Chapter 7 bankruptcy is often referred to as straight bankruptcy or liquidation. For those who qualify, it allows individuals to wipe the slate clean of unsecured debts. Unsecured debts typically include credit cards, medical bills, and signature loans, as well as unpaid rent or utility bills. Congress enacted this law to offer a fresh start to individuals, married couples or businesses facing financial difficulty.

Filing for Chapter 7 relief instantly protects you from all collection efforts by your creditors. In the vast majority of cases, a Chapter 7 allows you to keep all of your assets and make a fresh start—unburdened by crushing debt. Chapter 7 does not typically discharge student loans, certain IRS debts, family support obligations, or criminal fines or fees. Our team works closely with you to determine the best course of action. 

If you decide to file Chapter 7 you will meet with an attorney and work directly with him to create documents, called schedules, which list your creditors, as well as your assets, income and expenses. These schedules are signed by you and filed with the United States Bankruptcy Court. Once these documents are filed the “Automatic Stay” – a mandatory suspension under the Federal Bankruptcy Code of all collection efforts – immediately takes effect. Your creditors will be quickly notified of your filing and the harassing phone calls, lawsuits, garnishments, repossessions or foreclosure is halted.

It generally takes about six months before the judge assigned to your case signs the discharge order and you are relieved of all dischargeable debt. There are certain “exceptions” to discharge — debts which may not be discharged by the court, which include:

• Recent large purchases such as appliances, jewelry, furniture

• Cash advances made in the months prior to filing for bankruptcy relief

• Student loans

• Some types of tax debts

• Alimony, child support and other debts related to family support

• Debts due to fraudulent acts and/or intentional torts or wrongs.

If any of the above might apply to your situation, you owe it to yourself to consult with an experienced bankruptcy attorney. Even a small mistake by someone who doesn’t make bankruptcy law a full-time endeavor may be very costly to you!

In a Chapter 7 you are allowed to keep your house and vehicles if you are able to continue making your normal monthly payments to the mortgage or finance company, and if you don’t have an excessive amount of equity in your property. Again, what is considered “excessive” may not be as simple a calculation as you think. Don’t lose your home due to an inexperienced lawyer.

Briefly, when a creditor has a lien on any of your property you can choose to surrender the property to the creditor in satisfaction of the debt. If you want to keep the property these secured debts, such as homes, vehicles, or certain installment loans, may need to be “reaffirmed.” Reaffirmation means you keep the property by signing and filing a formal written agreement in a timely manner to maintain the existing payment plan with that creditor. For a debt to be reaffirmed, most creditors expect payments on the secured account to be current at the time of filing. You also must show sufficient excess monthly income to afford the future payments.

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, providing you act to do so in a timely manner.

Chapter 13