Tag Archives: What is Chapter 7 Bankruptcy?

To discharge (wipe out) debt, most people apply for Chapter 7 bankruptcy. Although some debts are “nondischargeable” and will not be discharged in bankruptcy, Chapter 7 will discharge numerous obligations, including medical and credit card debt.

This article will teach you:

• How a Chapter 7 bankruptcy can help you pay off your debts
• what you’ll be erasing in Chapter 7, and
• In bankruptcy filing, how do you classify debt?
• Find out what bankruptcy can and cannot accomplish for you.

How Does a Discharge Work?

Individual debtors are released from personal accountability for debts discharged by bankruptcy, and creditors due that debt are barred from conducting collection activities against the debtor. To put it another way, the debtor is no longer obligated to pay any discharged debts. About four months after filing the bankruptcy petition, the majority of Chapter 7 filers receive an automatic discharge.

Which Debts Can Be Forgiven?

A list of routinely dismissed debts is shown below.

• Charges on a credit card (including overdue and late fees)
• Accounts of collection agencies
• Medical expenses
• Personal loans from family, friends, and coworkers
• Bills for utilities (past due amounts only)
• Checks that have been forged (unless based on fraud)
• Loans for students (only in the rare circumstance that you can prove undue hardship)
• Deficiency balances from repossessions
• Insurance claims for automobile accidents (except those involving drunk driving)
• Debts owed by businesses
• Money owing to a landlord under a lease arrangement (includes past due rent)
• Judgements of civil courts (unless based on fraud)
• Penalties and unpaid taxes that have accumulated over a period of time
• Lawyer’s fees (except child support and alimony awards)
• Accounts with a revolving balance (except extended payment charges)
• Overpayments of social security, and
• overpayments on veterans’ assistance loans

A word regarding utility deposits and fraud. An otherwise dischargeable obligation can become non-dischargeable due to debt-related misconduct or fraud. A utility company cannot refuse to supply service due to a bankruptcy filing, but it can levy a reasonable deposit to secure future payment.

Dischargeable Debt Timing

It’s not only about the type of debt you have. When you get into debt, the obligation comes into play as well. This is how it goes.

Debt that hasn’t been filed yet. A pre-petition debt is one that you have accrued prior to filing for bankruptcy. The bankruptcy court will dismiss all qualifying pre-petition debt, such as credit card bills, personal loans, and medical debt, at the conclusion of your case.

Debt incurred after the filing of the tax return. Post-petition debt refers to the bills you accrue after filing your original bankruptcy case. You are still responsible for any outstanding balances beyond the original filing date. As a result, even if your lawsuit isn’t finished, you can go into fresh debt.

In other words, only debts incurred prior to the filing date of Chapter 7 are forgiven. Any debt you incur after filing your petition but before securing a discharge is your responsibility.

Prioritization vs. Nonprioritization Debt that isn’t secured

You must organize your debt into categories before filing for bankruptcy. If funds are available, the trustee will pay some creditors before others, depending on whether the claim is secured, priority unsecured, or nonpriority unsecured. Higher-ranking claims are paid first, followed by lower-ranking debt.

For example, “priority” debt is given special consideration and is paid first. Common examples are child support payments and tax debt. After a Chapter 7 bankruptcy, you’ll be responsible for a variety of priority debts.

Bills that you can discharge are usually classified as “nonpriority unsecured” debt. (Unsecured debt isn’t backed up by anything.) Secured debt, on the other hand, includes things like a home mortgage or a car loan.) However, a few non-priority unsecured obligations are not forgiven. For example, you won’t be able to discharge student loan debts in bankruptcy unless you file a separate lawsuit and demonstrate that you meet certain criteria.

The majority of liens will remain on the property.

Despite the fact that a debtor is no longer personally liable for discharged obligations, any legitimate lien that has not been avoided (rendered unenforceable) will remain in the bankruptcy case. For example, if you don’t sign a reaffirmation agreement to continue paying your car payment, the discharge will cancel your duty to pay the car loan; nevertheless, you won’t be able to keep the automobile. The lender will seize the vehicle using its lien rights.

