1. What is a Chapter 7 bankruptcy?
Under Chapter 7 bankruptcy, also known as liquidation bankruptcy, most of your unsecured debts can be discharged or eliminated. In exchange for the discharge, you must surrender any of your non-exempt assets to the bankruptcy trustee. Fortunately, in the majority of cases, most of your property can be retained under your state's exemption laws or the federal exemption laws. The most common debts that are eliminated in this type of bankruptcy are credit card debt, repossession deficiencies on vehicle loans, and medical bills. All non-exempt assets become property of the bankruptcy estate and may be liquidated by the bankruptcy trustee. The proceeds of the sale will be distributed among your creditors.
2. Who can file for Chapter 7 bankruptcy?
Any individual may file a Chapter 7 bankruptcy petition. There are however, certain income guidelines used by the bankruptcy trustee to determine whether a debtor qualifies for Chapter 7 bankruptcy. In order to qualify for Chapter 7, a debtor must qualify using a "means test" for income. The "means test" compares your income to the median income in your state. If your income is lower than the median income in your state, then the you can presumptively file for Chapter 7 bankruptcy. However, if your income exceeds the median income in your state, other calculations regarding your income and allowable expenses are required to determine whether or not you can file for Chapter 7 bankruptcy.
3. Is Chapter 7 bankruptcy the right option for me?
Generally people file for Chapter 7 bankruptcy if they have a large amount of unsecured debt such as credit card debt or medical expenses. Often unexpected circumstances such as loss of employment, illnesses or medical emergencies, or divorce can cause a debtor to seek protection from creditors by filing for bankruptcy. Filing for chapter 7 bankruptcy may eliminate most or all of your unsecured debt through a discharge of that debt, and allow you to keep assets like your home and car.
4. What is Chapter 13 bankruptcy?
In a Chapter 13 bankruptcy, the debtor establishes a full or partial repayment plan which is administered by the bankruptcy trustee. A Chapter 13 debtor will generally receive a partial or full discharge of their unsecured debt as a result of establishing a three to five year consolidated repayment plan through the bankruptcy trustee. Under Chapter 13, a debtor may be able to retain property that could otherwise have been lost under a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, the debtor will make a monthly payment to the trustee, and the trustee will distribute those payments to the creditors.
5. Who can file for Chapter 13 bankruptcy?
Under Chapter 13 bankruptcy, the debtor does not have to meet the means test requirement for income and therefore, it may be a better option for some debtors. However, filing under chapter 13 requires the debtor to have a regular income allowing the debtor to make reliable payments to the trustee under the repayment plan.
6. Is Chapter 13 the right option for me?
The filing of Chapter 13 bankruptcy can stop an imminent home foreclosure, vehicle repossession, and garnishment of wages. As a result of an "automatic stay" which occurs immediately after the bankruptcy is filed, creditors are prevented from taking any legal action in the event of a default on a mortgage or car payment. Chapter 13 is often a good option for people who are facing short-term financial setbacks or for someone who is faced with unexpected expenses, but still has the means to make the monthly payment as set forth in the repayment plan.
7. What debts will bankruptcy not discharge?
Not all debts are dischargeable in bankruptcy. Under the federal bankruptcy code, Congress has determined that there are certain types of debt that for public policy reasons, are not dischargeable in bankruptcy. The debtor must still repay these debts after bankruptcy. The following are most common debts that are not dischargeable in bankruptcy:
- Alimony and child maintenance and support obligations
- Most tax liability (there are some exceptions)
- Debts incurred by fraud or intentional wrongdoing
- Criminal fines and restitution
8. Will filing for bankruptcy stop creditor harassment?
Filing for bankruptcy results in an automatic stay order, which makes it illegal for creditors to continue to attempt to collect on your debt. Once a creditor becomes aware of your filing for bankruptcy protection, they must immediately stop all collection efforts. If a creditor continues to pursue collection efforts after being informed of the bankruptcy proceedings, they may be liable for court sanctions, as well as potentially being held liable for damages under the Fair Debt Collection Practices Act. (Be certain to tell us immediately if this happens to you.)
9. Will filing for bankruptcy affect my credit?
Your credit has likely already been affected by your present situation, and your credit will be affected if you decide to file for bankruptcy. However, bankruptcy can be an effective way to regain control of your finances and provide a fresh start for handling mounting debt. Although initially your credit score may decrease, many debtors find that their credit scores begin to improve not too long after they file for bankruptcy. It is important to note that most types of bankruptcy will stay on your credit report for a period of up to seven to ten years. (In some cases the time period can be reduced.)
We can assist you in your efforts to improve your credit scores after you file for bankruptcy.
10. Are there alternatives to filing for bankruptcy?
Yes. Bankruptcy may not be for everyone. Some people do not qualify for a Chapter 7 bankruptcy, others will conclude that the burdens of filing for bankruptcy outweigh the benefits, and many simply prefer not to file for bankruptcy. As an alternative to bankruptcy, you may choose the process of debt negotiation or loan modification, where a qualified bankruptcy lawyer negotiates with your creditors to reduce your debt.
If a particular bill collector is threatening you in violation of the law, or attempting to collect more than you owe, we may be able to use the Federal Fair Debt Collection Practices Act to stop any illegal collection activities.
We Can Help!
There are many factors to consider in determining which type of bankruptcy to file. At Washington Bankruptcy Center, our attorneys will personally help you decide whether a Chapter 7 or Chapter 13 is best for you. Or, if another approach may be best, our goal is to do what is best for you. If your world has been turned upside down because of the recent economic turmoil, or some other financial hardship in your life, let us help you get the debt relief you need. Bankruptcy is about starting over and the experienced Washington Bankruptcy Center attorneys can help you get your financial situation turned around so you can find financial peace of mind.
All materials offered on this website are for informational purposes only and should not be construed as legal advice or services, nor is any attorney-client relationship created by this website.