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Posts Tagged ‘Chapter 7’

Chapter 7, also known as “liquidation” or “straight liquidation,” is typically the simplest and fastest form of bankruptcy.

Individuals, married couples and businesses can use Chapter 7 bankruptcy protection to wipe out all unsecured debts, completing eliminating financial obligations such as:

• * credit card debt
• * medical bills
• * collection accounts
• * civil judgments
• * back rent
• * overdue utilities
• * various personal/consumer loans

However, filing Chapter 7 bankruptcy will not eliminate some debts. These include: most back taxes, student loans, as well as court-ordered alimony and child support.

Ever since bankruptcy reform legislation passed in 2005, individuals have had to go through credit counseling, and pass an “income test” and a “means test” in order to qualify for Chapter 7.

If you do not meet the qualifications for Chapter 7, you will be shifted from Chapter 7 into Chapter 13 bankruptcy for a five-year repayment.

Lawyers also often advise people trying to prevent foreclosure and individuals who have secured assets that they want to keep (like a home, car or boat) to file Chapter 13 bankruptcy, instead of Chapter 7.

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In the wake of bankruptcy reform legislation passed in 2005, to qualify for a Chapter 7 filing, you must now show that you can’t repay your creditors, and you must pass an “income test” and a “means test.”

The rules governing each are complicated. But in its simplest form, the “income test” compares your income to the median income in your state, based on the number of people in your household. If your income exceeds your state median income, the bankruptcy trustee or any creditor can bring a motion to dismiss your bankruptcy filing on the grounds that is an “abuse” of the bankruptcy system.

The “means test” in a Chapter 7 filing examines whether or not you can afford to pay at least $100 a month to your creditors over the course of five years (a total of $6,000).

If you are deemed capable of repaying this amount, you will be shifted from Chapter 7 into Chapter 13 bankruptcy for a five-year repayment plan.

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Q: I Filed a Chapter 7 in 2001. I Have a Couple of Other Things on My Credit. Where Do I Need to Start to Get My Credit On the Right Road?

A: A Chapter 7 Bankruptcy filing from 9 years ago is still on your credit records and thus impacts your credit rating. But frankly, it should have a limited overall impact on your credit ranking, given the long-ago time frame of your bankruptcy. Fortunately in another year or so, that bankruptcy will be dropped from your credit reports. In the meantime, the best thing you can do is to focus on paying all your bills on time and trying to clean up those other things on your credit you mentioned. If you have fairly recently collection accounts or late payments (i.e. within the past two years), try to bring them up to date. Reduce your credit card debt (if any) because that will almost certainly boost your credit score. Also consider getting a secured credit card, if you’re not able to get a regular credit card. That secured card is a good way to rebuild credit after you’ve had credit problems in the past.

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Q: My Wife Filed for Bankruptcy Before We Were Married. Can My Income Be Included in This?

A: There are multiple factors that would determine whether or not your income can be included in your wife’s bankruptcy filing. Some of those factors include: the type of bankruptcy filing your wife did, how long before your marriage the bankruptcy filing took place, and whether or not debts listed in the bankruptcy were in her name alone, or both of your names.

Chapter 13 Compared to Chapter 7

With a Chapter 13 bankruptcy filing, when there are co-signers on debts such as a mortgage, both people on the loan do not have to actually file for bankruptcy in order to reap the legal and financial protections afforded by bankruptcy. Unlike Chapter 7, which completely wipes out personal debts such as credit card bills and installment loans, Chapter 13 is a way to re-organize your finances and pay off your debts over a period of 3 to 5 years. Chapter 13 is also known as a wage earner’s plan, because individuals in this form of bankruptcy must have a regular income and provide a plan to the court showing that the person can repay all of part of his/her debts.

Information Required by Bankruptcy Trustees

To do a Chapter 13 filing, the courts require that a debtor first gather a slew of information, including creditors’ names, addresses, and the amount of debt owed to each. A person filing bankruptcy must also put together a variety of “schedules,” namely, an income and expense schedule, a schedule outlining his or her assets and liabilities, and a schedule showing unexpired leases and executory contracts (i.e. those where a borrower has a material unperformed obligation). Lastly, the debtor must provide the Bankruptcy Trustee with a statement about the individual’s financial affairs. Taken together, these documents will give the Chapter 13 Trustee a sense of one’s overall financial picture.

Co-Signers are Protected and Do Not Have to File Bankruptcy

Here’s how bankruptcy can protect you – and how you can be drawn into a bankruptcy proceeding. Assume you and your wife had a mortgage together prior to marriage, and she filed Chapter 13 bankruptcy to try to save your home and wipe out some of her debts (again, before you were married). You don’t have to have actually filed for bankruptcy along with your wife to get some of the benefits of her bankruptcy protection. If you were a co-signer on the mortgage, for example, the courts would want to also include your income and expenses in your wife’s schedules and statement of financial affairs, so that the Trustee can accurately assess financial responsibility and both of your ability to repay the debt over time. The good news for co-signers is that with a Chapter 13 petition, the filing also provides a “co-debtor stay,” which means that creditors can’t try to collect a consumer debt from another individual who is also liable with the debtor for the debt.

With a Chapter 13 filing, The court also issues an “automatic stay” protecting both your wife and you from further actions by your creditors. This means they can’t initiate or continue any collection activity against you, including foreclosure, lawsuits, repossession, wage garnishments, or even just harassing phone calls.

Professional Help Could Be of Assistance

Based on this information, if you are at all concerned about your wife’s bankruptcy filing, and how it may impact you, I would encourage you to seek out a knowledgeable bankruptcy attorney who can help you answer some of the questions and issues I’ve raised – especially regarding the type of bankruptcy and what debts were included in the filing, and your specific state laws about bankruptcy.

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