Chapter 7 Bankruptcy
Chapter 7 bankruptcy is referred to as liquidation bankruptcy. It is the most popular and commonly filed bankruptcy case by a very large margin. The most important aspect of Chapter 7 bankruptcy is that it creates a bankruptcy estate around all your property, assets, claims and anything else of value that you may possess. If you have any property that does not have a bankruptcy exemption to protect it, you may lose that property to the Chapter 7 Bankruptcy Trustee who will “liquidate” it for the benefit of your creditors. Although the vast majority of Chapter 7 filers do not lose any property, it is vital that everyone who is contemplating filing for Chapter 7 bankruptcy consult with an experienced bankruptcy lawyer. A bankruptcy lawyer should be able to quickly inform you if any of your property is in danger of being liquidated.
There are usually no payments required in a Chapter 7 bankruptcy. If none of your property is non-exempt under the bankruptcy code, you will not lose anything and your creditors will not receive any payment. You will receive a discharge with no additional payments required to your creditors.
If you have not filed for a Chapter 7 bankruptcy in the last 8 years you may be eligible to file a Chapter 7 bankruptcy. It is important to understand that not everyone is eligible to file for Chapter 7 bankruptcy. In order to qualify, one must pass the “Means Test”. The “Means Test” takes your current income for the past 6 months and compares it against the median income established by the federal government (based on household size). The “Means Test” is one of the most difficult aspects of preparing a bankruptcy petition. If your gross income is below your applicable median income figure, then you automatically qualify for Chapter 7 bankruptcy. If your income is above your applicable median income figure, then certain deductions and expenses are taken into account. Some expenses will be based on an average (set by the government) and others will be based on your actual expenses. If the resulting net income is low enough, you will qualify for Chapter 7 bankruptcy. If the resulting net income is too high, you will not qualify for Chapter 7 bankruptcy and will have to consider Chapter 13 bankruptcy.
Chapter 7 bankruptcy, requires that all filers attend a Meeting of Creditors (also known as Section 341(a) Meeting). The Meeting of Creditors happens approximately 1 month after your case is filed. Your meeting time and date is automatically set by the Court when your case is filed. The location of your Meeting of Creditors is based upon your Zip Code and is automatically assigned. The Meeting of Creditors is a hearing, but instead of a Judge there is a Chapter 7 Trustee. Although your creditors have the right to show up, it is very rare for them to do so. In fact, they show up in less than 1% of the cases filed. The Chapter 7 Trustee checks ID (must be government issued) and social security number (physical social security card is required) and then usually asks approximately 10 YES or NO questions. The entire process takes about 5 to 10 minutes once you are called by the Trustee.
A typical Chapter 7 case will take approximately 4 months to complete from filing to discharge. However, the overall time it takes from the moment a client retains our firm to represent them to the end of their case can vary from case to case.
704 exemption commonly referred to as homestead exemption is triggered when you have more than $30,000 of equity in your home:
- You can exempt the equity of your primary real property up to $75,000 if you are single and not disabled either physically or mentally; $100,000 if at least one other family member has an interest in the real property; $175,000 if you are 65 and older or if you are mentally or physically disabled; $175,000 if the creditors are forcing the sale of your primary home and either if you are at least 55 years old, single and earn no more than $25,000 per year, or if you are at least 55 years old married and earn no more than $35,000 per year.
- You can exempt up to $3,325 for your motor vehicle.
- House hold items and personal effects.
- You can exempt up to $3,500 for building material to repair or improve your home.
- You can exempt up to $8,725 for jewelry, heirlooms, and works of art.
- You can exempt up to $17,450 of tools, books, implements, materials of trade if used by both spouses in the same occupation; or $8,725 if NOT used by both spouses in the same occupation.
- Life insurance proceeds if policy prohibits use to pay creditors.
- You can exempt $13,975 of your life insurance policy if not matured; or if matured life insurance benefits needed for support of unlimited value.
Under Section 703 exemption, you should have almost no equity in your home. However, under Section 703 exemption:
- You are able to use $29,275 of equity for homestead for real or personal property used as residence.
- You are able to use $5,850 of equity in motor vehicles.
- Jewelry value of up to $1,750.
- Health aids.
- Tools of trade including books and implements up to $8,725.
- Wrongful death recoveries needed for support.
In order to file Chapter 7 Bankruptcy, you must first complete a credit counseling class. Credit counseling courses are available online and via telephone.
You will then work with our office to prepare your bankruptcy petition. We will send you a questionnaire and we will also need certain documents from you. Documents required include tax returns, pay stubs, bank statements, financial statements, etc.
Once you have completed your credit counseling course and have worked with our office to complete your paperwork, we will file your bankruptcy case. When your case is filed, the Automatic Stay will prevent your creditors from pursuing any means to collect against you.
Approximately one month after filing, you will be required to attend the Meeting of Creditors.
You will receive your Discharge about 2-3 months after your Meeting of Creditors and your case will be done.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is a debt reorganization. In most cases it will reduce your monthly payment so you can pay your bills. You may be able to modify your first mortgage. You may be able to get rid of your second mortgage. You can get rid of your credit card debts by the end of the plan in 3 to 5 years. You should choose Chapter 13 Bankruptcy if you have too much equity in your home and you want to keep your home.
Yes, we can usually set up a payment plan for Chapter 13 in your Plan. So if you don’t have the money now don’t worry we can help you. It can be as low as $100 per month for up to 36 months.
Rebuilding credit after bankruptcy can be a fast process. However, many factors can determine how quickly your credit score goes up after bankruptcy. Once bankruptcy is completed, old debts will be discharged and it will be up to you to rebuild.
There are many ways to rebuild credit after bankruptcy. One of the most common ways is to open a secured credit card after bankruptcy. Some other ways include being added as an “authorized user” on a good account; completing a reaffirmation agreement, and using self lending through www.self.inc.
We have had clients whose credit scores rose to “670″ just 6 months after bankruptcy, “690” 1 year after bankruptcy, and “720” 2 years after bankruptcy, and others who have purchased homes 2 years after bankruptcy. Every situation is different but if you take the time and effort to rebuild your credit after bankruptcy, it can be one of the best decisions you’ll ever make to fix your credit score.
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