After you’ve filed for bankruptcy, you can no longer receive collection calls.

If a creditor calls you after you file bankruptcy, giving them your case number and filing date will almost certainly put an end to the calls. It’s simple to find your filing date. Take a look at any bankruptcy documents that have been filed with the court. (Even if you hire a lawyer, you’ll get copies of all notices.) Next to your case number, the filing date will display at the top of the page.

A creditor can use the information to rapidly verify your bankruptcy, and if the calls don’t cease, the creditor will face consequences.

Although the majority of Chapter 7 bankruptcy filers will be able to eliminate eligible debt, such as credit card balances, medical expenses, and personal loans, there are some debts that cannot be eliminated. Chapter 7 bankruptcy does not eliminate them. Expect the following in a Chapter 7 bankruptcy.

Barriers to Discharge

The majority of debtors have little difficulty navigating the Chapter 7 process. However, obtaining a Chapter 7 discharge is not certain. Here are two impediments to debt discharge.

You violate insolvency processes and court rules. If you do not, the court may deny your Chapter 7 petition, leaving you liable for the otherwise dischargeable debt.

Your debt doesn’t qualify for a discharge. There are 19 types of non-dischargeable debt. These are debts that Congress ruled, for reasons of national policy, should not be dischargeable. Unless special circumstances materialize, the vast majority of these debts are unforgivable. When you receive your discharge at the conclusion of your lawsuit, the creditor can resume collecting efforts.

A creditor must successfully contest the discharge of a handful of the 19 categories of debt during the bankruptcy proceeding. If a creditor does not object or if it does and the court rules against the creditor, the obligation will be dismissed.

In Chapter 7 cases, the debtor’s right to a discharge is not absolute. To obtain a discharge, debtors must meet the conditions of the bankruptcy code. (11 U.S.C. § 727.)

A creditor, the bankruptcy trustee, or the U.S. trustee can object to the full Chapter 7 discharge if the debtor fails to comply with the rules or produce required information. For instance, a Chapter 7 discharge can be denied if you:

• do not give needed tax records
• don’t complete a course on personal financial management
• transfer or hide property in order to cheat or obstruct your creditors
• destroy or conceal books or documents
• commit perjury or other dishonest activities in your bankruptcy filing
• unable to account for missing assets
• transgress a court order, or
• previously filed for bankruptcy and receiving a discharge within specified timeframes

If successful, the debtor will remain accountable for all debts.

Debts That Can Never Be Discharged in Chapter 7

Some debts are ruled nondischargeable without the necessity for a hearing if they fit into one of a predetermined list of categories. The following debts are automatically non-dischargeable unless the debtor can demonstrate extraordinary circumstances.

Unscheduled debts (debts not listed on the bankruptcy petition or mailing list) are not dischargeable unless the creditor had actual notice or knowledge of the bankruptcy filing. Additionally, many jurisdictions permit the discharge of normally dischargeable debts that were omitted from the petition due to an honest error where there are no assets to distribute.

some taxes (for details, see Tax Debts in Bankruptcy)

• debts for alimony, child support, or spousal support
• Obligations owing to a former spouse or kid if they resulted from a divorce or separation.
• debts for fines and penalties owed to government agencies
• student loans (with a few rare exceptions)
• Personal harm debts caused by the drunken operation of a motor vehicle by the debtor.
• some tax-advantaged retirement plan obligations
• monetary obligations for specific condominium or cooperative housing fees (such as homeowners association fees)
• attorney expenses in custody and support proceedings, and
• Included in court fines and penalties is criminal restitution.

While all of these debts are ineligible for discharge under Chapter 7, some of them may be removed under Chapter 13. Determine which debts are eligible for discharge under Chapter 13 but not Chapter 7

Non-dischargeable Debts If a Creditor Objects

Certain debts are not necessarily exempt from discharge. Creditors must petition the court to decide whether or not they are dischargeable. If the creditor does not raise the issue of dischargeability or raises it but the court disagrees, these obligations will be dismissed.

