One of the basic Chapter 7 bankruptcy benefits is a federal court order. When you file Chapter 7, an “automatic stay” is put into place. This automatic stay then stops all collections attempts, lawsuits, wage garnishments, and any contact from creditors. It is so effective, I have people report they pick up phones to see if they still work. Even IRS garnishments, foreclosures, and student loan interceptions stop.
Chapter 7 Bankruptcy Benefits • Louisville Kentucky
If the debtor properly completes Chapter 7, he obtains the permanent “discharge” court order which permanently stops collections. Getting the Chapter 7 permanent order usually only requires that you complete the Debtor Education classes, turn over the documents, prepare the petition properly, and attend the 341 meetings.
Chapter 7 usually only takes 4-5 months to complete. But the discharge benefits are permanent. Nothing I can think of will gives you a proper budget you can afford more quickly, cheaply, or effectively. The beauty of it is, you discard the debts you can’t afford, and you keep the items you can afford.
Chapter 7 is much quicker and easier than filing Chapter 13 and has most of the benefits. The primary advantage it doesn’t have is that you cant strip a second mortgage in Chapter 7 at this time and it does not permanently stop a foreclosure.
Additionally, there is little or no difference in the effect on your credit or how complete the discharge is for Chapter 7 or Chapter 13.
Chapter 7 Disadvantages
Although attorney fees must be paid before filing a Chapter 7 (about $1,200 single and $1,400 joint), it is about one-third of the cost of Chapter 13 (standard no look fees are $3,500- $4,000.) Chapter 13 fees are paid overtime and taken from what you would have paid to the unsecured creditors. Chapter 13 can be filed immediately after Chapter 7. But, you must wait eight years between Chapter 7 discharges.
Some debts are non-dischargeable in Chapter 7. The majority of all credit cards, medical bills, and personal loans are dischargeable. This means companies that held these debts cannot legally ask you to pay these debts after the case discharges. Then, you have no legal responsibility to repay the debt.
However, if the company held a mortgage or car lien, the security interest they held might still be good. Some judicial liens or financed items can have security interests stripped away in Chapter 7.
Debts such as alimony, child support, income tax debts less than three years old, and some student loans are generally not dischargeable. So, it is important to know the exceptions. If you and your attorney plan the bankruptcy correctly, even income taxes or some rare types of student loans are dischargeable.
What is a Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, your property technically belongs to the trustee until after he abandons his interest in the property. The exemption laws allow you a considerable amount of property to start over. In Chapter 13, the property remains in possession of the debtor, and a Chapter 13 bankruptcy is voluntary which means you can dismiss the case if you wish.
If you file a Chapter 7, a dismissal of the bankruptcy must have approval from the court and the trustee who has all of the powers of a creditor with a judgment lien. Very few people ever lose anything they don’t wish to lose in a Chapter 7 bankruptcy. This is because of large exemptions if you have to keep the property and the ability you have to plan before you file.
We help our clients keep critical items like cars and homes. The problem is rarely losing the property. Instead, the problem is that you have to qualify for Chapter 7. This is where the means testing comes into play.
What About the Means Testing?
The means test looks at income, along with your reasonable and necessary expenses to determine whether you can repay debts in Chapter 13. If your income is below the average income for your size family, we presume you may file a Chapter 7.
Then, when your income is above the average income for your size family, we deduct for reasonable and necessary expenses. If there is no meaningful amount left over to make a Chapter 13 payment you will qualify for Chapter 7. The means test for Chapter 7, however, is very complicated.
The court looks for other financial information such as borrowing just before filing and paying money or transferring property. So, transfers to friends and family are scrutinized. Many questions are asked in the statement of financial affairs to discover these transfers. Moreover, they are easily discovered in the tax returns and the bank statements you have to turn over.
However, we help you qualify for the exemptions and look over these considerations while preparing the petition.
Attorneys with Experience Make Filing Easier, Effective, and Successful
Less than one percent of Americans file bankruptcy every year. But sooner or later most people find themselves in a position to file. In fact, many presidents have filed.
However, the process for attorneys to prepare the petition is not an easy task. The process of preparing a petition is so hard that after the law changed in 2005, about half of all bankruptcy attorneys quit filing cases.
But, never try to file by yourself. A study in California shows when people try to file Chapter 13 without an attorney that 99% of the cases are dismissed. Of the 1% that remains, very few are happy with the results. In our office, we work with our clients to make it a simple, yet successful process.
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If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.