Chapter 7

Chapter 7 bankruptcy is often referred to as straight bankruptcy or liquidation. For those who qualify, it allows individuals to wipe the slate clean of unsecured debts. Unsecured debts typically include credit cards, medical bills, and signature loans, as well as unpaid rent or utility bills. Congress enacted this law to offer a fresh start to individuals, married couples or businesses facing financial difficulty.

 
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Filing for Chapter 7 relief instantly protects you from all collection efforts by your creditors. In the vast majority of cases, a Chapter 7 allows you to keep all of your assets and make a fresh start—unburdened by crushing debt. Chapter 7 does not typically discharge student loans, certain IRS debts, family support obligations, or criminal fines or fees. Our team works closely with you to determine the best course of action. 

If you decide to file Chapter 7 you will meet with an attorney and work directly with him to create documents, called schedules, which list your creditors, as well as your assets, income and expenses. These schedules are signed by you and filed with the United States Bankruptcy Court. Once these documents are filed the “Automatic Stay” – a mandatory suspension under the Federal Bankruptcy Code of all collection efforts – immediately takes effect. Your creditors will be quickly notified of your filing and the harassing phone calls, lawsuits, garnishments, repossessions or foreclosure is halted.

It generally takes about six months before the judge assigned to your case signs the discharge order and you are relieved of all dischargeable debt. There are certain “exceptions” to discharge — debts which may not be discharged by the court, which include:

  • Recent large purchases such as appliances, jewelry, furniture

  • Cash advances made in the months prior to filing for bankruptcy relief

  • Student loans

  • Some types of tax debts

  • Alimony, child support and other debts related to family support

  • Debts due to fraudulent acts and/or intentional torts or wrongs.

If any of the above might apply to your situation, you owe it to yourself to consult with an experienced bankruptcy attorney. Even a small mistake by someone who doesn’t make bankruptcy law a full-time endeavor may be very costly to you!

In a Chapter 7 you are allowed to keep your house and vehicles if you are able to continue making your normal monthly payments to the mortgage or finance company, and if you don’t have an excessive amount of equity in your property. Again, what is considered “excessive” may not be as simple a calculation as you think. Don’t lose your home due to an inexperienced lawyer.

Briefly, when a creditor has a lien on any of your property you can choose to surrender the property to the creditor in satisfaction of the debt. If you want to keep the property these secured debts, such as homes, vehicles, or certain installment loans, may need to be “reaffirmed.” Reaffirmation means you keep the property by signing and filing a formal written agreement in a timely manner to maintain the existing payment plan with that creditor. For a debt to be reaffirmed, most creditors expect payments on the secured account to be current at the time of filing. You also must show sufficient excess monthly income to afford the future payments.

The benefit to you is you get to keep property that is the subject of the debt —as with a vehicle loan, for example. The possible downside to this is that you will not be protected from creditor action after the bankruptcy case is discharged if for some reason you are unable to pay the debt after all. You may rescind a reaffirmation agreement at any time within 60 days of execution, or up until discharge, whichever occurs later, providing you act to do so in a timely manner.

Chapter 7 Q&A

“Mr. Martin and his whole staff were exceptional ... They were very knowledgeable , very understanding and they ... made the whole process very easy for me. Thank you all very much!”

 

How do I know if I will qualify for a Chapter 7?

If you did your own research you may have think your eligibility is based entirely on the so-called “means test", and that because your income is below the means test guidelines you can file Chapter 7. The means test is only part of the story, however. I see many clients who —while they may“pass” the means test — cannot or should not file Chapter 7 for other reasons.

Can I keep my property if I file under Chapter 7?

Chapter 7 debtors are permitted to exempt or protect a certain amount of their personal property. Theoretically, property that is above the exemption amount — or non-exempt — may be sold to pay all or some of the debts owed to creditors. Exemptions vary from state to state. In Georgia, for example, the following amounts apply for individuals and may be doubled for joint (husband and wife) filings.

  • $21,500 equity in your residence (the “homestead exemption”);

  • $5,000 in household goods and furnishings;

  • $3,500 interest in a motor vehicle;

  • $500 in jewelry;

  • $1,500 in tools of the trade (those needed for your job); and

  • If you don’t need to use all of your homestead exemption on your home, you may apply up to $5,600 ($11,200 for a married couple) to any other property (the “wildcard exemption”).

In addition, funds kept in qualified retirement accounts such as an IRA, a 401(k) or 403(b), benefits from disability, Social Security or the VA, and payments of alimony or child support are exempt.

This is not an exhaustive list. There are other exemptions which may apply. If you have a questions about the property you own, contact us for more information

 

What if I have a joint savings account with my child?

If you opened a bank account with your child’s birthday or gift money, it is important to make sure you set it up correctly. If you established this account under the Uniform Transfers to Minors Act (UTMA) — formerly the Uniform Gifts to Minors Act (UGMA) — you should be able to protect your child’s assets in such an account.

 

Is a Section 529 Education IRA for my child protected?

Under the Bankruptcy Code, only funds placed into a Section 529 account more than 365 days before filing are protected. If the money was deposited between 365 and 720 days before filing, the amount protected is limited to $5,000.

 

Can I continue to use my credit cards until I file Chapter 7?

You should discontinue credit card use as soon as you contemplate filing. Debts incurred in the 90-day period prior to filing Chapter 7 are automatically non-dischargeable if exceeding $500 and incurred for “luxury goods or services.” You should strictly avoid cash advances as these are also automatically non-dischargeable if more than $750 and taken within 70 days prior to filing.

 

Can I keep a credit card if I file Chapter 7?

The law requires all “debts” to be included and listed on your schedules. A credit card with a zero balance is not technically a debt and thus may not need to be listed. Bear in mind you are signing these schedules under penalty of perjury, however, so be sure you do not have a balance at the time of filing.

Consider, too, that the credit card company may discover you have filed Chapter 7 and close the account anyway. All major regional and national creditors have automated computer systems that constantly scan (at least four times a month) credit reports through the three major Credit Reporting Agencies — Equifax, Experian, and TransUnion — for customers’ credit activity. They do this to determine if other accounts are in default and use this information to raise your interest rate, reducing your credit limit, or close your account. They also have a system for identifying bankruptcy filings. As a result, you may not be able to retain a credit card even if no balance is owed.

 

What about debts I incur after I file Chapter 7?

Chapter 7 discharges only dischargable debts incurred prior to filing. Debts incurred after filing, which are called post-petition debts, are not dischargeable.