Once you file for Chapter-7 successfully, there are things you can’t do. Chapter 7 can give you some much-needed relief from certain debt. However, there are do’s and don’ts! Generally, you can’t do the following after filing;
You Can’t Spend Outside Your Income Levels
People file for bankruptcy because they don’t have income levels that allow them to meet their debt obligations successfully. So, it’s understandable to have requirements that state that a person’s spending reflects what they stated in their schedules. Unless you lied about your income, which is an offense, it doesn’t make sense to go on a spending spree.
However, if your expenses have been reduced considerably, that can be an explanation for increased disposable income. Nevertheless, you need to consult a bankruptcy attorney for sound advice on what you should do if you suddenly have more income.
You Can’t Keep Collateral
If you miss payments on debt secured using collateral i.e., a car loan, mortgage, etc., your debt can be erased in Chapter-7 bankruptcy. However, you will lose the collateral. Collateral on all secured debt can’t be kept. In fact, you are expected to surrender collateral or pay the equivalent to the lender.
You Can’t Stop Creditors From Repossessing Or Foreclosing Property
Secured property creditors can foreclose or repossess the property. Bankruptcy is meant to discharge the debt. However, liens aren’t eliminated. Liens allow lenders to repossess the property and auction it or do whatever they wish. However, the monies recovered should be applied as proceeds to loan balances.
Liens remain until the entire debt is settled. While chapter 7 eliminates the obligation to pay the debt, creditors have some protection. This is regardless of a debtor’s wishes. If a mortgage is unpaid, a lender can pursue their lien rights which include the right to foreclose. However, if there is an automatic stay order, creditors may be temporarily stopped.
The importance of seeking legal help after filing for Chapter 7 can’t, therefore, be overlooked.
You Can’t Neglect Your Alimony & Child Support Obligations After Chapter 7
Chapter 7 bankruptcy doesn’t remove alimony and child support obligations. If you have accumulated such debts, they remain in full even after successfully filing for Chapter 7. The same applies to Chapter-13. Alimony and child support debts must be paid in full.
To avoid being stuck with huge debt in case of bankruptcy and divorce, you need to involve attorneys when negotiating alimony and child support.
You Can’t Ignore Student Loans
Chapter 7 doesn’t expunge student debt. However, there may be limited circumstances that you can explore with assistance from a seasoned bankruptcy attorney. A student loan can be eliminated only if you show that repaying the student loan will result in “undue hardship” – serious financial constraints that are almost impossible to meet. For instance, you won’t afford rent if you pay.
Unless you have an experienced bankruptcy attorney on your side, proofing undue hardship beyond a reasonable doubt will be a daunting task. Bankruptcy courts look for detailed submissions of how you can’t pay your student loan now and in the future.
Undue hardship standards can be met based on poverty, persistence, and good faith. In regards to poverty, your current income vs. expenses should show a minimal possibility of being able to meet the current minimal living standards for you and your dependents should you be forced to pay back your student loan.
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Your current financial standing should also be seen to be persistent in that your income and expense levels aren’t likely to change in the near term. Lastly, there must be an element of good faith for student loans to be expunged in bankruptcy i.e., you must show that you have tried repaying the loan.
Some bankruptcy courts follow other criteria when deciding if student loans must be repaid in Chapter-7 bankruptcy. For instance, overall circumstances can be assessed. This involves assessing every relevant fact in a case to establish undue hardship.
In general, you can’t eliminate student loans with chapter 7 unless you have a seasoned bankruptcy attorney who knows how to prove undue hardship.
You Can’t Eliminate Most Tax Debt
Whether you reside in Austin TX, or any other place or state in the US, you are bound to face challenges trying to get rid of tax debt through Chapter 7 bankruptcy. There are strict conditions for eliminating tax debt i.e. time requirements. For instance, tax debt shouldn’t be new (less than 3 years old).
The IRS also has a special rule (240-day rule). What’s more, the tax in question matters. Fraud penalties and payroll taxes are extremely difficult to eliminate via bankruptcy. Most importantly, you must prove you didn’t commit willful tax evasion or fraud. You can’t possibly meet these conditions without proper legal assistance from a bankruptcy attorney who has helped many expunge tax debt through bankruptcy.
You Can’t Eliminate Non-dischargeable Debts
You can’t get rid of debts for death or PI (personal injury) caused by drunk driving, debts resulting from traffic-related penalties, and debt from criminal restitution. Also, debts that aren’t listed in bankruptcy papers aren’t discharged unless a creditor is aware of your Chapter 7 case.
You Can’t Eliminate Debt Linked To Fraud
Lastly, fraud-related debt can’t be eliminated when there is a lawsuit known as adversary proceedings and a judge rules that such debt should remain. If you lie in a credit application and get a loan, you must repay such loans.
The above information summarizes what you can’t or shouldn’t do after filing for Chapter-7. Generally, if debt isn’t eliminated, you must continue servicing it and spend as per your filings. Otherwise, you risk arousing suspicion that you are hiding income. It’s also illegal to hold on to collateral.
Since there are many other don’ts after filing Chapter 7 successfully, you should keep in touch with your bankruptcy attorney consulting every time you aren’t sure about something. For instance, contact your lawyer if your income levels increase. A bankruptcy lawyer will also be handy when you wish to eliminate debt non-dischargeable debt.
Rules Of Chapter 7