Why Would I Consider Filing a Chapter 7 Bankruptcy?
The most common reason is to get rid of debts and get a fresh start. Chapter 7 Bankruptcy is the preferred option for people with limited or no income to pay off their debt. It gives them a huge relief for a relatively low cost. However, there are other reasons as well. For instance, after filing a bankruptcy petition, a debtor can be spared from any collection procedures or legal action that may be initiated by a creditor in order to collect a discharged debt. Another reason is that it can stop foreclosure proceedings, thereby affording a debtor more time to find a way to keep the property or look for a more affordable place to live.
These are more reasons, but their common denominator is to secure your financial status by showing the court that Chapter 7 Bankruptcy is the most viable option in effectively handling your dues. Feel free to ask one of our experienced bankruptcy attorneys to explain how filing a Chapter 7 Bankruptcy can help eliminate the pile of debt that is wearing you down.
What Debts Get Discharged?
Most unsecured debt is disharged in bankruptcy. However, there are some exceptions to the general rule including the following:
• Child support and alimony
• Fines, penalties and restitution for breaking the law (e.g. personal injury or death judgments
• Student loans
• Certain tax debts
Note, however that income tax debts can sometimes be discharged so consult an attorney first before you file.
• Debts or creditors you failed to include in your bankruptcy papers
Debts that are normally discharged can become non-dischargeable if they fall under these criteria:
• Debts arising from fraud, such as lying on a credit application; credit purchases of $1,225 or more for luxury items or services made within 60 days of filing; loans or cash advances amounting to $1,225 or more obtained within 60 days of filing. In such cases, the court will assume that you intended to run up when you are well aware that you won’t be able to repay them.
• Debts incurred from wilful or malicious injury to another person or his/her property; debts from breach of trust, embezzlement or larceny, and
• Debts you owe under a divorce decree or settlement unless after bankruptcy you still can’t afford to pay them or the benefit you’d receive by the discharge outweighs any detriment to your ex-spouse.
**This list includes some of the more common debts that cannot be discharged but it is not by any means exclusive. It would be best to contact an attorney if you are unsure whether a certain debt is dischargeable.
How Much Does It Cost to File Chapter 7 Bankruptcy?
Everyone wanting to file for bankruptcy is eager to know the cost. However, one needs to take into consideration that cases differ so the associated fees vary. That being said, a fair range for Chapter 7 cases will be between $1,000 and $2,000. This may seem a bit heavy on the pocket but bear in mind that the whole point of bankruptcy is to discharge your debt and save you tens of thousands of dollars in the long run.
How Can I Qualify for Chapter 7 Bankruptcy?
In order to qualify for relief using Chapter 7 Bankruptcy, the debtor should be an individual, a partnership, or a business entity. Eligibility also depends on your income over the past six months. If your income during this period is below the median for a family of your size, you can go ahead and file. Simply put, you automatically qualify if your income is below the state median. On the other hand, if your income exceeds the state median, your financial position must fall within the parameters of the Means Test which determines debt to income ratio set by the United States Bankruptcy Code. A potential Chapter 7 candidate must also undergo and complete mandatory credit counselling classes within 180 days before filing.
There are also some restrictions if you have previously filed for bankruptcy. You are not legally eligible to file if you had a previous Chapter 7 Bankruptcy discharge during the past 8 years. Note that the filing period begins from the date when your previous Chapter 7 Bankruptcy was filed instead of the date when the bankruptcy was discharged. Also, you won’t be allowed to file Chapter 7 if you had a bankruptcy dismissed over the past 180 days due to any of the following reasons: willful failure to appear before the court, violation of court orders, made a fraudulent bankruptcy filing, grave abuse of the bankruptcy system, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
Do I Qualify Under the Means Test?
The bankruptcy “Means Test” determines whether a person’s income to debt ratio is low enough to qualify. It is a formula devised by the government to keep individuals with higher incomes from filing for Chapter 7 Bankruptcy. It requires debtors to fill up a form indicating their monthly income and expenses, then makes calculations based on the information entered. Majority of the details required is provided by the debtor while the rest comes from the Census Bureau and the Internal Revenue Service.
Only bankruptcy filers with consumer debts need to take the Means Test. To take the test, you must first determine whether your income is more or less than the median income in your state. If your average income over the past 6 months is below the state median, then you automatically pass the Means Test and therefore qualified to file for Chapter 7 Bankruptcy. The median income is provided and periodically updated by the Census Bureau. In case you earn more than the median, you must determine whether you’ll have enough left over to repay some of your debt after paying your ‘allowed’ monthly expenses.
Median income levels vary by state and family size, and each county and metropolitan area has different allowed amounts for different categories of expenses including basic necessities, housing, and transportation. It is also important to note that taking the Means Test does not necessarily mean that you need to be desolate in order to seek relief from Chapter 7 Bankruptcy. You can still make sizeable income if your monthly expenses are high, such as if you have a high mortgage payment.
Our experienced attorneys can help you calculate the Means Test to determine if you qualify for Chapter 7 Bankruptcy. Pass the test and you qualify to file, otherwise your option is limited to filing for Chapter 13. Call today for more information.