Using a credit card to purchase fancy items. These debts are assumed fraudulent and nondischargeable when owed to a single creditor and totaling more than $800 (for cases filed between April 1, 2022 and March 31, 2025) and incurred within 90 days of filing for bankruptcy. In an adversarial proceeding, a form of lawsuit, the creditor must submit the facts to the court. If you can demonstrate that you planned to repay the charges or that the goods were not “luxury” items, the debt will be forgiven.

Cash advances are available. When a debtor receives more than $1,100 from a single creditor within 70 days of filing for bankruptcy (for cases filed between April 1, 2022 and March 31, 2025), the debt is judged fraudulent and nondischargeable. Again, if you can demonstrate that you planned to repay this money, the obligation will be forgiven. Learn additional information on luxury debts and cash advances.

Debts gained via fraud or false pretenses.

Misrepresenting income on credit applications or purchasing products or services on credit without the intent to pay are common causes of these types of cases.

Debts incurred as a result of intentional and malicious harm. You cannot repay a debt incurred by willfully harming another person or their property.

If you’re considering bankruptcy as a means of dealing with debt, you should understand more about its operation, its capabilities and limitations, and its eligibility requirements.

Learn how to file for bankruptcy while adhering to the COVID-19 outbreak’s quarantine and social distancing rules.

Dealing with the COVID-19 pandemic’s uncertainty is especially difficult for those facing bankruptcy. Fortunately, many courts have temporarily relaxed rules, making it easier for bankruptcy attorneys to represent clients who have been quarantined. Therefore, if you are quarantined due to the coronavirus, rest assured that a large number of bankruptcy attorneys are prepared to assist you in getting out of debt.

Learn more about the temporary changes to bankruptcy procedures that have been implemented to help contain the spread of COVID-19.

Locating a Bankruptcy Attorney During the Coronavirus Epidemic

Due to the difficulty of representing yourself during the coronavirus outbreak, especially if you have ongoing health problems, your first hurdle will likely be hiring a bankruptcy attorney.

Because conducting in-person interviews will be impossible, you may wish to seek referrals from friends, family, and other attorneys. Additionally, you can search for a lawyer online or through your local or state bar association.

When contacting candidates, ensure that the office is capable of representing you while you are isolated, and that necessary accommodations are made, such as the following:

• For attorney-client meetings and document review, telephone or video conferencing is used.
• Options for submitting and signing documents include online, email, or dropbox.
• the possibility of making a telephonic appearance at the 341 creditors’ meeting (the one hearing all filers must attend).
• Additionally, inquire about the office’s free initial phone consultations. Discover the benefits of hiring a bankruptcy attorney.

Bankruptcy Filing During the Coronavirus Outbreak

While you are in quarantine, you will communicate with your lawyer and the court via technology. You will almost certainly require a computer, a printer, and a scanner (although some lawyers might let you use your phone to copy documents). Additionally, documents can be mailed or delivered by a friend or family member.

Here’s why these details will be critical.

Due to COVID-19, bankruptcy documents can be exchanged virtually.

Filing for bankruptcy is a time-consuming process. You should anticipate that your attorney will request that you complete a lengthy financial questionnaire. Additionally, you’ll need to gather numerous financial documents to substantiate your questionnaire responses.

Normally, the lawyer would hand you a packet and ask you to return it to the office later. Naturally, this will not work while you are quarantined. However, numerous attorneys already have functional systems in place.

For example, some attorneys begin the process by sending debtors a link to a website where they can complete the questionnaire online and possibly upload pay stubs, bank statements, and other documents required when filing for bankruptcy.

Others will email the bankruptcy questionnaire to the client and request that they scan and return it via email. If scanning is not possible, you can mail the documents in or have them dropped off at an office dropbox by a friend or family member (assuming that essential travel is permitted). Bear in mind that, according to some reports, the coronavirus can survive for an extended period on paper and cardboard.

