Each year thousands of Americans will decide to file for Chapter 7 Bankruptcy. In 2017, it is estimated that over 500,000 people in the United States filed for a bankruptcy. Filing for bankruptcy is nothing to be ashamed about and can even be a great start to a fresh new beginning. Throughout this article, we at The Weller Legal Group are going to provide you with valuable information in regards to the Chapter 7 Bankruptcy topic.
What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is one of the most common forms of bankruptcies that individuals will file in the United States. Chapter 7 Bankruptcy is also known as straight bankruptcy or liquidation bankruptcy. This type of bankruptcy is when a debtor tries to settle a debt with their creditors. There will be a list of exempt assets and non-exempt assets that will be given to the court-appointed trustee. The non-exempt assets may be sold by the trustee to help pay off some of the debtor’s debts back to their creditors. After the Chapter 7 Bankruptcy process is finished, the debtor will not have to make any more payments to their creditors and any remaining debts that can be discharged will be discharged. Chapter 7 Bankruptcy can be a great option for someone who is currently not making a large salary at this moment in time.
Must Know Bankruptcy Definitions
Bankruptcy: the legal procedure in the United States for handling debts problems, the two most common types of bankruptcy filed for individuals are Chapter 7 Bankruptcy and Chapter 13 Bankruptcy protection
Debtor: the person or entity who owes a debt
Creditor: the person or entity who the debt is owed to
Trustee: the court appointed trustee will be the legal person whom will be responsible for analyzing your assets and will be in charge of liquidating any of your nonexempt assets to pay back your creditors
Bankruptcy attorney: a lawyer who specializes in the bankruptcy process, this legal professional will help you throughout the bankruptcy process
Automatic stay: the order that automatically stops lawsuits, garnishments, foreclosures, and collection activity against a debtor after a bankruptcy petition is filed
Bankruptcy petition: a document filed by the debtor that is submitted to the bankruptcy court, this document includes the debtor’s financials
Equity: the value of the debtor’s interest in a given property, for example if a home is currently worth $200,000 but there is a $80,000 mortgage balance on the property, the property would then have $120,000 worth of equity
Liquidation: selling of a debtor’s property in order to help pay back their creditors with the proceeds made from the sales
When to File for Chapter 7 Bankruptcy?
There are estimates that over 20 million Americans would benefit from filing for a bankruptcy. Are you one of these millions of Americans that would benefit from a bankruptcy? If each and every month you can only afford making the minimum payments on your credit cards it may be a good time to think about filing for bankruptcy. Each and every month you will be getting charged interest on your credit cards if you are not able to pay off your bill in full. With credit card interest rates ranging from a low near 15% all the way up to 36% or even higher, it can be nearly impossible to pay off that credit card by making just the minimum payments each month. With that being said, even if you are able to make the minimum payments each month, you will be paying almost double the amount you borrowed by the time you finish paying that card off. Also, are bill collectors calling you on a weekly or even daily basis? If this is the case then maybe you should look into filing for Chapter 7 Bankruptcy protection. When you file for bankruptcy, debt collectors are not allowed to continue calling you when your bankruptcy case is in the court system. The last question we want you to ask yourself is this one in the next sentence. Does thinking about your finances cause you to feel stressed and do you have no idea how much you owe? If the answer to this question is yes and yes, then it may be time for you to decide and contact a bankruptcy attorney near you. Filing for a bankruptcy does not have to be a scary process, especially if you have a good bankruptcy attorney on your side. Filing for a Chapter 7 Bankruptcy could really make your life a lot better, especially if you answered yes to many of the questions in this paragraph.
Pros and Cons of Chapter 7 Bankruptcy
Before filing for Chapter 7 Bankruptcy protection it is important to analyze the pros and cons of your current financial situation. Filing for bankruptcy may not be the best option for all Americans. Make sure to contemplate the pros and cons of filing bankruptcy which can help you decide if bankruptcy is the best option for your current situation.
