Chapter 7 Bankruptcy, or a "straight bankruptcy" is the legal tool used by individuals to eliminate debts that they cannot repay, or repay over a reasonable period of time. There are a number of requirements that individuals must meet to qualify for Chapter 7 bankruptcy relief. Additionally, businesses are treated differently than individuals in Chapter 7, but Chapter 7 can be an effective tool for a business to end it business operations in an organized manner.
Some common reasons that individuals file for Chapter 7 Bankruptcy Relief include:
- Credit Card Debt
- Medical Bills
- Collections
- Lawsuits and Judgments for Unpaid Debts
- Lawsuits For Which There Is No Valid Defense
- Deficiency Balances Following Foreclosures On Real Estate or Repossessions of Vehicles
- Unemployment and Underemployment
- Reduced Income
- Rental or Investment Property Without Rental Income or Tenants
- Inability to Sell Real Estate
- Separation or Divorce
When an individual or married couple cannot pay their ongoing monthly bills, Chapter 7 can be an effective way to address these issues. When your monthly income is less than your regular monthly expenses, bankruptcy relief should be considered.
To file for Chapter 7 Bankruptcy, you must complete a bankruptcy petition, bankruptcy schedules, and statement of financial affairs. You must completely and truthfully list all of your assets and all of your debts.
You are entitled to a number of exemptions under state law and federal law to protect some, most, or all of your property depending upon your situation. In Chapter 7, the primary job of the Trustee is to determine if you have any assets that can be sold for the benefit of your creditors. The Trustee cannot sell any assets that are protected by your exemptions. Most Chapter 7 cases are determined to be "no asset" cases, which means that you do not lose any property. However, it is very important to discuss your situation with an experienced bankruptcy attorney to determine if you may lose any property by filing for Chapter 7. In cases where an individual may lose property in Chapter 7, other options may include filing for Chapter 13 instead, or negotiating a "buyout" of the asset with the Chapter 7 Trustee.
All creditors must be listed on your bankruptcy schedules, notified of your bankruptcy filing, and have the opportunity to attend your Section 341 Meeting of Creditors. However, it is not common for creditors to appear at the § 341 Meeting, and most of the time, the only people that are present at the § 341 Meeting are the Debtor(s), the Trustee, and the bankruptcy attorney. Creditors are given an additional 60-day period following the § 341 Meeting to object to your discharge or file a complaint for an exception to your discharge. This is a mandatory statutory waiting period, and unless you have a debt that is nondischargeable (which is easily identified if you have disclosed everything to your bankruptcy attorney and the Bankruptcy Court), you will receive your bankruptcy discharge soon thereafter.
Most debts can be eliminated with a Chapter 7 Discharge. The Discharge is the Order issued by the Bankruptcy Court at the conclusion of a bankruptcy case which states that you are no longer legally responsible for your debts. However, some debts are not dischargeable and cannot be elminated in Chapter 7, including the following:
- Most Taxes
- Student Loans
- Child Support
- Alimony, Post-Separation Support, or Other Spousal Support
- Equitable Distribution or Property Settlements Relating to Divorce or Separation
- Debts Incurred by Fraud or Obtained As a Result of Fraud
- Debts Relating To Intentional Torts or Intentional Injuries
- Certain Recently Incurred Debts
- Debts That Have Been Reaffirmed Through a Reaffirmation Agreement
A Chapter 7 Bankruptcy can appear on your credit report for 10 years. In the short term, your individual credit score will probably be in the high 400s or low 500s. However, many of the credit effects of a Chapter 7 Bankruptcy filing will not remain for more than 2 to 3 years, as long as you do not incur debt that is beyond your ability to repay it. Additionally, if your credit score is already low due to issues with debt to income ratio, delinquent payments, and/or judgments, a Chapter 7 bankruptcy discharge will actually help to begin the credit repair process. Many individuals who have reliable income and do not incur substantial new debts following a Chapter 7 bankruptcy filing can obtain substantial increases in their credit scores within 12 to 18 months after receiving a Chapter 7 discharge.
To schedule an initial consultation, please call Levy Law Offices at (919) 846-0125, or complete the contact form on the right-hand column of the website. Levy Law Offices provides a free initial consultation in Chapter 7 and Chapter 13 bankruptcy cases for individuals. Levy Law Offices welcomes complex bankruptcy cases and emergency bankruptcy cases.