Chapter 7 advantages
A major advantage to a Chapter 7 bankruptcy is that it is a very quick and inexpensive process that is over in about 4 months. The collection calls stop immediately and within 7 – 10 days after filing you and the creditors receive a notice of the place and time of the hearing that is about 4 – 6 weeks after filing. Normally a Chapter 7 is for persons that have very little equity in their home or cars assets, average or below average income and a majority of unsecured debt. Kentucky residents could consult us as to whether filing for Chapter 7 is the best solution to their financial difficulties.
Consumer debtors have to qualify for a chapter 7 under the means test and must have little or no disposable income for a Chapter 13 payment after the deduction of reasonable and necessary expenses. But a debtor can also qualify for a chapter 7 if over 50% of his debt is from a business or if he owes over $1,010,650 in secured debt, or $336,900 in unsecured debt. If you cannot afford a partial repayment, after reasonable and necessary expenses are deducted, and all of your property is exempt, filing a Chapter 7 bankruptcy may be a better option than filing a Chapter 13 bankruptcy. Most Chapter 7 bankruptcy cases repay nothing to the lenders and in over 90% of the cases people lose nothing by filing a Chapter 7.
The Chapter 7 bankruptcy in Louisville is a much cheaper option where the debtor pays an upfront but much smaller attorney fee. In the Louisville area the average Chapter 7 normally costs about $1,000 for a single person and $1,200 for a couple in attorney fees. There is a 306 filing fee and a short class that must be taken before and after the case is filed. Always remember to take the second class if you fail to take the second class the case will close without a discharge and creditors will be able to start collections all over again. You can reopen the case and file the certificate from the Debtor Education course after the case closes but you would have to pay a second filing fee and about 300 in additional attorney fees for the additional work to reopen the case.
Chapter 7 restrictions
The major restriction to a Chapter 7 is that it can only be filed once every 8 years to obtain a discharge and it only temporarily stalls a foreclosure. Often just waiting a short time will allow you to discharge income taxes if the Chapter 7 is planned properly. If you have filed a Bankruptcy previously please refer to the Chapter 7 and Chapter 13 time chart for re-filing and tell your attorney if you have filed in the last 8 years. Chapter 7 has a very high success ratio while Chapter 13 cases often have to be converted to a Chapter 7 later if the debtor losses income due to death, disability or divorce. A Chapter 7 will only temporarily delay a foreclosure about 6 months but a Chapter 13 can permanently stop the foreclosure.
You normally will continue to repay for a home or a car that you wish to keep after filing a Chapter 7. But occasionally the cost or interest rate of the home or auto loan is too high. A Chapter 7 may allow you to strip any judicial lien that was placed on your home by a judgment or recover property that was taken. But a Chapter 7 does not allow you the ability to lower your interest rate for a car or eliminate a second mortgage that has not equity like a Chapter 13 does. In a Chapter 7 you may want to negotiate a better term with a creditor to keep the property in a Reaffirmation agreement or motion to redeem a car.
As soon as the case is filed a temporary federal court order called a stay is issued to stop any collection activity. If the item is secured, your overdue payments will continue to add up while you don’t pay on the item. However, the creditor can’t take the collateral until the stay is terminated.
Keeping your property in chapter 7
In order to keep from losing your property to the trustee there must be less equity in the property than what the exemptions are. In Kentucky the exemptions for a home, car, and other property are large. Kentucky uses the Federal exemptions and a lot of property can be kept. Property is rarely lost to the Court and Trustee when you file bankruptcy. Other states such as Indiana have smaller exemptions than Kentucky and some states like Florida and Texas have much larger exemptions.
To keep a car you may have to either reaffirm or redeem the auto. A Reaffirmation is an agreement to continue paying a secured loan. Signing a reaffirmation will make you responsible for the loan if it is foreclosed or repossessed later. The lender may agree to lower the interest rate, amount owed or payments in the reaffirmation. A Redemption is a lump sum purchase of the collateral. If no reaffirmation or motion to redeem is filed within 45 days after the bankruptcy is filed, the stay automatically terminates and the bank can take the car. The creditor may also file a motion to terminate the stay after the bankruptcy is filed. Bankruptcy stops your obligation to pay, but the creditor still has a lien and rights in the property. A Chapter 7 can strip a judgment lien and affect the liens of some Creditors.