If you have a large amount of unsecured debt and do not have the financial means to pay, you may want to File Chapter 7 Bankruptcy. The bankruptcy law allows debtors a fresh start. If you are feeling the pressure from your creditors and are dealing with numerous collection calls, Chapter 7 bankruptcy will provide you with relief. How Does Chapter 7 Bankruptcy Work?
What happens when you File Chapter 7 Bankruptcy
The initial step is to file a voluntary petition with the Federal court. When you file the petition, a filing fee of $299 must accompany the petition. The following items are required when filing the petition:
- Schedules of assets and liabilities
- Schedule of current income and expenditures
- Statement of financial affairs
- Schedule of executory contracts and unexpired leases
If you are filing Chapter 7 Bankruptcy and your debts consist of a large amount of consumer debts such as credit cards, you must file a copy of any debt repayment plan and a certificate of credit counseling. If you are unsure of how to file or need help filing, you may want to hire the legal services of an attorney. Once you have filed, a case number is issued and you are assigned a trustee. The initial filing of the petition will end most collection efforts by creditors. Upon filing, an automatic stay is initiated. This prevents creditors from continuing collection activities such as wage garnishments and telephone calls. The clerk of the court will provide notice of bankruptcy to all of the creditors you listed on your petition. While your case is in process, you do not have to worry about your creditors contacting you.
Within 20 to 40 days after filing, the trustee may hold a meeting of creditors. You will be present at this meeting. You are placed under oath and the trustee or creditors may ask you questions. While this may sound frightening, the meeting usually will last a few minutes. In many cases, the debtor is asked to state their full name and current address. In addition, the representatives of the creditors rarely ask questions. However, if you hired an attorney, your attorney will be present and can guide you through the process.
Within 60 to 90 days after the meeting, the court will issue the order of discharge. This discharge releases you from the liability of your debts. Creditors can no longer continue to pursue collection activities against you. According to uscourts.gov, 99 percent of individuals who file Chapter 7 Bankruptcy are issued a discharge. Once the discharge is issued, you are free of your debts and can begin a new start in life. However, you may have trouble in obtaining credit or financing for a car. The bankruptcy will stay on your credit report for 10 years. It is important to mention not all debts are eligible for discharge. In addition, a debtor must meet specific income criteria. If you are ready to file bankruptcy, you may want to hire an attorney to help you through this complex process. You are not required to hire the services of an attorney to file bankruptcy. You can visit uscourts.gov to get the necessary documents and instructions to file. Once people realize how complicated the process is,they usually hire an attorney.
The Role of a Chapter 7 Bankruptcy Attorney
If you are ready to file Chapter 7 Bankruptcy, you can complete the request for a free evaluation. A local attorney who can help you maneuver the bankruptcy process will evaluate you case. In addition, the attorney may provide valuable advice and recommendations specific to your financial situation. The evaluation is free and does not place you under any obligation to use the service of an attorney.
Should You File Chapter 7 Or Chapter 13 Bankruptcy?
If you determined bankruptcy is your only option, you must decide which type of bankruptcy to file. The two most common bankruptcies are Chapter 7 and Chapter 13. Knowing which one to file is crucial.
Difference between Chapter 7 and Chapter 13 Bankruptcy
Chapter 7 bankruptcy is for those individuals with few assets and high consumer debt. The consumer debt may be discharged if you meet the requirements of the bankruptcy law. Bankruptcies are filed in the federal courts; however, each state has it own laws regarding the exemptions of certain assets. For example, one state may allow a vehicle exemption of $2500 while another state may allow $4500. It is important to understand the bankruptcy exemption laws in the state you are filing.
Chapter 13 bankruptcy is a debt adjustment bankruptcy for individuals who have a steady income. If you own your home or have other valuable assets, this bankruptcy allows the restructuring of your debt to make it easier to pay. The debt restructuring will require you to pay this debt within three to five years. The courts, your trustee and creditors develop the payment plan. The benefit of this type of bankruptcy is you keep all property and assets.
If you are struggling with your decision to file bankruptcy, an attorney will help ease your mind. Bankruptcy filings continue to increase as more people lose jobs or have a diminishing source of income. Filing bankruptcy will provide immediate relief from annoying collection calls. It also provides people with an opportunity to get on solid financial ground.
If you are ready to file, you may want to seek the advice of an experienced bankruptcy attorney. This will ensure you file the appropriate bankruptcy for your financial situation. An attorney’s job is to provide sound legal advice, not to judge you or your financial predicament.
Do You Meet The Requirements Of The Chapter 7 Bankruptcy Means Test?
The Chapter 7 Bankruptcy Means Test is included in the Bankruptcy Protection Act passed in 2005. Prior to the means test, standards of determining if a debtor qualified for Chapter 7 Bankruptcy were inconsistent. In order to file bankruptcy you must pass this test to qualify for bankruptcy. This test is designed to prevent bankruptcy fraud and abuse. It prevents those who have the means to pay debts from filing bankruptcy to be relieved of the debts.
Disabled veterans who accumulated debt during active duty while serving in military defense operations may be exempt from the Chapter 7 Bankruptcy Means Test. If you are a disabled veteran, you may qualify for exemption if you have a disability rate of at least 30 percent. In addition, more than half of the debt accumulated must have occurred while serving in a military defense operation.
The means test compares the individual’s average income during the six months prior to filing bankruptcy. This average income is then compared to the median family income of the state in which the bankruptcy is filed. The individual’s income must be less than or equal the median income to be eligible to file bankruptcy.
The following are included in calculation of monthly income:
- Salary, tips, wages, commissions, bonuses and overtime
- Gross income from a profession, farm or business
- Royalties, interest and dividends
- Rental property income
- Spousal or child support
- Retirement income and pensions
- Unemployment compensation
- Worker’s compensation
- State disability insurance
- Annuity income
Social security benefits from retirement or disability are also exempt from the income calculation. In addition, tax refunds or assistance for needy families is also exempt.
If you do not qualify for the Chapter 7 Bankruptcy Means Test, an attorney can help you find an alternative solution. In addition, an attorney can review your income and debts to apply for additional consideration to file Chapter 7.