What Are the Eligibility Requirements for Filing Chapter 7 Bankruptcy?
BUDGET: The Court will assess whether you have sufficient disposable income to pay your creditors. Disposable income is the money you have left over every month after expenses have been paid.
EXAMPLE: After taxes are withheld from your paycheck, you bring home $1,000 per month. After paying rent, utilities, car payments, food, clothing and miscellaneous expenses, you have spent $950. In this case, you would have $50 in disposable income for the month.
CAUTION: The Bankruptcy Court reviews expenses you have listed in your budget to determine the reasonableness of each budget item.
How will bankruptcy affect my credit?
There is no clear answer to this question since most creditors decide on a case by case basis whether or not to extend credit. Unfortunately, if you are behind on your bills or have a high debt load, you may already have trouble getting credit.
Bankruptcy eliminates your debts. Some creditors view someone who has received a Chapter 7 discharge as a better risk than someone with a high debt load. That's because after receiving a Chapter 7 discharge, a debtor cannot file another Chapter 7 bankruptcy petition for at least eight (8) years from the date the Chapter 7 was filed. Furthermore, the consumer may now have the ability to pay new debts since previous debts have been eliminated.
What can I keep in a Chapter 7 bankruptcy?
In a Chapter 7 bankruptcy, you may keep all exempt (legally protected) belongings. The attorney will review your assets and available exemptions to determine whether the things you own are exempt. There are several categories of exempt property. Debtor’s who have property exceeding legal limits may choose to file a Chapter 13 bankruptcy to protect additional assets.
Can I keep assets that a creditor has a security interest in -- such as my house, car, jewelry, furniture or computer -- that I financed with a creditor? (This refers to store creditors or loan companies that financed the items you purchased or creditors who placed a lien on items you already own.)
In most cases, you will not lose your property as long as the value of the property does not exceed applicable exemption laws and you continue to make payments for these items. Although bankruptcy discharges the debt, secured creditors can take back their secured merchandise (car, house, furniture, jewelry or other collateral) unless you agree to repay the debt. You must continue to make payments on the secured items you want to keep.
If you are unsure if the creditor is secured, show the purchase agreement to the attorney. The attorney will evaluate the value of the item and the nature of the debt, and advise you regarding your rights and obligations in these matters.
Can I eliminate all of my debts?
Most debts are dischargeable. Student loans may only be discharged under limited circumstances and require a special hearing. Recently acquired debts, recent cash advances or debts you obtained after bankruptcy counseling may not be dischargeable. Debts obtained within a short time prior to filing the bankruptcy are presumed to be non-dischargeable.
Other debts that are non-dischargeable include but not limited to: child support, alimony, debts obtained by fraud, plus debts resulting from willful and malicious harm such as a DUI-related accident.
Although judgments are discharged, judgment liens on real estate remain. An additional retainer is required to remove judgment liens. It’s important to remember that you MUST list ALL your debts on the bankruptcy petition; even those that are not dischargeable. Discuss all debts with your attorney to determine if they may be dischargeable.
How long does the bankruptcy process take and what will happen?
The attorney will prepare the petition for bankruptcy after you have returned all the requested information and made suitable arrangements to pay the balance of fees and costs in full. You will meet with an attorney to review your petition and receive instructions for testifying at the trustee’s meeting. You must sign the bankruptcy petition before it can be filed.
The trustee's meeting will be scheduled at the time the bankruptcy is filed (about 3 – 6 weeks from the date the petition is filed). At the trustee's meeting, the trustee will ask you questions to make sure your petition is correct. If the petition is for a Chapter 7 bankruptcy, you will be granted a discharge within three (3) months of your trustee's meeting.
A Chapter 13 bankruptcy is discharged when the payment plan to the Court is complete. This is usually 3-5 years from the date you begin your Chapter 13 plan payments.
What information do I need to file the bankruptcy?
You will need the following essential information to file the bankruptcy petition: The value of your personal property
The names and addresses of your creditors, the plus the pay-off statements for cars and mortgages
A budget showing how much money you bring home every month, plus a list of your expenses