What is a chapter 7 bankruptcy case and how does it work?
Generally speaking, Chapter 7 is the cleanest, easiest, quickest, and least expensive form of bankruptcy. In a chapter 7 case, Debtors surrender their nonexempt property, if any exists. The Chapter 7 trustee then converts the property to cash and pays the debtors' creditors. Very, very few Chapter 7 cases involve the loss of property by a debtor.
What is a chapter 7 bankruptcy discharge?
It is a court order releasing a debtor from all dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is a debt that the debtor is released from and does not have to pay.
How long does a Chapter 7 bankruptcy case last?
In most Chapter 7 cases, the Debtor receives a discharge within 120 days of the filing of the bankruptcy case. When the Court enters the discharge, Chapter 7 debtors can immediately begin reestablishing their credit. Debtors can expect to begin to receive offers of credit for car purchases and credit cards immediately upon receipt of their discharge. Proper management of your future credit is the key to financial success after a Chapter 7 case is filed.
Who canfile a chapter 7 bankruptcy case?
Any person who resides in, does business in, or has property in the United States is permitted to file a chapter 7 bankruptcy case except a person who has intentionally dismissed a prior bankruptcy case within the last 180 days. To be permitted to maintain a chapter 7 bankruptcy case a person must qualify for chapter 7 relief under a process called means testing.
What is bankruptcy means testing?
Means testing is a method of determining a person's eligibility to maintain a chapter 7 case. Under means testing a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income, as reported by the U.S. Census Bureau, for the person's state and family size, must show that he or she is not able to pay a minimum of $100 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income in order to be eligible to maintain a chapter 7 case. Disposable monthly income is a person's current monthly income from all sources less the person's permitted current monthly expenses. The chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay $100 per month or more to unsecured creditors for 60 months will be dismissed or converted to chapter 13 unless special circumstances exist. History has shown us that very few people fail to qualify under the means test.
What types of debts are not dischargeable in a chapter 7 bankruptcy case?
All debts of any type or amount, including out-of-state debts, are dischargeable in a chapter 7 case except for the types of debts that are by law nondischargeable in a chapter 7 case. The following is a list of the most common types of debts that are not dischargeable in a chapter 7 case: tax debts that are less than 3 years old; responsible party taxes; debts incurred as the result of fraud, embezzlement, willful and malicious injuries, educational debt, domestic support obligations, and debt incurred as the result of an accident while driving under the influence. Unlisted debts and certain fines and penalties are also not discharged.
Who should file a Chapter 7 bankruptcy case?
Any person who is eligible to file a Chapter 7 case, has substantial dischargeable debt they cannot pay, and is not at risk of losing property they wish to keep should seriously consider filing Chapter 7. At Dionne & Dionne, we will discuss with you all of your options and advise you on whether Chapter 7 is a safe, effective means of obtaining relief from your financial problems.
Is there anything that a person must do before a chapter 7 bankruptcy case can be filed?
Yes, prior to filing a Chapter 7 case, debtors must undergo credit counseling with an approved agency. The credit counseling is done on the internet and takes about 20 minutes. If you do not have high speed internet access, we can arrange for you to do your counseling in our office. Under current law, you must also file all tax returns that were required of you unless under a valid extension.
How much does it cost to file Chapter 7 bankruptcy and when must the fee be paid?
The court costs and attorney fee must be paid before a Chapter 7 case can be filed. The attorney fee for each case varies depending on the complexity of your financial situation. Most debtors pay their fees and expenses by simply stopping payment on dischargeable debt like credit card debt. Instead of making these monthly payments, debtors save their money for the payment of their Chapter 7 case. As a general rule, fees for a Chapter 7 case range from $1000 to $1200.
May a husband and wife file jointly under chapter 7 bankruptcy?
Yes. A husband and wife may file a joint case under chapter 7. If a joint chapter 7 case is filed, only one set of bankruptcy forms is needed and only one filing fee is charged.
When will the phone calls and creditor harassment end?
Immediately upon the filing of your case your creditors must stop calling you. They must also stop all garnishments, foreclosures, and attempts to repossess your property. The filing of a chapter 7 case by a person automatically suspends virtually all collection and other legal proceedings pending against that person. A few days after a chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the person. Criminal proceedings and actions to collect domestic support obligations from exempt property or property acquired by the person after the chapter 7 case was filed are not affected by the filing of a Chapter 7 case.
How does filing a chapter 7 bankruptcy case affect a person's credit rating?
In most cases, by the time a person is considering the filing of a Chapter 7 case, their credit is already in bad shape. Generally, they are already to the point that they have no available credit and lenders will not consider making them a loan. In this sense, the filing of a Chapter 7 case may actually help you to improve your credit. Some financial institutions openly solicit business from persons who have recently filed under chapter 7, apparently because it will be at least 8 years before they can file another chapter 7 case. If there are compelling reasons for filing a chapter 7 case that are not within the person's control (such as an illness or an injury), some credit rating agencies may take that into account in rating the person's credit after filing. A Chapter 7 filing can be reported on your credit report for up to 10 years.
