Chapter 7 FAQ’s

What is Chapter 7?

Chapter 7, also known as straight bankruptcybankruptcy: A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the Chapters of Title 11 of the United States Code (the Bankruptcy Code). or liquidationliquidation: Selling personal assets or those of a business, paying bills and dividing the remainder among creditors, shareholders, partners, other investors., may allow debtorsdebtor: A person who has filed a petition for relief under the Bankruptcy Code. to wipe the slate clean of unsecuredunsecured debt: Debt not backed by a mortgage, pledge of collateral, or other lien, for which the creditor has no right to pursue specific pledged property upon default. Examples include personal or signature loans, credit card debt, and medical bills. debts. Property pledged to secure a loan or debt, usually funds or personal property, but may include real estate, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens. Unsecured debts are debts not secured by collateral—typically credit cards and medical bills, for example. Debts secured by collateral, such as homes, vehicles, or certain installment loans, may be reaffirmed. Reaffirmation means you should be able to keep the property by simply agreeing to maintain the existing payment plan with the creditor involved. For a debt to be reaffirmed, most creditors expect payments on a secured debt to be current at the time of filing.

Tell me more about reaffirmation.

Reaffirming a debt means the debt has essentially been removed from the bankruptcy dischargedischarge: A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact. and you have agreed to repay it—often under the same payment terms and conditions that existed prior to filing. The benefit to you is you get to keep property that is the subject of the debt—as with a vehicle loan, for example. The possible downside to this is that you will not be protected from creditor action after the bankruptcy case is discharged if, for some reason, you are unable to pay the debt after all. You may rescind a reaffirmation agreement at any time within 60 days of execution, or up until discharge, whichever occurs later.

Will I be able to keep my property if I file Chapter 7?

Chapter 7 Chapter 7: The chapter of the Bankruptcy Code providing for liquidation, i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. debtorsdebtor: A person who has filed a petition for relief under the Bankruptcy Code. are permitted to exempt or protect a certain amount of their personal property. Theoretically, property that is above the exemption amount—or is nonexempt—may be sold to pay all or some of the debts owed to creditorscreditor: One to whom the debtor owes money or who claims to be owed money by the debtor.. The exemption levels vary from state to state. In Georgia, for example, the following levels apply. They may be doubled for joint husband and wife filings.

  • $21,500 equity in a home (the “homestead exemption” for cases filed after 5/01/12);
  • $5,000 in household goods and furnishings;
  • $3,500 interest in a motor vehicle;
  • $500 in jewelry;
  • $1,500 in tools of the trade (those needed for your job); and
  • $600 in any other property (the “wildcard exemption”).

If you don’t need to use all of your homestead exemption on your home, you may apply $5,000 of that to any other property.

In addition, funds kept in retirement accounts such as and IRA or 401(k) or 403(b), and proceeds from social security, alimony, life insurance, or veterans benefits are exempt. You may also be able to keep certain property by reaffirmingreaffirming debt: Through an agreement by a Chapter 7 debtor, to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e., the car) that would otherwise be subject to repossession. In order to be valid, the reaffirmation agreement must be signed and filed with the court prior to the discharge being entered. the underlying debt.

What if I have a joint savings account with my child?

If you opened a bank account with your child’s birthday or gift money, it is important to make sure you set it up correctly. If you established this account under the Uniform Transfers to Minors Act (UTMA) [formerly the Uniform Gifts to Minors Act (UGMA)], you should be able to protect your child’s assets in such an account. Here is more information on these accounts: UGMA & UTMA Custodial Accounts. In short, such an account will protect your child’s money until they become of age, at which time it becomes their property. Bear in mind, however, that a gift to a minor is irrevocable–you cannot withdraw this money from the account.

Is a Section 529 Education IRA for my child protected?

Under the Bankruptcy CodeBankruptcy Code: Named after the U.S. Bankruptcy Code, Title 11, Chapter 11 is the primary source of bankruptcy law in the US., only funds placed into a Section 529 account more than 365 days before filing are protected. If the money was deposited between 365 and 720 days before filing, the protected amount is limited to $5,000.

Can I continue to use my credit cards until I file Chapter 7?

You should discontinue credit card use as soon as you contemplate filing bankruptcy. Certain credit card debts may even be considered non-dischargeabledischarge: A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact., if incurred for luxury goods or services, or for purchases exceeding $700. Expenditures incurred in the 90-day period prior to filing Chapter 7 are automatically non-dischargeable. You should strictly avoid cash advances, and these are also automatically non-dischargeable if taken within 70 days prior to filing.

Can I keep a credit card if I file Chapter 7?

The law requires all “debts” to be listed, or scheduled. A credit card with a zero balance is not technically a debt and thus may not need to be listed. Bear in mind you are signing these schedules under penalty of perjury, however, so be sure you do not have a balance at the time of filing.

Consider, too, that the credit card company may discover you have filed Chapter 7Chapter 7: The chapter of the Bankruptcy Code providing for liquidation, i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. and close the account anyway. All major regional and national creditors have automated computer systems that constantly scan (at least four times a month) credit reportscredit report: A history of loan and bill payments, kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that your future debt will be repaid. Lenders and insurers use information from credit reports, along with your credit score, to set loan and insurance rates. Also called a credit history. through the three major Credit Reporting Agencies—Equifax, Experian, and TransUnion, for all of their customers. They do this to determine if other accounts are in default for purposes of raising interest rates, reducing credit lines, or terminating future credit. They also have a system for identifying bankruptcy filings. As a result, you may not be able to retain a credit card even if no balance is owed.

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