Sometimes, it just is not possible to make ends meet. People find themselves in a great amount of debt and that interferes with just about every aspect of their life. They cannot get more credit, and they often cannot even pay for daily expenses. When this is the case, many people choose to file for Chapter 7 bankruptcy as a last resort.
After a Chapter 7 bankruptcy, a person’s debts simply go away, known as a discharge in bankruptcy terms, and filing for this type of bankruptcy can give people the financial freedom they need. However, Chapter 7 bankruptcies are largely misunderstood and many people considering filing do not know what debts of theirs will be discharged and do not fully understand the process. As such, listed below are the most important things to know about this type of bankruptcy if you are considering filing.
What Is a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as a straight or liquidation bankruptcy, is a type of bankruptcy that discharges, or eliminates, certain types of debt. In exchange for eliminating this type of debt, you will have to relinquish some of your assets. When you file for a Chapter 7 bankruptcy, the court will appoint a trustee to your case and that trustee will oversee your case. The trustee will repossess your assets and sell them so they can distribute the proceeds from the sale to your creditors in order to repay your debt. In order to receive payment, creditors must file proper claims to the property.
Some Property Is Exempt
The law understands that taking all of a person’s assets may place them in undue hardship and make it extremely difficult for them to live and embark on the fresh start bankruptcy is meant to provide. As such, the law allows for certain exemptions or assets that cannot be repossessed. Common exemptions include a person’s home, vehicle, and property that is necessary for earning a living. For example, a freelancer who works from home may be able to keep their computer if it is essential to their job. Retirement plans are also typically exempt from being sold as part of a Chapter 7 bankruptcy.
Some bankruptcy cases are considered ‘no asset’ cases. In these instances, it is determined that the debtor does not have enough assets worth selling and so, none of their assets are repossessed.
What You Need to File for Chapter 7 Bankruptcy
When preparing for Chapter 7 bankruptcy, there are many things you will need to gather. These include bank statements, credit card statements, pay stubs, and certain loan documents. This information is necessary to complete the petition for bankruptcy, statement of financial affairs, and schedules. These documents must be submitted to the court. The statement of financial affairs is a listing of all of the property you own, your debts, creditors, expenses, income, and property transfers.
Mandatory Credit Counseling
In nearly every Chapter 7 bankruptcy case, the debtor is required to undergo mandatory credit counseling. This counseling must be completed before the person files for bankruptcy and can be done over the phone, online, or in person. Either way, each session will take about two days. The reason for this mandatory credit counseling is that the courts do not want to grant someone a Chapter 7 bankruptcy only to have them fall deep into debt and file for bankruptcy again. Also, a credit counselor can often recommend alternatives to filing for bankruptcy that you were not aware of.
In addition to attending mandatory credit counseling, you also have to take a course in financial management. This course is usually given by the same person who hosted the credit counseling.
Taking the Means Test
When filing for Chapter 7 bankruptcy, you must also take the means test. This is a simple calculation that determines whether you have the ability, or the means, to repay a meaningful portion of your debts. If you fail the means test, you may have to file for a Chapter 13 bankruptcy rather than a Chapter 7, although that is not always the case.
The Meeting of Creditors
The meeting of creditors is another very important, and mandatory, part of filing for Chapter 7 bankruptcy. This meeting is also sometimes called a 341 meeting. After filing for bankruptcy, all of the creditors that you owe money to will be notified of the meeting. Although technically any creditor listed in the bankruptcy documents can appear in the meeting of creditors, usually only auto lenders attend.
The bankruptcy trustee will also attend the meeting of creditors. They will ask the creditors various questions to ensure that the information in the documents is true. The trustee will also ask you questions and ensure that you understand the consequences of filing for bankruptcy and receiving a discharge.
Discharging the Debt
If the trustee and creditors do not object, the bankruptcy court will usually discharge the debt 60 days after the meeting of the creditors. If the meeting of creditors is postponed to another date, which is possible if the trustee wishes to investigate certain aspects of the bankruptcy, the discharge is usually given 60 days after the date of the first meeting.
After your debts have been discharged, creditors cannot contact you or try to collect on any debt you owe. However, it is also important to understand that certain debts, such as taxes and child support, cannot be discharged in a Chapter 7 bankruptcy. If there was a co-signer on the debt and that person did not file for bankruptcy, the creditor can still attempt to collect the debt from the co-signer.
A Florida Bankruptcy Lawyer Can Help You File
When you have a significant amount of debt and are unsure of how to pay it off, Chapter 7 bankruptcy may be the answer for you. To ensure the process goes as smoothly as possible and that you achieve the desired outcome, it is important that you speak with a Fort Lauderdale bankruptcy attorney. At Loan Lawyers, our knowledgeable attorneys can advise on your case, tell you what to expect, and guide you through the entire process. If you think bankruptcy might be right for you, call us today at (954) 523-HELP (4357) or contact us online to arrange a free consultation.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.