FAQ – Chapter 7 Bankruptcy
Means testing is a method of determining a person’s eligibility to maintain a chapter 7 case. Under means testing a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she is not able to pay a minimum of $100 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income in order to be eligible to maintain a chapter 7 case. Disposable monthly income is a person’s current monthly income from all sources less the person’s permitted current monthly expenses. The chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay $100 per month or more to unsecured creditors for 60 months will be dismissed or converted to chapter 13 unless special circumstances exist.
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The vast majority of Chapter 7 bankruptcy cases are completed within 120 days of the filing of the case. A debtor receives his discharge approximately 90 days after the first meeting of creditors.
Every debtor must appear at the first meeting of creditors. This is generally the only time a Chapter 7 bankruptcy debtor has to go to Court. The meeting is handled by the Chapter 7 bankruptcy trustee who is not a judge. Most Chapter 7 debtors never appear before the bankruptcy judge. Our bankruptcy lawyers will attend the first meeting of creditors with you. The questions you will be asked there are the same questions our bankruptcy lawyers ask you when you fill out your bankruptcy paperwork.
In a majority of cases, the discharge is entered approximately 120 days after the filing of the bankruptcy case. The discharge is the Order that releases the debtor from his debts and prevents creditors from attempting to collect monies owed to them. Upon receipt of his discharge, Chapter 7 debtors can immediately begin reestablishing their credit.
Most debts are discharged in a Chapter 7 case. Debts that are not dischargeable in a chapter 7 case include: tax debts that are less than 3 years old; responsible party taxes; debts incurred as the result of fraud, embezzlement, willful and malicious injuries, educational debt, domestic support obligations, and debt incurred as the result of an accident while driving under the influence. Unlisted debts and certain fines and penalties are also not discharged.
No. Chapter 7 is a good choice for someone who is eligible to file a Chapter 7 case, has substantial dischargeable debt they cannot pay, and is not at risk of losing property they wish to keep. Our bankruptcy lawyers will discuss your financial situation with you and tell you whether they believe Chapter 7 is the right choice for you.
Prior to filing any form of bankruptcy, you must complete a credit counseling course with an approved agency. Your credit counseling can be done on the internet and takes about 20 minutes. If you do not have high speed internet access, we can arrange for you to do your counseling in our office.
Our bankruptcy lawyers will need the following documents prior to filing your Chapter 7 case
- a copy of your last filed federal income tax return
- copies of the tax assessor’s statements for any real property you own
- copies of the last 7 months of pay stubs for you and your spouse
- copies of all of your bills
- a copy of your driver’s license and social security card.
The court costs and attorney fee must be paid before a Chapter 7 case can be filed. The attorney fee for each case varies depending on the complexity of your financial situation. Most debtors pay their fees and expenses by simply stopping payment on dischargeable debt like credit card debt. Instead of making these monthly payments, debtors save their money for the payment of their Chapter 7 case.
Yes. A husband and wife may file a joint case under chapter 7. If a joint chapter 7 case is filed, only one set of bankruptcy forms is needed and only one filing fee is charged.
Immediately upon the filing of your case your creditors must stop calling you. They must also stop all garnishments, foreclosures, and attempts to repossess your property. The filing of a chapter 7 case by a person automatically suspends virtually all collection and other legal proceedings pending against that person. A few days after a chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the person. Criminal proceedings, and actions to collect domestic support obligations from exempt property or property acquired by the person after the chapter 7 case was filed, are not affected by the filing of a Chapter 7 case.
In most cases, by the time a person is considering the filing of a Chapter 7 case, their credit is already in bad shape. Generally, they are already to the point that they have no available credit and lenders will not consider making them a loan. In this sense, the filing of a Chapter 7 case may actually help you to improve your credit. Some financial institutions openly solicit business from persons who have recently filed under chapter 7, apparently because it will be at least 8 years before they can file another chapter 7 case. If there are compelling reasons for filing a chapter 7 case that are not within the person’s control (such as an illness or an injury), some credit rating agencies may take that into account in rating the person’s credit after filing. A Chapter 7 filing can be reported on your credit report for up to 10 years.
Employers are not usually notified when a chapter 7 case is filed.
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a chapter 7 case. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses (including a driver’s license), permits, student loans, and similar grants because that person has filed a chapter 7 case.
NO! Our bankruptcy lawyers, will review your financial picture and advise you on whether the filing of a Chapter 7 case will put you at risk of losing any property. Generally speaking, if you have a home or car with a valid lien or mortgage, and the value of your property is close to the amount you owe, you are not at risk of losing any property. As mentioned above, very, very, few Chapter 7 cases involve the loss of property by a debtor. Most people are able to protect unencumbered property through the use of their exemptions. In Alabama, a person may claim $3,000 of personal property as exempt and $5,000 of equity in a homestead as exempt. There are other exemptions also available to Alabama debtors. Our bankruptcy lawyers know how to help you protect your property through the use of allowable exemptions.
The trustee is a person appointed to examine the debtor, collect any nonexempt property, and pay the expenses of the estate and the claims of creditors. In addition, the trustee has certain administrative duties in a chapter 7 case and is responsible for seeing to it that the debtor performs the required duties in the case. A trustee is appointed in every case.
Secured creditors are creditors with valid mortgages or liens against property of the debtor . Property that is encumbered by a valid mortgage or lien is called secured property. If you wish to retain the collateral securing a debt, you may either reaffirm on the debt or propose to redeem the property for its current value. Liens survive bankruptcy unless they are avoided during the case.
To keep secured property, you must either reaffirm on the secured debt or redeem the property. Creditors decide whether they will agree to allow you to reaffirm a debt. You decide whether you will redeem property for a lump sum cash payment. If the debtor and the creditor cannot agree on a redemption price, the Court may decide the value of the property and the amount to be paid by the debtor. Most creditors will allow you to reaffirm if you are current on your loan with them and you have insurance covering the property securing the debt. To reaffirm a debt, you sign a written agreement setting out the terms of your repayment. The reaffirmation agreement advises you of your rights including the right to change your mind about reaffirming the debt during a 60 day period.
An unsecured creditor is a creditor without a valid lien or mortgage against property owned by the debtor. Since most chapter 7 cases do not involve the sale of assets by the trustee, most unsecured debt is simply discharged without being paid. In most cases, the filing of a chapter 7 case will allow you to wipe out all credit card debt, medical bills, personal loans, judgments, and some tax debt.
If, within 20 days after a chapter 7 case is filed, the person filing furnishes a utility company with a deposit or other security to insure the payment of future utility services, it is illegal for a utility company to refuse to provide utility service to the person after the case is filed, or to otherwise discriminate against the person, if its bill for past utility services is discharged in the debtor’s chapter 7 case.
Yes. A debtor may repay as many dischargeable debts as desired after filing a chapter 7 case. By repaying one debt, a person does not become legally obligated to repay any other debts
A chapter 7 discharge releases only the person or persons who filed the chapter 7 case. The liability of any other party on a debt is not affected by a chapter 7 discharge.