Are you confused about the meaning of Chapter 7 of the U.S. Bankruptcy Code? Don’t worry – you’re not alone. The bottom line is that Chapter 7 bankruptcy liquidates all of your non-exempt assets, discharges your non-exempt debts, and proverbially wipes the slate clean. It’s meant to give people the equivalent of a financial fresh start.
You’ve probably heard about changes to the bankruptcy laws, some of which make it more difficult for people to file for Chapter 7 bankruptcy. In order to be automatically eligible to file for Chapter 7, in the previous six months you must have earned less than the median income for a family of four in your state. You must also obtain credit counseling and a budget analysis. If your income doesn’t meet the means test, and if you can pay $100 per month toward your bills, you have to file Chapter 13 bankruptcy instead of Chapter 7 bankruptcy.
Debt Collectors Must Back Off
Under bankruptcy law, when you file for Chapter 7, you have to provide the bankruptcy court with a complete statement of all of money you owe, all of the money you make, all of the property you own, and all of your living expenses. Once you file, creditors are no longer allowed to attempt to collect on the debts you owe unless they prove their case before a bankruptcy court judge.
With Chapter 7 bankruptcy, you’re typically allowed to keep certain types of property, like your home and your car (unless you’ve used them as collateral for other types of debt). Other types of assets are put into the care of a trustee, who will sell them and pay off your eligible creditors. You have a bit of wiggle room on some items. If you owe money on your car, for example, you can work with the lender to reaffirm the loan and continue to make payments following the bankruptcy.
Debt Exemptions
While Chapter 7 bankruptcy is designed to give people a fresh start, some types of debts are exempt from the bankruptcy proceedings. You’ll be out from under the burden of credit card debt, medical expenses, personal loans, leases, and judgments. On the other hand, unpaid taxes, child support, student loans, and criminal fines will still be on the books.
Filing for Chapter 7 bankruptcy is fairly straightforward, but the chances for a successful bankruptcy proceeding depend largely on filing at the right point in time and in the right way. If your case is dismissed, you won’t be eligible to file again for two years. That’s why it’s critical to get the advice of an attorney who is experienced in bankruptcy law.
