Define Chapter 7 Bankruptcy
Chapter 7 bankruptcy can be defined as bankruptcy that focuses on liquidation of non-exempt assets. After proceeds from liquidated non-exempt assets are exhausted, remaining non-exempt debt is discharged. A debtor must be eligible to file for Chapter 7.
Among the eligibility requirements is a special rule that reserves Chapter 7 for individuals who haven't filed for bankruptcy recently (in the past eight years). Applicants also need to pass a special test known as means test that assesses income and expenses against family size to establish a person's capability to repay debt.
How Do You File Chapter-7 Bankruptcy?
It's advisable to file with the help of a bankruptcy attorney. While it is possible to file on your own, your chances of succeeding without problems are higher if you have legal help. The eligibility requirements may be challenging to meet. Applications are also rejected on technicalities. An attorney makes everything easy and less stressful. Since creditors should know you are filing, they can be directed to your attorney's office. Typically, filing is a 9-step process;
Step 1: The first step involves filling forms on assets, income, liabilities, expenses, existing contracts, leases, etc.
Step 2: Debtors must attend mandatory credit counseling to get help on avoiding bankruptcy in the future.
Step 3: Forms filled in step 1 will are used to file a Chapter 7 petition at a local bankruptcy court. This should be done after bankruptcy is proven to be the best option.
Step 4: Debtors pay for filing fees at this stage and meet any other applicable fees i.e., court fees. You need a bankruptcy attorney to inform you of the applicable fees in your state.
Step 5: After filing, bankruptcy court appoints a trustee to oversee the process. He/she assesses filed paperwork for accuracy and performs other duties.
Step 6: Creditors and the trustee meet at this stage alongside the debtor for a question/answer session. Trustees have a month to object debtor's wishes to retain certain property, while creditors have three months to stop their debt from being discharged through bankruptcy.
Step 7: Debtors are supposed to keep the promises they make (about property, repayment, etc.) at this stage.
Step 8: Before the process is complete, debtors must go for another counseling session.
Step 9: If everything goes well, bankruptcy court judges will discharge qualified debt. In typical circumstances, the entire process takes four to six months. After debt is discharged, creditors lose the right to pursue restitution.
Consequences Of Chapter 7 Bankruptcy
It may be relieving to have debt discharged. However, Chapter-7 bankruptcy has both pros and cons. In fact, the negative consequences are dire that individuals are advised to consult bankruptcy attorneys before filing.
A notable consequence is a bad credit history and score. Chapter-7 bankruptcy is recorded in a person's credit history for a decade. What's more, a credit score can drop by 100-150 points. A bad credit score results in many negative consequences like limited accessibility to cheap credit.
While it's possible to get loans, you'll have to pay high-interest fees. Bankruptcy can also make renting an apartment harder. You can also miss some employment opportunities i.e., those that consider an applicant's credit history.
What's more, some creditors still have a right to pursue their loans if there is a lien on property used as collateral. Also, Chapter-7 isn't a "blanket solution" to debt problems. Some types of debt can't be discharged.
What Debt Can/Can't Be Discharged Via Chapter-7 Bankruptcy?
In bankruptcy, there are dischargeable and non-dischargeable debt. Chapter 7 dischargeable debt (debt that can be "canceled") includes; credit card debt, personal loans, medical bills, income tax debt, mortgage loans, student loans, and other forms of unsecured debt.
Non-dischargeable debts (those that can't be "canceled") include tax liens, alimony, child support, personal injury debts, and court fees/penalties.
It's worth noting that some non-dischargeable debts can be discharged if you have a seasoned bankruptcy lawyer arguing your case. If you can show that servicing a non-dischargeable debt is impossible i.e., will make you homeless or incapable of meeting basic living needs, you can get such debt discharged.
What Scenarios Warrant You To File Chapter-7 Bankruptcy?
Generally, you should consider filing if your debts exceed 50% of your yearly income. This should be coupled with little or no disposable income at the end of the month and unmatched stress from debts that affects important aspects of your life like relationships and sleep. Most importantly, if your income is below Austin TX's state mean, and you are bound to spend over five years repaying debt even when you take extreme measures, you should really consider filing.
All-in-all, the decision should be aided by a seasoned bankruptcy attorney.
I Don't Qualify for Chapter 7. What Are My Alternatives?
If you don't succeed with Chapter 7, you can automatically qualify for Chapter-11 Bankruptcy. Instead of discharging debt, Chapter 11 is about re-organizing debt. Debtors are able to get better repayment terms (more time with lower payments), among other things that can ease the debt burden and still get creditors paid.
Will I lose My Home If I File Chapter-7?
Bankruptcy courts appoint trustees who decide what a debtor gets to keep. Different states have different protections. Most states protect property such as vehicles, clothing, home furnishings, pensions, home appliances, etc., up to a specific value. Anything you need to live and work may be protected.
However, given the jurisdictional differences, you should consult a seasoned bankruptcy attorney to know what you can/can't keep based on your specific case. Attorneys can exploit state legislation, exemptions, and unique scenarios to ensure you have a home to live in, transportation, and other necessities.
Chapter-7 isn't an "easy way out" when you don't want to pay creditors. There is debt that can/can't be discharged using Chapter 7. What's more, you must meet many requirements. You must also think hard about the consequences. To make an informed decision, you need legal advice from the best bankruptcy attorney in Austin TX.