Pros
Contrary to popular belief, your credit score may actually increase after you are finished with your Chapter 7 Bankruptcy. This is because after the bankruptcy process is finished you will have many debts being discharged. This may help your credit score, especially if you had poor credit to begin with. There is no guarantee, but certain client’s scores may actually go up after the bankruptcy process is finished. The next pro that we wanted to mention is that you will not receive any more of those dreaded collection calls. Once you file for bankruptcy protection you will enter an automatic stay period. During this period is when you have a bankruptcy case pending with the courts, during this time your creditors will not be allowed to harass you for payments. When you file for bankruptcy you will be required to take mandatory courses that will help you better control your finances in the future. This can be a great learning experience for you, especially if you have not taken any financial management courses in the past. Learning more about ways to control your finances can help you from making any mistakes in the future. The last pro that we are going to mention is one of the most popular reasons that people file for Chapter 7 Bankruptcy protection and that is to clear debts. When you are finished with the Chapter 7 Bankruptcy process you will have many of your dischargeable debts cleared. This will help you start fresh and hopefully live a more stress-free life going into the future.
Cons
Now that we have discussed some of the pros of filing for bankruptcy it is important that we talk about some cons too. Filing for Chapter 7 Bankruptcy protection does come with some cons too, especially if you have some assets that mean a lot to you. During the Chapter 7 Bankruptcy process your trustee will analyze your nonexempt assets and decide what they want to liquidate to help pay back your creditors. It is important to take this into consideration because you may be forced to sell some of your real estate property, your car, or even some of your precious jewelry to help pay back your creditors. Another thing that you should make sure to keep in mind is that when you file for Chapter 7 Bankruptcy protection, this will remain on your credit report for up to 10 years. Make sure to discuss with your bankruptcy attorney first to decide if filing for Chapter 7 Bankruptcy protection is the right path for you and your family.
Nonexempt vs. Exempt Assets
When deciding whether or not you want to file for Chapter 7 Bankruptcy protection it is important for you to know the difference between exempt and nonexempt assets. When you are going through the bankruptcy process you will be required to provide the court appointed trustee documents listing all of your current assets. These assets will be grouped into two categories, exempt and nonexempt assets. Your exempt assets are assets that you trustee cannot sell to help pay back your creditors. Your nonexempt assets are your assets that your trustee can liquidate to help pay back your creditors. It is important that you understand the differences between the two so you are not forced to sell anything that you truly love to help pay back your creditors.
Process of Chapter 7 Bankruptcy
Once you decided that you want to file for Chapter 7 Bankruptcy the first thing you should do is find a reputable bankruptcy attorney near you. Your attorney will walk you through all of the steps of the bankruptcy process and you can decide together on whether or not if Chapter 7 Bankruptcy is right for your current situation. If you and your bankruptcy attorney decide to go through with the Chapter 7 Bankruptcy process then they will assist you throughout the entire bankruptcy journey.
Step 1: Mandatory Credit Counseling
First, you must receive mandatory credit counseling before filing for Chapter 7 Bankruptcy. This was made a requirement by, “The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act,” which states that consumers must first get credit counseling from a government approved organization with 6 months before they file for bankruptcy. This is good because you will be able to analyze your current financial situation and learn about new ways that you can control your personal budget. This will be valuable information that you can use after your bankruptcy is finished to be in better control of your finances going into the future.
Step 2: File Your Petition
This is when you will start to file your petition and complete any other forms that may be associated with the Chapter 7 Bankruptcy process. This is the beginning of your Chapter 7 Bankruptcy case. During this process you will list all of your assets and provide them to the courts. Make sure to truthfully list all of your assets and do not try to conceal any assets from the courts because if you do this is considered bankruptcy fraud. If you are found guilty of bankruptcy fraud you could be facing and fine or even some serious jail time. Make sure to be honest when filling out your financial information when you are filing for your bankruptcy petition.
Step 3: The Court Appointed Trustee
When you are finished filing all of your paperwork the courts will then appoint a trustee to handle your Chapter 7 Bankruptcy case. This court-appointed trustee will review your paperwork and analyze your assets. Their main job is to take any of your nonexempt property, liquidate it, and then distribute funds to help pay back your creditors. Your trustee will also ask to have a copy of your most recent tax returns which you must provide to your trustee.
Step 4: Meeting of Creditors
This step may seem a little scary but there is nothing to worry about. Remember, every party involved wants to collaborate to come up with a suitable agreement. This meeting will include you being asked some questions about your current financial situation and your bankruptcy documents. During this meeting you will be “under oath” so it is important that you are being truthful with your answers. Usually these meeting are very short and do not require too much time to finish.
