How does Chapter 7 bankruptcy help you get rid of debt?
So your creditors have been constantly harassing you to pay your debts. You tried to enroll in a
debt settlement program but you still can’t pay off your debt
and bankruptcy is the only option left. But filing for bankruptcy is a very serious decision and it’s something that you should carefully consider since it will
affect your credit score. But before you call a lawyer and file for bankruptcy, read on for more information and tips about filing for a Chapter 7 bankruptcy.
What is Chapter 7 bankruptcy?
It is the legal process where all your non-exempt assets are sold by the US trustee to pay back your creditors. Then, the sale proceeds are distributed amongst the
creditors as per their individual share. Within three to four months of filing the bankruptcy, debtors can be freed from their debts.
Who can file a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy can only be availed of by a resident of the US and he/she must be a debtor who makes less than the average income for their state.
Who is not qualified for Chapter 7?
1. Those who have been granted discharge by Chapter 7 within the last six years.
2. Those who have completed a repayment plan under Chapter 13.
3. Those who have had their bankruptcy filings dismissed for cause (i.e. defects in the bankruptcy case such as improper prosecution, fraud, etc.) within the
last 180 days.
4. Debtors who try to hide, transfer or destroy their properties in order to defraud their creditors or the court trustee appointed for the Chapter 7 case.
What are exempt and non-exempt assets in Chapter 7?
Filing for bankruptcy doesn’t mean that you will be granted a “fresh start” for the price of absolutely nothing. You have to hand over certain properties/assets
to the court appointed trustee. The trustee will then sell the assets to repay your debts. However, not all of your properties will be sold. You can keep certain
assets that are absolutely necessary for you to live a descent life and start over again (exempt property) while other assets that are deemed as non-exempt property
will be taken away.
Non-exempt property includes:
1. Pricey musical instruments provided the debtor is not a professional musician.
2. Family heirlooms.
3. Collections of valuable items like stamps and coins.
4. Bank accounts, bonds, cash and other investments.
5. A second or vacation home.
6. A second car or truck.
Exempt property includes:
1. Household appliances.
2. Vehicles, up to a certain value.
3. Reasonably priced requisite clothing.
4. Reasonably priced requisite household goods and furnishings.
5. Jewelry, up to a certain value.
6. Pensions.
7. A part of unpaid but earned wages.
8. Equipments (up to a certain value) that are needed in the debtor's profession.
9. Damages awarded for personal injury.
10. A part of equity in the debtor's home.
11. Public benefits, including social security, and unemployment compensation, public assistance (welfare) that is accumulated in a bank account.
What kinds of debts are discharged in Chapter 7?
• Personal loans
• Repossession deficiencies
• Credit Cards
• Judgments
• Auto accident claims
• Business debts
• Guaranties
• Leases
• Negligence claims
So how does Chapter 7 bankruptcy help debtors?
1. Stops collector harassment. Once the Chapter 7 bankruptcy has been filed, the court notifies your creditors and collection agencies about it. The creditors or
collector should no longer contact you. But if they continue with harassing calls, the creditor may be sanctioned by the court and have to pay your attorney fees.
2. Stops foreclosure. The filing of Chapter 7 will put an automatic stay from mortgage foreclosures until one gets a discharge under this Chapter. However, the
mortgage lender can apply to the court and request for relief from automatic stay. Working out a suitable repayment plan with the lender can help you avoid losing
your assets.
3. Removes lien. Certain liens can be removed under Chapter 7 bankruptcy if you can secure a court order. And under chapter 7, you can get rid of federal income
tax debts only if the following conditions are met:
- No tax lien is recorded against your property by the IRS.
- The tax return must be due for at least three years.
- The tax should return should have been filed at least two years prior to bankruptcy filing.
- There should not be any record of fraudulent activities on your part.
- You should not have record of skipping tax payments.
- You should have received a copy of your tax assessment at least 240 days before filing bankruptcy.
4. Removes community debts. If you are a divorcee, the court will discharge you from all dischargeable community debts. But once this has been done, your ex-spouse
becomes responsible for the entire balance owed on the account. Simply put, the debt is transferrable from you to your spouse.
What restrictions does Chapter 7 impose on employers and creditors?
1. Under 11 U.S.C. 525, an employer cannot fire a debtor who has filed a bankruptcy, unless the employer is the creditor.
2. Debtors can no longer be arrested since it has been made illegal is the US since the 1830s.
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