How Does Chapter 7 Bankruptcy Work?
If you are qualified to file for Chapter 7 Bankruptcy, you’ll need to prepare and file numerous documents, but before we delve into the details, here is an overview of the general process:
It officials starts when you or your attorney files a petition with the local federal court. The petition, usually prepared by an attorney, will contain all pertinent documents including the following:
• A list of all assets and liabilities
• A schedule of current income and expenditures
• A statement of financial affairs such as bank statements and the most recent tax return
• A schedule of executory contracts and unexpired leases
• A certificate of credit counselling
• A copy of any debt repayment plan developed through credit counselling
• Proof of payment from employers, if any, received 60 days before filing
• A statement of monthly net income as well as any anticipated increase in income or expenses after filing
• A record of any interest that you have in federal or state qualified education or tuition accounts
At the time of filing, the courts will charge a $245 filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge. The fees must be paid to the clerk of court. Upon filing, the court will issue an “automatic stay” which prevents most forms of debt collection and joins the legal proceedings to your bankruptcy case. Remember that the stay is only temporary and does not halt all collection efforts. It only takes effect while your bankruptcy petition is being sorted out. So long as the stay is in effect, creditors may not initiate or continue lawsuits, wage garnishments, or even make phone calls demanding payments.
If you had filed a Chapter 7 Bankruptcy and you are still being harassed, feel free to contact one of our bankruptcy attorneys to determine what relief may be available to you. You may also inquire what is and is not covered by the stay order.
Within 20 to 40 days after filing your petition, the case trustee will schedule a meeting of creditors. You must attend the meeting because the trustee will put you under oath and ask questions about your assets and financial affairs. The meeting is generally held to ensure that all creditors are aware of your pending bankruptcy, to inform you about the consequences of filing for bankruptcy, and to find out if you committed bankruptcy fraud during the preparation of the petition.
Once the bankruptcy is deemed valid and all creditors have been accounted for, the trustee will begin the process of liquidating all nonexempt assets then pays the creditors proportionally. Upon completion, a discharge will happen and release you from personal liability for most debts and prevents creditors from taking any collection actions. Since a Chapter 7 discharge involves a number of exceptions, it would be best to consult a competent legal counsel before filing so you can discuss the scope of the discharge.
What do I Need to Provide to Start the Bankruptcy Process?
The moment you start considering bankruptcy to ease your financial situation, you’ll perhaps want to find out what information and documents you need to prepare before you file. The truth is that there are a number of documents that you need to provide, but if you have an attorney, you can rest assured that all forms will be filled out correctly. All you need to do is to provide all appropriate documentation to your attorney and you’ll be well on your way to initiate the process.
Below is a list (non-exclusive) of documents that you will need:
• A list of all creditors and the amount and nature of their claims
• The source, amount, and frequency of your income
• A list of all of your assets
• A detailed list of your monthly living expenses
NOTE: Married individuals must provide the aforementioned information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In case only one spouse is filing, the income and expenses of the non-filing spouse are still required so that the court, the trustee and creditors can assess the family’s financial position.
Will the Bankruptcy Trustee Take All My Asserts and Sell Them?
Absolutely not! Filing for Chapter 7 Bankruptcy won’t deprive you of all of your belongings. There are certain assets that are “exempt” and will be protected from being sold off to settle your debts. In the state of Arizona, a list of exempt assets can be found HERE (please click on the link).
What If I Wish to Keep My Home or Car But They are Worth More Than the Amount Exempted?
Each case is different, so there is no guarantee that you will be able to keep certain non-exempt property. However, depending on certain financial factors, you will be allowed to reaffirm a debt. A reaffirmation is an agreement between you and the creditor, indicating that you will remain liable and will pay all or a portion of the amount owed, even though the debt will otherwise be discharged. In return, the creditor assures that he/she will not repossess the vehicle or other properties as long as you continue to pay your debt. Again, this is not an automatic right so consult an attorney to explore all options available to you.
What If I Find Out After Filing That a Chapter 7 Bankruptcy is Not Right for Me?
If you are eligible for another chapter, such as chapter 11, 12, or 13, the Bankruptcy Code will allow you to convert a Chapter 7 case to a new case covered by another chapter. However, a condition for your voluntary conversion is that the case must not have been previously converted to Chapter 7 from another chapter.
What If I Withhold Information or Lie During My Bankruptcy Case?
The court has the power to reverse or negate any action that it has taken to discharge your debt if you obtain the discharge through fraudulent means; if you acquired property that is owned by the estate and deliberately chose not to report the acquisition of such property or surrender the property to the trustee; or if you make a material misstatement or fails to provide documents or other information in relation to an audit of your case. The bottom line is that everything that the bankruptcy was trying to do to help you will be undone, so DON’T DO IT!
Can My Boss Fire Me for Going Bankruptcy?
NO! The United States Bankruptcy Codes prohibit any employer from doing such discriminating act simply because you filed for bankruptcy.
Contact Ariano & Reppucci to find out whether bankruptcy is the best option for you or whether a debt negotiation lawyer may be better suited for your financial situation.