Chapter 7 Bankruptcy
A Fresh Start Through Chapter 7 Bankruptcy
Chapter 7 bankruptcy can be used to give you a fresh start. It will typically discharge, settle, and release you from all your debts. There are some exceptions for certain types of debts, however, including taxes, student loans, and domestic support obligations.
In order to qualify for Chapter 7, you must pass a bankruptcy means test. It is important to have an experienced bankruptcy attorney to help you through the process. At the Steadman Law Firm, P.A., we have helped many clients find the debt relief they need and get a fresh start through Chapter 7 bankruptcy.
When Is Chapter 7 a Good Option?
If you have large amounts of credit card debt, huge medical bills, or other types of unsecured debt and you can’t afford the payments, Chapter 7 bankruptcy may be a good option for you. Remember that liens often survive bankruptcy, though, so you need legal expertise as well.
One of the biggest myths about filing for Chapter 7 bankruptcy is that you lose everything you own. While some of your property could be sold to repay your debts, the law allows you to “exempt” or keep a specified equity value in certain critical assets:
- Your home
- Your car
- Tools or equipment required to perform your job
- Specific household goods
If you do not have any property that can be sold, yours may be declared a “no-asset” case and you won’t lose anything. Most Chapter 7 cases are “no asset”.
Who Can File for Chapter 7 Bankruptcy?
In order to qualify for Chapter 7 bankruptcy, you must either be able to prove that your income is lower than the state median or pass a means test. According to the 2016 census, the median household income in North Carolina was $49.501. If you’re under that, that’s it. You passed.
If not, then you will have to take a means test. The means test is designed to determine whether or not you have enough disposable income to pay off your debts. The first thing that the court will do is determine which expenses are absolutely necessary. This can include car payments, mortgage payments, rent, utilities, child support, and those sorts of things. It will then subtract those from your monthly paycheck.
The higher this number is, the less likely you will qualify for Chapter 7 bankruptcy.
Chapter 7 also has restrictions on what kind of debt can be discharged through the process. Unlike Chapter 13, however, there is no limit to the amount of debt that can be discharged.
Understanding the Limitations of the Means Test
The means test only provides the court with a reason to disqualify a candidate for Chapter 7 bankruptcy. There are some instances where even those who ostensibly passed the means test are forced to file for Chapter 13.
Ultimately, the judge in your bankruptcy case has the final say over whether or not you qualify for Chapter 7. If they determine any viable way that you can pay off your debts while still having enough income left over to support yourself, then your case will be converted to Chapter 13.
The court and the bankruptcy trustee may look for different ways to reduce your monthly expenses by selling off your property. If the court finds a reasonable way to reduce your monthly expenses it may toss the means test and convert the Chapter 7 bankruptcy into a Chapter 13.
They can only do this, however, if your income is above the state’s median income.
How to File for Chapter 7 Bankruptcy
The first step to filing for Chapter 7 bankruptcy is to file a petition with the court. These forms will ask you to disclose:
- Any and all property you own
- Your current income and monthly expenses
- Any debts you hope to see discharged
- Property you:
- claim is exempt from liquidation
- purchased and money you spent in the last year
- sold in the past two years
What Happens Once You File for Chapter 7 Bankruptcy?
As soon as you file for bankruptcy, you get an automatic stay from your creditors. That means that they are no longer legally allowed to contact you. They can no longer garnish your wages. They can no longer empty your bank account. In addition, they can no longer go after your car or your home or any other property that you might own. If they do contact you, simply tell them you have filed for bankruptcy and give them your case number.
Once you file, however, the bankruptcy court will have agency over your financial affairs. Both your property and debts will be managed by the courts. Any property that was claimed on your bankruptcy forms cannot be sold or given away.
The Bankruptcy Trustee
The court then assigns a bankruptcy trustee to manage your debts. The trustee’s job is to ensure that your creditors get paid as much as possible. They will find any assets that they can legally liquidate. In most cases, however, they find very little or no property to liquidate. The trustee, on the other hand, is paid in terms of how much money the creditors recover from the process of liquidation.
In other words, the trustee is looking for non-exempt property to sell off or transactions that they can reverse in order to allow your creditors to collect some of the money that they are owed.
The Meeting of Creditors
Afterward, you will be asked to meet with your creditors and the bankruptcy trustee. You will be sworn in and asked to confirm information you filed in relation to your bankruptcy. The meeting does not take long and in the majority of bankruptcies, is the only time you will be asked to go to court.
Discharge of Debt
Chapter 7 takes about four to six months to complete. Generally, this occurs within 60 days of the Creditors Meeting.
Afterward, you are no longer liable for the debts discharged in the process. However, loans that have been secured by collateral will not be discharged. A valid lien on an item may still proceed.
For instance, if you want to wipe out your car loan, you can do that, but you won’t have the car any longer.
What Kinds of Debts Are Discharged by Chapter 7?
Chapter 7 can wipe out most kinds of debt that you incurred prior to the date of filing. The following debts are either completely dischargeable or dischargeable when the court finds cause. Those are:
- Credit card charges (including late fees)
- Personal loans from family, friends, or employers
- Medical bills
- Collection agency accounts
- Outstanding balances on utility bills
- Dishonored checks (unless fraudulent)
- Business debts
- Past due rent
- Civil judgments
- Tax penalties and unpaid taxes for a set amount of years
- Social security overpayments
- Auto accident claims (unless drunk driving was involved)
- Sometimes student loans when hardship can be proved
Is Chapter 7 Bankruptcy Right for Me?
There are a number of reasons why filing for Chapter 7 may not be in your best interests. Firstly, unlike Chapter 13, the trustee will go after any and all valuable assets that are not protected by exemption. Secondly, there are certain kinds of debts that Chapter 7 cannot wipe out.
If your debt is composed of a kind of debt that is protected from Chapter 7 bankruptcy, then it makes little sense for you to file Chapter 7.
On the other hand, Chapter 13 protects your assets and sets up a repayment plan that allows you to pay off at least a portion of your debt over a 5 year time period.
Charleston Chapter 7 Bankruptcy Lawyer
Our founding attorney, Richard A. Steadman Jr., has more than 30 years of experience in the practice of law. He will represent you at all meetings and hearings involved with your case. He personally handles every aspect of your legal matter, from the filing of the petition to the conclusion of your case. Between Mr. Steadman and his team of paralegals and support staff, you will always have access to someone who can answer your questions and fulfill your needs.