7 bankruptcy has been a realistic option for people who have little to no income, have little to no money left after paying their necessary expenses each month, rent or have little equity in their homes, and have few or no assets besides their furniture, clothing and other basic necessities.
With this said, getting in touch with a local Chapter 7 bankruptcy lawyer is a great way to learn about Chapter 7 bankruptcy as it may apply to you and to also understand the Chapter 7 process and its requirements, including the credit counseling briefing and debtor education course.
At Bankruptcy.Me, we make it especially easy for you to connect with a bankruptcy attorney in your area – simply fill out our free bankruptcy case review form or call 888-632-0587 and we'll help you get connected with a local bankruptcy lawyer who can examine how Chapter 7 bankruptcy may or may not work for you.
The above synopsis of bankruptcy laws is by no means all inclusive and is not intended to provide legal advice. These laws may have changed since our last update and there may additional laws that apply in your situation. For the latest information on these bankruptcy laws, please contact a local bankruptcy lawyer in your area.