Chapter 7 Bankruptcy – A Summary
Chapter Seven Bankruptcy is the most famous bankruptcy. It is the kind of bankruptcy that instantly wipes out most debts, especially Credit Card Debt, Foreclosure Debt, Business Debt, Repossession Debt and much more. Chapter 7 Bankruptcy instantly stops Wage Garnishments and Bank Levies (also called bank freeze), law suits, foreclosures and all other creditor actions. Chapter 7 is also called a “straight bankruptcy”, or liquidation, or ‘fresh start bankruptcy’. The other most common kind of bankruptcy is Chapter 13. Chapter 13 is a repayment plan. Nobody who could do a Chapter 7 would want to do a Chapter 13 or a Debt Settlement plan.
Who is eligible for Chapter 7 Bankruptcy?
If you live in, own property in or have a business in the United States, you are allowed (if you qualify) to file for Chapter 7. Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.
You can only file Chapter 7 Bankruptcy once every 8 years. (before the new law, you could file every 7 years, but unfortunately it is now 8 years) When You file Chapter 7 bankruptcy, you basically go to the government and say (with a lot of formal legal jargon) three things.
- I have no way to repay my creditors.
- I have no assets that I can sell to repay my creditors (don’t worry, because of the bankruptcy exemptions, it is very possible that you can still say this in truth if you have a house, car, and other general possessions)
- I borrowed the money honestly, with intent to repay it, but things didn’t work out that way and now I am stuck.
Once you file the papers, (called petition and schedules) the government wipes out your dischargeable debts. You are left with either NO debts, or just the debts (like student loans) that are not wiped out by bankruptcy.
When you get your discharge, you are free. Bankruptcy discharge stays on your credit report for up to 10 years for most purposes. You can learn more about this by clicking on the blue link Consequences of Bankruptcy. The importance of the effects of bankruptcy on creditworthiness is sometimes overemphasized because by the time most debtors are ready to file for bankruptcy their credit score is already ruined.
What Kinds of Debts Will Chapter 7 Eliminate?
The legal term for ‘elimination’ of debt is “discharge”. Debts are either dischargeable or not dischargeable. Dischargeable Debts Include (and there are many more that are not listed here):
- Credit card debt from repossessions
- Debt from personal loans
- Business loans
- Foreclosures
- Debt from old utilities
- Closed and cancelled telephone accounts
- Back rent for an old apartment (where you don’t live any more)
- Debt from law-suits and judgments not involving fraud
- Some Tax Debt (most people don’t understand this)
- Some Debt from overpayments of unemployment insurance
- Other social services and many other kinds of debts!!
INTERESTING NOTE: Did you know that with Chapter 13 you can get rid of even more kinds of debt? Sometimes you can even get rid of your second mortgage on a house you keep! You should speak with an expert bankruptcy lawyer to be sure whether your debt is dischargeable or not.
Non-Dischargeable Debts (ones you cannot get rid of in Chapter 7 Bankruptcy)
- Student Loans Debt from Fraud (Misinformation on mortgage applications is not necessarily fraud)
- Debt from sales tax or employee withholdings
- Debt from fines (parking, speeding, or other violations)
- Debt from child support or alimony obligations
- Debt (most of the time) that you are obligated to pay by a divorce agreement or order
You should speak with an expert bankruptcy lawyer to be sure whether your debt is dischargeable or not.
INTERESTING NOTE: REGARDING MORTGAGE APPLICATIONS
Most incorrect information on a mortgage application is NOT fraud because it was encouraged if not entered by the mortgage side of the contract. For this reason, many such loans were actually called “Liar Loans”. That reckless practice by the lenders and brokers is a big reason for the recent recession!
What Happens to The Debt?
Your Dischargeable Debt is totally wiped out. The creditors never get paid. The law says that part of the risk of being in the ‘lending business’ is the risk that borrowers will not be able to repay the loans. This law protects the little guy from predatory creditors.
Of course, if after your bankruptcy you decide to pay your credit cards or other creditors you are free to do so. However, you are totally free of any obligation to do so. What you cannot do is have secret agreements to repay some creditors. If you are caught doing that it creates enormous legal problems for you.
I Still Don’t Know If Bankruptcy is The Best Thing for Me
It is not easy to know. There are a lot of complicated things that even many lawyers don’t understand. Of course, everyone knows about the risk with a bad or low-rent lawyer, that the bad advice causes you to lose your property or get in trouble. However, there is another risk. The risk that you DO qualify for bankruptcy and the lousy lawyer doesn’t know that you do (because he is not a bankruptcy expert or he only handles the very simplest cases) It is very important that you get expert advice from the best possible expert in bankruptcy and other debt solutions. To know for sure if you are eligible for Chapter 7 bankruptcy, you should contact my office. We have New York Bankruptcy Lawyers, New Jersey Bankruptcy Lawyers, California Bankruptcy Lawyers, Florida Bankruptcy Lawyers and Pennsylvania Bankruptcy Lawyers. You can speak with me any time by calling the number above or sending an email.
Waltzer Law Group PC is a law firm that helps individuals and small businesses to deal with debt and financial distress. We were founded in 2008 and have attorneys on our team with over 30 years of experience. Waltzer Law Group has handled over 12,000 matters. Mr. Waltzer has successfully litigated complex matters both against and in partnership with the United States Trustee. Mr. Waltzer has successfully handled complex Chapter 7 and Chapter 13 cases for high-income individuals in NY and NJ. We offer bankruptcy alternatives and have helped small businesses (under 100 employees) with restructuring and workouts.
Waltzer Law Group is recognizing as a leader in the field and has had been cited in the New York Times, been interviewed by CNN, the Wall St. Journal, and the Westchester Business Journal. We have offices throughout New York and New Jersey, where we practice exclusively. However, we do work with a network of superb attorneys in over 20 other states including California, Connecticut, Florida, and Arizona.