Step 5: Eligibility to File Chapter 7 Confirmed
At this moment the courts will make its decision on whether you will be approved or not for Chapter 7 Bankruptcy protection. Not all cases will be approved for Chapter 7 Bankruptcy protection. If you are not approved for Chapter 7 Bankruptcy protection, you may still have the option to file for Chapter 13 Bankruptcy protection. This type of protection will require you to make a repayment plan, unlike Chapter 7 Bankruptcy protection, which doesn’t have a repayment plan after the debts are discharged. Now, if your Chapter 7 Bankruptcy case is approved by the courts you will then move to the next step.
Step 6: Nonexempt Assets
This is one of the reasons why it is so important to discuss with your bankruptcy attorney on whether or not Chapter 7 Bankruptcy is right for your situation. During this step your court appointed trustee will analyze your nonexempt assets to determine whether or not they are worth seizing and selling. If they decide they are worth selling then they will begin liquidating your nonexempt assets to help pay back your creditors. Some of your nonexempt assets that could possibly be sold may include your rental property, vehicle, or even your coin collection. This is why you must think carefully before filing for Chapter 7 Bankruptcy because you may be forced to sell off some of your personal assets to pay back your creditors.
Step 7: Secured Debts
What are secured debts you may ask? Secured debts are any debts that are backed by collateral. Your creditor has the right to take back any debts that you may have that were backed by collateral. You may be able to keep some of the secured debt property if you are able to pay the creditor what the asset is worth.
Step 8: Take Financial Management Course
Before you get your final discharge, you must complete a debtor’s education course. This was a requirement that was added by, “The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.” When you finish this course, you will then file a Form 423 with the court.
Step 9: You Receive Your Discharge
The entire Chapter 7 Bankruptcy process will take anywhere from 3 to 6 months to close from the date the you filed for bankruptcy protection. You will receive your bankruptcy discharge letter by mail. When you receive your discharge letter your automatic stay, the automatic injunction that stopped actions by creditors, will be lifted.
Step 10: Your Case is Closed
Within a few days or a few weeks after your discharge was granted your case will be officially closed. Congratulations, you have made it through the entire Chapter 7 Bankruptcy process. At this moment you will no longer be liable to your past creditors and can begin starting your new life.
Costs of a Chapter 7 Bankruptcy
The current cost to file for Chapter 7 Bankruptcy is a $245 case filing fee, $15 trustee surcharge fee, and a $75 miscellaneous administration fee. This brings it to a total of $335 for the fees in regards to the courts. This court fee may go up in the future, the total costs to file with the courts in 1993 was only $160, compared to the $335 that we see today. There will also be a fee for your bankruptcy attorney, this fee may range anywhere from a low of around $800 to a high of $2,000 depending on your situation. When you are looking for a bankruptcy attorney to represent you in your Chapter 7 Bankruptcy case it is important that you look for a reputable one. Make sure to ask your prospective bankruptcy attorney what their fees will be in regards to your case.
Chapter 7 Bankruptcy Attorney Questions
We have compiled a small list of questions that you should ask your prospective Chapter 7 Bankruptcy attorney before you decide to hire them for your bankruptcy case. Make sure to ask your prospective bankruptcy attorney some of these questions before taking the plunge with them.
-What is your experience as a bankruptcy attorney?
-How much are your current fees?
-Will there be any other fees that may come up during the case?
-Should I file for Chapter 7 or Chapter 13 Bankruptcy protection?
-How will my credit be affected after the bankruptcy process is over?
-What debts are not able to be discharged?
-What assets may I be forced to sell?
-Approximately how long will my Chapter 7 Bankruptcy case take?
-How will we communicate throughout the bankruptcy process?
-What days and hours would I able to contact you?
-If I cannot contact you is there anyone else I can contact?
-What risks may I face going through a Chapter 7 Bankruptcy?
-What role will you play in my Chapter 7 Bankruptcy case?
-How will Chapter 7 Bankruptcy benefit me and my family?
-Are you a lawyer?
Final Thoughts
We at The Weller Legal Group hope that the information provided to you in this article helped you get more familiar with the Chapter 7 Bankruptcy process. It is important to know as much information as you can before deciding to file for Chapter 7 Bankruptcy protection. Going through a bankruptcy does not have to be a stressful situation especially if you have us on your side. We at The Weller Legal Group have over 20 years of experience in helping our clients with their bankruptcies and working on improving their credit scores. We have offices located all throughout Florida, including, Clearwater, Port Richey, and Lakeland. If you have any other questions in regards to filing bankruptcies or working on improving your credit score feel free to give us a call today at 1-800-407-3328.
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