Are employers notified of chapter 7 bankruptcy cases?
Employers are not usually notified when a chapter 7 case is filed.
May employers or governmental agencies discriminate against persons who file chapter 7 bankruptcy cases?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a chapter 7 case. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses (including a driver's license), permits, student loans, and similar grants because that person has filed a chapter 7 case.
Will I lose my house or car if I file a chapter 7 bankruptcy case?
NO! At Dionne & Dionne, we review your financial picture and advise you on whether the filing of a Chapter 7 case will put you at risk of losing any property. Generally speaking, if you have a home or car with a valid lien or mortgage, and the value of your property is close to the amount you owe, you at not at risk of losing any property. As mentioned above, very, very, few Chapter 7 cases involve the loss of property by a debtor. Most people are able to protect unencumbered property through the use of their exemptions. In Alabama, a person may claim $3,000 of personal property as exempt and $5,000 of equity in a homestead as exempt. There are other exemptions also available to Alabama debtors. At Dionne & Dionne we know how to help you protect your property through the use of allowable exemptions.
When do I have to appear in Bankruptcy Court and what should I expect to happen at that time?
The first court appearance is for a hearing called the "meeting of creditors," which is usually held about a month after the case is filed. The debtors must bring photo identification and their social security card. At this hearing the debtors are put under oath and questioned about their debts, assets, income and expenses by the Chapter 7 trustee. In most chapter 7 consumer cases no creditors appear in court; but any creditor that does appear is usually allowed to question the debtors. No creditor is allowed to harass or embarrass a debtor. For most debtors this will be the only court appearance.
What is a trustee in a chapter 7 bankruptcy case, and what does he or she do?
The trustee is a person appointed to examine the debtor, collect any nonexempt property, and pay the expenses of the estate and the claims of creditors. In addition, the trustee has certain administrative duties in a chapter 7 case and is responsible for seeing to it that the debtor performs the required duties in the case. A trustee is appointed in every case.
How are secured creditors dealt with in a chapter 7 bankruptcy case?
Secured creditors are creditors with valid mortgages or liens against property of the debtor. Property that is encumbered by a valid mortgage or lien is called secured property. If you wish to retain the collateral securing a debt, you may either reaffirm on the debt or propose to redeem the property for its current value. Liens survive bankruptcy unless they are avoided during the case.
What does it mean to reaffirm on a debt or to redeem property in bankruptcy?
To keep secured property, you must either reaffirm on the secured debt or redeem the property. Creditors decide whether they will agree to allow you to reaffirm a debt. You decide whether you will redeem property for a lump sum cash payment. If the debtor and the creditor cannot agree on a redemption price, the Court may decide the value of the property and the amount to be paid by the debtor. Most creditors will allow you to reaffirm if you are current on your loan with them and you have insurance covering the property securing the debt. To reaffirm a debt, you sign a written agreement setting out the terms of your repayment. The reaffirmation agreement advises you of your rights including the right to change your mind about reaffirming the debt during a 60 day period.
How are unsecured creditors dealt with in a chapter 7 bankruptcy case?
An unsecured creditor is a creditor without a valid lien or mortgage against property owned by the debtor. Since most chapter 7 cases do not involve the sale of assets by the trustee, most unsecured debt is simply discharged without being paid. In most cases, the filing of a chapter 7 case will allow you to wipe out all credit card debt, medical bills, personal loans, judgments, and some tax debt.
May a utility company refuse to provide service to a person if the company's utility bill is discharged under a chapter 7 bankruptcy?
If, within 20 days after a chapter 7 case is filed, the person filing furnishes a utility company with a deposit or other security to insure the payment of future utility services, it is illegal for a utility company to refuse to provide utility service to the person after the case is filed, or to otherwise discriminate against the person, if its bill for past utility services is discharged in the debtor's chapter 7 case.
Can I repay a debt that was discharged in bankruptcy and on which I did not reaffirm?
Yes. A debtor may repay as many dischargeable debts as desired after filing a chapter 7 case. By repaying one debt, a person does not become legally obligated to repay any other debts.
How does a chapter 7 bankruptcy discharge affect the liability of cosigners and other parties who may be liable to a creditor on a discharged debt?
A chapter 7 discharge releases only the person or persons who filed the chapter 7 case. The liability of any other party on a debt is not affected by a chapter 7 discharge.
If Chapter 7 bankruptcy sounds right for you, contact us today to make an appointment for a free consultation.
Dionne & Dionne
6726 Old Greensboro Road, Suite A
Tuscaloosa, AL 35405-5979
Phone: (205) 349-5911
Inside 205 Area Code Toll Free: 1-800-BANKRUPT (1-800-226-5787)
Nationwide Toll Free: 1-888-263-1525
Fax: (205) 409-0294