Chapter 7 Bankruptcy
Why you should contact us immediately:
It is important to consult an attorney if you are considering bankruptcy whether this is a chapter 7 or chapter 13. This process can be a complex, confusing one. We can help alleviate the complexity of a Chapter 7 by offering legal counsel to determine which chapter of bankruptcy your unique case qualifies for. If your wages are being garnished, if you are facing harassment by angry creditors, or if you are making little or no income and are in over your head with debt, Chapter 7 may be the answer. We also will make sure you have filed all the necessary forms to file your Chapter 7 bankruptcy and will assist you with reaffirming secured debts. It is essential to seek help from a professional on your road back to financial stability.
Chapter 7 Overview:
Chapter 7 is the section of the U.S. Bankruptcy Code that provides “asset liquidation.” A Chapter 7 is the fastest, most common type of personal bankruptcy. This is the sale of the debtors’ nonexempt property and the distribution of those proceeds to their creditors. In return, the debtor then receives a discharge, releasing the debtor from all dischargeable debts, and creditors are ordered to stop their harassment and attempts to collect the discharged debts.
While discharging does relieve a debtor of all obligations to pay that debt, not all debts can be discharged. These debts include certain taxes, alimony, child support, liens, student loans, debts occurring due to defrauding/misleading a creditor and debts not listed in the Chapter 7 bankruptcy petition. You can typically write off credit cards, medical debts, utility bills, some tax debts, checking overdraft accounts, and personal loans.
In January 2011, a new set of exemptions were permitted in New York. If you use the Federal Exemptions, you can keep up to $23,000 (when filing as a couple) in any asset as a "wildcard." If you use the New York Exemptions, you can keep up to $300,000 equity (when filing as a couple) in a home.
There are particular debts that typically cannot be discharged in a bankruptcy. This includes most student loans, court orderd fines, criminal restitution, fraudulent procured debts, child support, alimony, maintenance, and most taxes.
An experienced lawyer would show you what assets are exempt and which debts might not be dischargeable.
Chapter 7 Process:
The process begins with a “means test” instituted by the U.S. Government in the Bankruptcy code in order to determine if you qualify for Chapter 7. If you do, before a petition can be filed, you must complete an approved Credit Counseling Course either on the internet, at home, or by phone. The next step is to file an official petition that consists of the schedules and statements of your financial affairs. This includes listing all assets, debts (even if they are non-dischargeable), creditors and their mailing addresses.
Once the petition is filed, an “automatic stay” is enacted, creating a legal barrier to collection actions from creditors. The case is then assigned to a Trustee appointed by the court who proceeds to administer the Chapter 7 bankruptcy case and conduct an examination pursuant to Section 341 of the bankruptcy code at the Meeting of Creditors. This examination serves two purposes:
It allows the court to verify the validity of the claims you made concerning your financial affairs
It allows the court to determine if you have any “non-exempt” assets, meaning assets which exceed the limitations allowed under state law that then can be liquidated to help repay a portion of the debt sought to be discharged.
Advantages to Filing Chapter 7:
-stops creditor harassment and debt collection efforts
-may “stay” foreclosure proceedings, putting the process on hold and thus giving you time to figure out an alternative to foreclosure
-if successfully completed, Chapter 7 discharges all eligible debt
-There is no maximum or minimum amount of debt that can be discharged
-Chapter 7 proceedings are relatively quick, lasting approximately 3 to 6 months to complete, meaning your debt can be discharged in a relatively short amount of time.
-You can learn from your mistakes with credit and debt and begin a new chapter of financial stability
Disadvantages to Filing Chapter 7:
-Your non-exempt property and assets may be at risk of being surrendered to the bankruptcy court and liquidated to pay off creditors.
-Not all debt is eligible for discharge. Some non-eligible debts include spousal support, child support, mortgage liens, and certain student loans and taxes.
-Chapter 7 can only be filed once every 6 years.
-If you have co-signers on your home or on other assets they may end up paying for your loans (unless they seek similar protection).
- Chapter 7 bankruptcy may have negative affects on your credit rating and thus make it difficult to get loans in the immediate future.
