Chapter 7 Bankruptcy Overview
Chapter 7 is generally the ideal solution for individuals who have primarily unsecured debts such a credit cards, medical bills, or individuals who are being sued for collection by a creditor, or individuals who already have a money judgment entered against them by a creditor. Many call a Chapter 7 Bankruptcy a “Fresh Start”.
What Automatic Stay in Chapter 7 Bankruptcy Means?
Once an individual files a Chapter 7 Petition, the “Automatic Stay” order of the bankruptcy code will immediately take effect. Automatic Stay means that creditors are prohibited from making any attempts to collect the debt owed to them, and creditors, collection agencies, or attorneys may not take any steps to collect money allegedly owed to them, and any violation of the automatic stay order, can be grounds for claim for damages against creditor. The Automatic Stay also stays the enforcement of wage garnishments, home foreclosure, car repossession, or a civil lawsuit for damages against a debtor.
If a creditor wants to proceed with their collection efforts, such foreclosure of the home or repossession of a car, or pursuing a lawsuit to collect on a claim, the creditor will then need to request the Bankruptcy Court relief from the Automatic Stay, and if they have sufficient grounds for relief, and if the Court grants their request, only then a creditor may proceed with their collection efforts.
What Happens Next After Filing The Petition?
After an individual or a corporation files for a Chapter 7 petition, the court will then assign the case to a Trustee who will be in charge of administering the debtor’s bankruptcy case. The trustee will first review the bankruptcy documents filed, and ascertain whether or not the debtor has “non-exempt” assets that it can be liquidated, and if so, the trustee will take control of the non-exempt asset, liquidate the asset, and distribute the proceeds from liquidation to the creditors to whatever extent money has been collected from the sale of non-exempt asset.
However, in most instances, the debtor does not have non-exempt asset. Therefore, there are no assets for the Trustee to liquidate and distribute to creditors.
Secured creditors such as home mortgages, car loans or car leases, are entitled to either the monthly payments due under the contract, or the debtor can surrender the secured asset, and relive himself or herself from the obligations due under the contract. However, if the debtor fails to make the monthly payments due under the loan agreement, the creditor can request from the Bankruptcy Court relief from stay, and proceed with foreclosure, or repossession of the secured asset. However, if the debtor surrenders the secured property, the lender may not pursue the debtor to collect any deficiency the borrower may or may not owe the creditor.
What Property is Exempt?
Exemption rules are complex, and requires an analysis of the debtor’s assets. Exempt property in essence means that the creditor or a bankruptcy Trustee may not take control of, and liquidate. There are many categories of exemptions, and it depends on debtor’s specific assets, and financial condtion. Please call our office for an analysis of whether or not you have non-exempt assets.
Can I Discharge All Of My Obligations?
Certain debts are generally non-dischargeable. Some of the non-dischargeable debts include:
Most Tax Debt
Obligations you have for Domestic Support
Debts incurred from Student Loans
Retirement Plan Debt
Any Debt that you do not properly list
Unprotected Debts that you have elected surrender discharge protection due to a reaffirmation agreement
DUI-related Accident (Personal Injury) or Death Debts
Criminal Obligation Debt
Obligations or claims based on Fraud
Any and all Debt that the Bankruptcy Court has Ruled as Not Discharged in your Bankruptcy Case
How Long Does The Bankruptcy Stay On My Credit Report?
Generally, bankruptcy record stays in credit report for 10 years. However, it is not uncommon to rebuild your credit within 12 months from your discharge.
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