Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is the most commonly filed type of bankruptcy across the country. A Chapter 7 bankruptcy allows you to wipe out most unsecured, non-priority debts. Those are debts like credit cards, medical bills, unsecured personal loans, overdraft fees, old utilities, old cell phone bills, old apartment rent, repossessions, old foreclosures and more. If you are current on your house and cars and don’t have too much equity in your property you can keep your assets as well. Most of our Chapter 7 clients keep all of their property and are able to wipe out all of their unsecured debts. You can understand why it is the most popular type of bankruptcy across the country.

A Chapter 7 bankruptcy is also called “debt liquidation,” a “fresh start” or a “straight” bankruptcy. The name “liquidation” refers to the fact that those who file for Chapter 7 bankruptcy have to liquidate, or sell, all of their “non-exempt” assets. Exempt assets do not have to be sold, and they are generally things that the Bankruptcy Court considers necessary for the survival of the bankruptcy petitioner and his or her dependents. These are outlined by state statute and federal law. The property of most individuals we talk to is exempt and will not need to be sold by the trustee.

You will be required to undergo a means test to determine if you are eligible for Chapter 7 bankruptcy. The means test will consider your income (Do you have the “means” to pay?) compared to the median income in your geographical area. If your income is above the median, the court applies the means test, which involves 55 different mathematical calculations relating to your income and expenses. If you do not qualify under the means test, Chapter 13 bankruptcy will become your next option. Our skilled attorneys at Turner Law Firm, PLLC can answer any questions you may have about this.

The case is begun by filing the official petition, schedules and statement of financial affairs. These forms prompt you to list all of your assets and all of your debts, along with some recent financial history. This is the most important and most time consuming part of a bankruptcy filing.

It is important that every creditor is listed in the schedules with an accurate mailing address. You must list all of your debts, even if the debt is non-dischargeable or if you intend to reaffirm the debt.

The schedules also list your property, any debts secured by that property, and the sale value of the property. “Property” here means “assets” or “possessions,” not just real estate. The schedules are signed by the debtor under penalty of perjury.

The schedules are filed with the bankruptcy clerk in the district in which you live, or have lived for the greater part of the last 180 days.

From the instant you file for Chapter 7 bankruptcy, the judge issues an “automatic stay.” This is an immediate order to all of your creditors notifying them that you have filed for bankruptcy and that it is illegal for them to make any further attempts to collect on the debt you owe. If your creditors continue to harass you after the automatic stay is issued, you may be able to sue them under the Fair Debt Collections Act (FDCA).

If you qualify for a Chapter 7 bankruptcy through the Means Test, you must be either: 1) current on your house and/or car payments or 2) willing to surrender your house and/or car to the mortgage company or car loan company if you are behind on either of these payments. Generally, people file Chapter 7 bankruptcies to start fresh and wipe out their unsecured debts such as credit cards, medical bills, previous foreclosures, previous repossessions, etc. After your Chapter 7 bankruptcy has been filed with the bankruptcy court, your creditors will no longer be allowed to call or harass you regarding your debt. Instead, they must contact our office if they have questions – this is required by law. After a few months, assuming all proper steps have been followed, you will receive a discharge of your debts (meaning your debts have been successfully wiped out) and you will be able to begin a fresh financial life.

In order to qualify for a Chapter 7 liquidation bankruptcy, you must meet the Means Test. Although this sounds complicated, it really just means that you must fall below the median income level for your area within North Carolina based on the number of people in your household. The median income level for North Carolina is determined by the census and the IRS. Your household income is determined by averaging your last six months of income. If your household income is above the median income, you may still qualify for Chapter 7 bankruptcy if your disposable income is below the level considered abusive by the court. In order to determine these amounts, you are required to provide our office with pay stubs for you and your spouse for the last six months in addition to other out-of-pocket expenses not deducted from your paycheck, such as child care, charitable contributions, etc. The Turner Law Firm, PLLC understands that bankruptcy is a stressful, confusing and often scary process. We will stand by you throughout the process so that you understand exactly what’s happening and why at all times. We can assist you in the steps to get your stressful financial life on a path to financial recovery.

It is important to note that there are some debts that a Chapter 7 bankruptcy cannot wipe out. These debts include student loans, taxes, alimony, child support, and damages related to criminal restitution such as damages from drunk driving. If you owe any of these debts and file a Chapter 7 to eliminate your unsecured debts such as credit cards and medical bills, you will still owe the student loans, taxes, alimony, child support, and criminal restitution debts even after you receive a discharge from bankruptcy.

The impact of a bankruptcy on your credit varies for each person filing. The most common negative aspect about filing for bankruptcy will be the impact it has on your credit. Your credit score will undoubtedly go down when you file. However, most of our past clients have found that the negative impact on their credit report usually only has an impact for about two years. If you have a house and vehicles and don’t need to get financing for major purchases for a couple of years then the impact on your credit may be relatively unimportant. We regularly have clients who communicate with us on how quickly their credit rebounded after filing the bankruptcy. By building your credit cautiously and avoiding financial mistakes of the past your credit will, in time rebound.