-Discharge is only available to individual debtors, not to partnerships or corporations.
Eligibility for Chapter 7 Bankruptcy:
Two criteria determine eligibility to file for Chapter 7 as a Long Island resident:
Assets: Under New York State law, an individual is allowed to protect certain basic assets from their creditors, known as “exempt property.” As long as the value of your assets to do not exceed the statutory limits, you have met these criteria.
Income/Means Test: The means test determines whether your income is low enough for you to file for Chapter 7. The first step is to determine your average monthly income. If your total income is below the median income for your state for the 6 month period prior to filing, then you qualifiy. If your income is above this median you must then determine if you have the ability to repay a portion of your debt. This question requires you to complete an analysis of your income and expenses.
The new bankruptcy law, among other things, introduces a means test as a determinant of qualification to debts discharged. If you pass the means test, it is presumed that your bankruptcy is not abusive but if you fail the means test, it is presumed that your bankruptcy is abusive.
The name of the legislation is, "Bankruptcy Abuse Prevention and Consumer Protection Act", hence the acronym, BAPCPA. Unfortunately, the last thing it does is protect the consumer. Instead, it protects the profits of the credit card companies. Until the law is fixed, you have to comply with its provisions, and central to these is the means test.
The means test produces one of two results. The first is the statement, "presumption arises" and the other is the statement, "presumption does not arise." The first statement means that your bankruptcy filing is presumed abusive and the second means that it is not.
Passing the means test and consequently, earning the presumption that abuse does not exist, is essentially a green light indicating that you will be granted a discharge. If you do not pass the means test but decide to file anyway, you could still get your debts discharged, but it would be only after a hearing. The judge could decide that your bankruptcy is not abusive despite the initial presumption of abuse.
The means test provides three benchmarks, the passing of any one of which is satisfactory. In other words, you need to meet only one of three criteria.
The first criterion compares your income to the median income for your area. If you meet this criterion, you pass the test and need not complete the rest.
If you do not meet the median income criterion, your income is adjusted to reflect allowable deductions in various categories of expense. These expense deductions are taken from published data compiled by the IRS, the Census Bureau and from various Federal agencies. They are quite detailed and are broken down by county, metropolitan areas, census regions, family size, income, number of vehicles and various other metrics.
After applying these allowable deductions, your disposable income cannot exceed $100 per month. If your disposable income does not exceeds this amount, you pass the test as per the adjusted income criterion. If your disposable income exceeds $160 per month, you fail the means test and the road ends there for you. If your disposable income falls between $100 and $160 per month, you continue to the third and final determination.
The third and final criterion makes a determination as to your ability to pay your unsecured debts in a five year period. If you meet this criterion, you pass the means test but if you do not, you fail the test and your bankruptcy can be presumed abusive.
Q and A
Q: I owe a lot of money to the electric company; will they shut off my power if I file a bankruptcy?
A: Like any other company or service, your electric company may not discriminate against you because you have filed a bankruptcy case. Thus, they cannot stop providing you with power. However, they may request a deposit, for security purposes, in order to continue services. The deposit is usually equal to approximately twice your average monthly bill. If you are not in debt to your electric company then this deposit may be waived. Therefore, unless you fail to make post-filing payments, the company will not shut off your power.
Q: How do I rebuild Credit?
A: Credit is the ability to borrow money. Many people considering bankruptcy fear that that if they take this road, they will never or it will be a number of years before they can get credit again. This is simply false. Many banks now offer “secured” credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Typically this credit limit is equal to the security given and is increased as the debtor provides his or her ability to pay the debt. In terms of mortgages, you should be able to finance a home within two years after receiving a bankruptcy discharge, as long as you can provide a minimum down payment and show the ability to make the monthly mortgage payment. While the fact that you filed bankruptcy does remain on your credit report for 10 years afterwards, it becomes less significant as time goes on and most importantly, does not mean you cannot get credit.
Chapter 7 is sometimes refered to as Chapter Seven, CH 7, ch 7, ch seven.