Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is a federal law where people in debt can get a fresh start and have the opportunity to discharge all of their debt. Once someone files for Chapter 7 bankruptcy, all creditors and debt collectors cannot pursue any debt collection activities. A bankruptcy trustee gets appointed where he or she reviews the list of all creditors and the petitioner’s assets. If there are assets of value, non-exempt assets, it gets liquidated to pay creditors. The bankruptcy petitioner can keep exempt assets such as a limited amount of cash, home, auto, and limited amount of personal assets. Chapter 7 bankruptcy is also known as straight bankruptcy and/or liquidation bankruptcy. People that file Chapter 7 bankruptcy are those with little or no assets and a lot of debts and judgments. Chapter 7 bankruptcy does not discharge government debts such as delinquent income taxes and student loans. Child support is not allowed to be discharged in Chapter 7 bankruptcy either. Medical bills, credit card bills, deficiency judgments, and other unsecured/secured debts are all allowed to be discharged in a Chapter 7 bankruptcy. Those who get a Chapter 7 discharge no longer owe any creditor any more money and has a fresh financial start in life.
Chapter 7 Bankruptcy Process
A Chapter 7 Bankruptcy normally takes from three to six months from the filing date to the discharge date. The cost to file a Chapter 7 Bankruptcy is normally $300 but bankruptcy petitioners will normally pay anywhere between $1,000 to $3,000 depending on which bankruptcy attorney they use. The majority of the bankruptcy costs are for the services of the bankruptcy attorney.
Someone filing for Chapter 7 bankruptcy must complete an approved course of credit counseling which need to be approved by the United States Bankruptcy Trustee.
As mentioned earlier, the day your bankruptcy petition is filed, an order of relief goes into effect immediately which is an automatic stay. This automatic stay that goes into effect the date the bankruptcy petition is file immediately stops all of your creditors and debt collectors from pursuing any collection activities. It is a cease and desist order and it is illegal for any creditors or debt collectors even contacting you. Creditors and debt collectors cannot garnish your wages or bank accounts and they cannot lien any of your assets or properties that you own.
When you file for bankruptcy, a trustee is in charge of your financial affairs and you cannot sell or give away any of your property without the consent of the bankruptcy trustee. The trustee’s role is oversee and audit your assets and debts and see the most he or she can pay your creditors if you have any assets that can be liquidated. Most foks who file Chapter 7 bankruptcy have little or no assets. The trustee will review your personal financial statements, tax returns, and bank statements to see if you had liquidate assets prior to your bankruptcy filings and see if you are hiding any assets. The trustee will call for a creditor’s meeting where a few weeks of your bankruptcy filing all creditors that you have listed on your bankruptcy petition will receive notice of a creditors meeting. The bankruptcy trustee is in charge of the meeting if any creditors show up. If you have little or no assets, the chances are that no creditors will show up. In the event if the bankruptcy trustee finds that you have non exempt property, the trustee can require you to surrender it. If the non exempt properties is not worth any value or you owe more than what it is worth, the bankruptcy trustee can disregard the non exempt property or let the petitioner keep the property if they do not want to include it as part of their bankruptcy.
Personal Home And Secured Liabilities In Bankruptcy
You can keep your home and still file bankruptcy. If you are behind on your mortgage payments and are in foreclosure proceedings, filing bankruptcy will put an automatic stay on foreclosure proceedings. Your mortgage lender can ask the trustee to lift the automatic stay so they can proceed with the foreclosure proceedings as well. If you are current on your mortgage payments and plan on keeping your house, you can exclude your mortgage from the bankruptcy and continue making your payments and still keep your home. Same as with your car. If you have an automobile loan and are current on your payments and want to keep your car, you can exclude the automobile loan from the bankruptcy and continue to make your auto payments and keep your vehicle. A lien or judgment against your home or car can be wiped out in a bankruptcy.
Chapter 7 Bankruptcy Discharge
After three to six months, the final outcome you want is a bankruptcy discharge where all of your debts on your bankruptcy petition is discharged and you are no longer responsible for your debts except the following debts:
1. Government debts: Income taxes, student loans, and child support debts are not discharged and you are still responsible to pay them.
2. Fraud: Debts that creditors have objected to the bankruptcy trustee and the bankruptcy trustee deemed it non-dischargeable debts because the creditors and debt collectors provided proof that it was fraud.
Qualifying For A Mortgage Loan After Bankruptcy
Declaring bankruptcy is not the end of the world and often times is better than having to struggle to make payments on debts you can no longer afford due to a reduction of your income. Bankruptcy gives you a fresh start in life and most people start re-establishing their credit from the discharge date of their bankruptcy and have credit scores of over 700 FICO a year after their discharge date. Best way to re-establish credit after a bankruptcy is by getting three $500 credit limit secured credit cards. Each credit card will boost your credit scores by 30 or more points over the course of the year. You can qualify for a residential mortgage loan two years from the bankruptcy discharge date with re-established credit. You can qualify after a one year waiting period after a bankruptcy if you qualify for the new FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program. The Back to Work mortgage program requires that you need to be unemployed or underemployed at least for six or more months prior to the initiation of your bankruptcy and that you have suffered an economic event that has resulted a 20% or more reduction of your household income.