Chapter 7 Bankruptcy Information

WHAT IS CHAPTER 7 BANKRUPTCY?

Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

WHAT HAPPENS WHEN I FILE A CHAPTER 7 BANKRUPTCY?

WHY DO PEOPLE FILE A CHAPTER 7 BANKRUPTCY?

Generally people file chapter 7 bankruptcy if they have a large amount of unsecured debt such as credit card debt or medical expenses that they are no longer able to pay. Often unemployment, unexpected medical expenses, or divorce prompt the cause the debtor to seek protection from creditors by filing chapter 7 bankruptcy.

HOW OFTEN CAN I FILE BANKRUPTCY?

You can file for Chapter 7 bankruptcy again after six years has passed from the date of your last filing. A Chapter 13 bankruptcy can be filed at any time.

WHAT DOES IT COST TO FILE FOR BANKRUPTCY?

The court charges filing fees:

Chapter 7 - $299 ($245 filing fee + $29 admin fee + $15 Trustee fee)

Chapter 13 - $274 - ($235 filing fee + $39 admin fee)

The fee is the same when filing a joint petition with a spouse

The attorney fees are commonly charged as a flat fee of $1,000 for a chapter 7, and $3,500 for a chapter 13, not including any work done for adversary actions (where a creditor disputes their debt being discharged)

WHAT PROPERTY CAN I KEEP AFTER I FILE BANKRUPTCY?

In a chapter 7 case, you can keep all the property which is exempt from the claims of creditors. In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Generally the trustee is interested in the resale value of your property so for most personal effects this is the garage sale value of your property.

You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 equity you have in the home. While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. If you are behind in payments and can afford to make the loan payment and to make the amount you are behind over a period of three to five years you should consider a chapter 13 bankruptcy.

CAN I KEEP MY HOME AND/OR CAR AFTER I FILE BANKRUPTCY?

You will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt you may still be able to keep your property by filing a chapter 13 bankruptcy instead of a chapter 7 bankruptcy. In a chapter 13 plan you will be required to pay at least the equivalent of the non-exempt equity you have in your home or car and any amount you are behind on your home or car loan over the course of the three to five plan. You also will be required to continue making the regular monthly payments.

WHAT DEBT WILL BANKRUPTCY NOT ERASE?

money owed for child support or alimony, fines, and some taxes;
debts not listed on your bankruptcy petition;
loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
debts resulting from "willful and malicious" harm;
student loans owed to a school or government body, except if:-- the court decides that payment would be an undue hardship;
mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

WILL FILING BANKRUPTCY AFFECT MY CREDIT?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. The fact that you filed bankruptcy, if properly explained, may be less damaging than a history of unpaid accounts.

The fact that you have filed a bankruptcy will appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit. The best way to restore your credit is to obtain new credit and make the payments on the new debt on time.

CAN I GET A CREDIT CARD AFTER FILING BANKRUPTCY?

Yes, there are several options available. While technically not a credit card you could use a bank or debit card to perform activities for which you normally would use a credit card. You also may be able to keep the credit card you already have if the creditor grants approval. If these options do not work you can get secured credit card which is backed by your own bank account.

WILL MY UTILITY SERVICES BE AFFECTED?

Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after your bankruptcy petition is filed.

CAN I BE DISCRIMINATED AGAINST FOR FILING BANKRUPTCY?

Under the federal bankruptcy statute, a discharge is a release of the The law provides express prohibitions against discriminatory treatment of debtors by both governmental units and private employers. A governmental unit or private employer may not discriminate against a person solely because the person was a debtor, was insolvent before or during the case, or has not paid a debt that was discharged in the case. The law prohibits the following forms of governmental discrimination: terminating an employee; discriminating with respect to hiring; or denying, revoking, suspending, or declining to renew a license, franchise, or similar privilege. A private employer may not discriminate with respect to employment if the discrimination is based solely upon the bankruptcy filing.

WHAT IS THE EFFECT OF BANKRUPTCY ON CO-SIGNERS?

If someone has co-signed a loan with you and you file for bankruptcy, the co-signer will still have to pay the debt. You should list the co-signer as a creditor in your bankruptcy petition since they may have a contingent claim against you.

CAN A MARRIED DEBT FILE WITHOUT THE OTHER SPOUSE?

Yes, but your spouse will still be liable for any joint debts. If you file together you will be able to double your exemptions. In some cases where only one spouse has debts, or one spouse has debts that are not dischargeable then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouses credit report.

CAN A MARRIED DEBT FILE WITHOUT THE OTHER SPOUSE?

HOW LONG AFTER FILING BANKRUPTCY WILL THE CREDITORS STOP CALLING?

Once a creditor or bill collector becomes aware of a filing for bankruptcy protection, it must immediately stop all collection efforts. After you file the bankruptcy petition, the court mails a notice to all the creditors listed in your bankruptcy schedules. This usually takes a couple of weeks. Creditors will also stop calling if you inform them that you filed the bankruptcy petition, and supply them with your case number. In some cases, you or your attorney should contact the creditor immediately upon filing the bankruptcy petition, especially if a law suit is pending. If a creditor continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for this conduct.

CAN I ERASE MY STUDENT LOANS BY FILING BANKRUPTCY?

Generally, student loans are not discharged in bankruptcy. In 11 U.S.C. sec. 523(a)(8) there are two exceptions to this general rule:

The student loan may be discharged if it is neither "insured or guaranteed by a governmental unit" nor "made under any program funded in whole or in part by a governmental unit or nonprofit institution."
The student loan may be discharged if paying the loan will "impose an undue hardship on the debtor and the debtor's dependents."
It is usually difficult to have student loans erased under the undue hardship standard. Whether an exception applies under this law depends on the facts of the particular case and may also depend on local court decisions. Even if a student loan falls into one of the two exceptions, discharge of the loan may not be automatic. You may have to file an adversary proceeding in the bankruptcy court to obtain a court order declaring the debt discharged.