What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, sometimes call a straight bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".
One of the main purposes of Bankruptcy Law is to give a person, who is hopelessly burdened with debt, a fresh start by wiping out his or her debts.
HOW DIFFICULT WILL IT BE TO FILE CHAPTER 7 UNDER THE NEW BANKRUPTCY LAWS?
There has been much doom and gloom written about the bankruptcy means test under the new laws and how much more difficult it's going to be to file Chapter 7. It's true that there are more hoops to jump through under the new laws and it's true that the bankruptcy means test will result in some people having to file chapter 13 instead of Chapter 7. However, for the vast majority of filers Chapter 7 is still available with very little extra effort!
WILL MY CREDITORS STOP HARASSING ME?
Yes, they will! By law, all actions against a debtor must cease once the documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments. Secured creditors such as banks holding, for example, a lien on a car, will get the stay lifted if you cannot make payments.
WILL MY SPOUSE BE AFFECTED?
Either spouse has the right to file for Bankruptcy on their own and without their spouse. If one elects to do this, your wife or husband will not be affected by your bankruptcy if they are not responsible (did not sign an agreement or contract) for any of your debt. If they just an authorized user (this is where they have not signed the application but the other spouse got a card for their use in their name) they cannot be held liable for that debt. However, in community property states, either spouse can contract for a debt without the other spouse´s signature on anything, and still obligate the marital community (this means that the creditor, if they have received a judgment could garnish a joint bank account. However, they cannot garnish the spouse´s wages or any bank account solely in their name).
Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Your lawyer will be able to guide you in this regard.
WHO WILL KNOW?
Bankruptcy filings are public records. However, under normal circumstances, no one will know you went bankrupt. The Credit Bureaus will record your bankruptcy and it will remain on your credit record for 10 years.
HOW SOON CAN I FILE CHAPTER 7 AGAIN IF I PREVIOUSLY FILED?
A person can file Chapter 7 again if it has been more than 8 years since he or she filed the previous Chapter 7 bankruptcy.
WHEN WILL I BE DISCHARGED FROM BANKRUPTCY-CHAPTER 7?
One of the major purposes of bankruptcy legislation is to afford the opportunity to a person hopelessly burdened with debt to erase his or her debt and thereby get a fresh financial start. A bankrupt´s debt is erased when he or she is discharged.
The debtor is discharged approximately 4 - 5 months after the bankruptcy is filed. At that time all debts (with some exceptions) are written off.
The creditors cannot collect.
IF I USE A CREDIT COUNSELOR WON'T I GET A BETTER CREDIT RATING THAN IF I GO BANKRUPT?
No, you will not.
It will cost you less money and you will rebuild your credit rating faster if you file Chapter 7 or Chapter 13. Be cautious if you are considering using a credit counselor. Also read about the problems of unscrupulous companies in the credit counseling industry and the action the IRS has taken against credit counseling groups following widespread abuse.
In addition, please read the section under "Debt Negotiation".
WILL I EVER GET CREDIT AGAIN?
Yes! A number of 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. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt. One can usually get a new or a "new" used car the day they get their discharge. They will usually have to pay a higher interest rate (20%) but this is the best way to reestablish one's credit. Normally two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profiles, who have not filed bankruptcy. The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past. The fact you filed bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is. The truth is, that you are probably a better credit risk after bankruptcy than before.
CAN MY BOSS FIRE ME FOR FILING BANKRUPTCY?
No. U.S.C. Sec. 525 prohibits any employer from discriminating against you because you filed bankruptcy.
WHAT DEBTS ARE ERASED BY A BANKRUPTCY?
No. U.S.C. Sec. 525 prohibits any employer from discriminating against you because you filed bankruptcy.
