In our previous post, we discussed the process of discharging federal income tax debt in a Chapter 7 bankruptcy. As we saw, those with federal tax debt are indeed able to discharge their obligation, although certain requirements must be met. In this post, we will continue with a related topic: the essentials of Chapter 7 bankruptcy. Readers should keep in mind that this topic can be explored in greater detail than we will present here. Our goal now is merely to give an introduction to this process.
Chapter 7: Debt Forgiveness
Chapter 7 bankruptcy is the type of bankruptcy most commonly preferred by debtors. In fact, when most people think of a “bankruptcy,” this is the type they typically think about. In a sense, you could describe a Chapter 7 as the “default” type. Chapter 7 bankruptcy allows you to discharge qualified debts, which means that these debts will be forgiven entirely. Most types of debt may be included in a bankruptcy; however, there are notable exceptions, such as student loan debt. In some cases, however, it is possible to include student loan debt. The eligibility requirements for Chapter 7 are straightforward: you qualify if you earn less than your state’s median income, and you haven’t filed for Chapter 7 in the past 8 years. If you make more than the state’s median income, you may still be eligible, but you must show that your income won’t allow for a Chapter 13 repayment plan.
The entire Chapter 7 bankruptcy process can be completed in as little as 4 to 6 months. Along with your bankruptcy petition forms, you will need to pay a filing fee of $338. When you submit your petition paperwork, you will need to include information about a variety of things, such as your property, your debts, your exempt property, current income, monthly living expenses, and so forth.
Process: Automatic Stay, Trustee, Creditors Meeting & Discharge
Immediately after you file, you will be granted an “automatic stay,” which means that your creditors are legally barred from attempting to collect your debts. This stay takes effect for the duration of the bankruptcy. Next, you will be assigned a bankruptcy trustee, which is the person who will examine your case and make numerous determinations, such as determining which assets can be sold off to creditors.
You will then receive a notice about your creditors’ meeting (a “341 meeting”). Your creditors’ meeting provides your creditors with an opportunity to make statements regarding your case. It’s also an opportunity for your trustee to ask you questions about the paperwork you submitted. In the majority of cases, creditors’ meetings last only a few minutes, and typically no creditors actually show up to make statements.
In the majority of cases, those filing for bankruptcy don’t lose any property. Most of the time, trustees determine that selling off the petitioner’s property will yield little income with which to pay off creditors. However, in some cases, if a petitioner has nonexempt property of value, it may be seized and liquidated in order to partially satisfy your debt. If you have secured debts, such as a car loan, you may have the option of voluntarily surrendering your property, or keeping the property. In some cases, if you have sufficient equity, secured property may be seized and sold.
Ultimately, after all steps are completed, you will receive a notice indicating that your debts have been discharged. Again, keep in mind that some debts cannot ordinarily be wiped out, including student loans, child support, certain tax debts (i.e. property taxes), and so forth.
Contact Financial Freedom Advocates for More Info
In our next post, we will provide an overview of Chapter 13 bankruptcy. For now, if you’d like to learn more, contact Financial Freedom Advocates today by calling 786-668-6688.