When you file a Chapter 7, an “automatic stay” is put into place. This puts a stop to all collections attempts, lawsuits, wage garnishments, and other forms of contact from creditors. It is so effective I have had some people report they pick up their phone to see if the phone still worked. Even IRS garnishments, foreclosures, and student loan interceptions stop until the case is over or the creditor obtains “relief from the stay”. If the debtor properly completes the Chapter 7 he obtains the permanent “discharge” court order which permanently stops collections. Getting the Chapter 7 permanent order normally only requires that you complete the Debtor Education, turn over the documents, prepare the petition properly and attend the 341 meeting. The Chapter 7 normally only takes 4-5 months to complete but the discharge benefits last permanently and nothing I can think of will give you a proper budget you can afford more quickly, cheaply and effectively. You discard the debts you can’t afford and don’t need and you generally keep the items you can afford.
The Chapter 7 is quick, cheaper than filing a Chapter 13 and has almost all of the benefits. The major benefit it doesn’t have is that you cant strip a second mortgage in a Chapter 7 at this time and it does not permanently stop a foreclosure. There is little or no difference in the effect on your credit or how complete the Chapter 7 and Chapter 13 discharge is. Because you get the Chapter 7 finished in 4 months it is much quicker to repair your credit after the Chapter 7 than waiting 5 years. Although attorney fees must be paid prior to filing a Chapter 7 ( about $1200 singe $1400 joint) it is about one third of the cost of a Chapter 13 ( Standard no look fees are $3500- $4000). However Chapter 13 fees are paid over time and taken from what you would have paid to the unsecured creditors. A Chapter 13 can be filed immediately after a Chapter 7 but you must wait 8 years between Chapter 7 discharges.
Some debts are non-dischargeable in a Chapter 7 but the majority or all credit cards, medical bills, and personal loans are discharged. This means companies which held these debts cannot legally ask you to pay for these debts after the case is discharged. You have no legal responsibility to repay the debt. However if the company held a mortgage, or car lien the security interest they held may still be good. Some judicial liens or financed items can have liens and security interests stripped away in a Chapter 7. Debts such as alimony, child support, income tax debts less than 3 years old and some student loans are not normally discharged. If the bankruptcy is planned 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 huge amount of property to start over. In a Chapter 13 the property remains in the possession of the debtor and a Chapter 13 bankruptcy is normally voluntary meaning 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 generally 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 because of the large amount of exemptions you have to keep 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 property. Instead the problem is that you have to qualify for a Chapter 7.
The means test looks at income and your reasonable and necessary expenses to determine whether you are able to repay debts in a Chapter 13. If you income is below the average income for your size family we presume you may file a Chapter 7. If your income is above the average income for your size family we deduct for reasonable and necessary expenses and if there is no meaningful amount left over to make a Chapter 13 payment you still will qualify for a Chapter 7. The means test for a Chapter 7 however is very complicated.
The court also looks for other financial information such as borrowing just before filing and paying money or transferring property. Transfers to friends and family is especially closely looked at. Many questions are asked in the statement of financial affairs to discover these transfers and are easily discovered in the tax returns and bank statements you have to turn over. We help you qualify for the exemptions and look over these considerations in preparing the petition. Call me at (625-0905) for a free bankruptcy consultation or my paralegal at 0903 to schedule your appointment.
Less than 1 percent of the people in America file bankruptcy every year. But sooner or later the majority of the people file. Many of our presidents have filed. The process for attorneys to prepare the petition is complex and difficult. The process of preparing a petition is so hard that after the law changed in 2005, about half of the attorneys quit filing bankruptcy cases. A study in California shows when people try to file a Chapter 13 without an attorney 99% of the cases are dismissed. Of the 1% that remain very few are happy with the result. But we try to make it simple. Call me at (625-0905) for a free bankruptcy consultation or my paralegal at 0903 to schedule your appointment.