Completion of Mandatory Bankruptcy Courses

You’ll complete two online courses—one prior to and one following your bankruptcy filing. Your attorney will assist you in obtaining access to the courses. Learn more about credit counseling and bankruptcy debtor education courses.

Meeting With a Bankruptcy Attorney Is Virtually Impossible Due to COVID-19

You should expect three to four consultations with your lawyer before the office files your case. The office can arrange meetings over the phone or via video conferencing.

Acquainting yourself with the attorney. You’ll ask questions, listen to the attorney’s assessment, and decide whether or not to retain the lawyer during the initial consultation. A lawyer familiar with your case may advise you of your options during that meeting.

Choosing a course of action. It is not uncommon for debtors to forget critical details inadvertently or to be unaware of the significance of certain information during the initial consultation. You’ll discuss anything new that came up in your questionnaire during this meeting. As a result, this will not be necessary unless the information contained in your questionnaire responses and financial documents contradicts what you and your lawyer discussed during the initial meeting.

Certain courts have temporarily waived the requirement that a bankruptcy attorney obtain an original or “wet signature” on the bankruptcy petition before electronically filing it with the court. This rule relaxation is extremely beneficial to both lawyers and clients during the coronavirus pandemic. It restricts the amount of contact that must occur prior to filing a case. Each day, more courts adopt similar rules.

If your local court has waived the requirement for a “wet signature,” your attorney should be able to immediately file your case online. Even if your local bankruptcy court has not yet relaxed this requirement, some attorneys may agree to a different arrangement. For example, the attorney may be able to review documents via phone or video conferencing and file the case after receiving the wet signature via mail or dropbox.

Bringing Your Bankruptcy Case to a Successful Conclusion

If you file for Chapter 7 bankruptcy, all that remains is to await your discharge—the court order that eliminates your debt.

In a Chapter 13 case, your attorney will appear via telephone at a Chapter 13 confirmation meeting (as will you, if necessary—this will depend on the court’s practice). If the court approves your repayment plan at the confirmation hearing, you will make payments for three to five years on the agreed-upon schedule.

To discharge (wipe out) debt, most people apply for Chapter 7 bankruptcy. Although some debts are “nondischargeable” and will not be discharged in bankruptcy, Chapter 7 will discharge numerous obligations, including medical and credit card debt.

This article will teach you:

• How a Chapter 7 bankruptcy can help you pay off your debts
• what you’ll be erasing in Chapter 7, and
• In bankruptcy filing, how do you classify debt?
• Find out what bankruptcy can and cannot accomplish for you.

How Does a Discharge Work?

Individual debtors are released from personal accountability for debts discharged by bankruptcy, and creditors due that debt are barred from conducting collection activities against the debtor. To put it another way, the debtor is no longer obligated to pay any discharged debts. About four months after filing the bankruptcy petition, the majority of Chapter 7 filers receive an automatic discharge.

Which Debts Can Be Forgiven?

A list of routinely dismissed debts is shown below.

• Charges on a credit card (including overdue and late fees)
• Accounts of collection agencies
• Medical expenses
• Personal loans from family, friends, and coworkers
• Bills for utilities (past due amounts only)
• Checks that have been forged (unless based on fraud)
• Loans for students (only in the rare circumstance that you can prove undue hardship)
• Deficiency balances from repossessions
• Insurance claims for automobile accidents (except those involving drunk driving)
• Debts owed by businesses
• Money owing to a landlord under a lease arrangement (includes past due rent)
• Judgements of civil courts (unless based on fraud)
• Penalties and unpaid taxes that have accumulated over a period of time
• Lawyer’s fees (except child support and alimony awards)
• Accounts with a revolving balance (except extended payment charges)
• Overpayments of social security, and
• overpayments on veterans’ assistance loans

A word regarding utility deposits and fraud. An otherwise dischargeable obligation can become non-dischargeable due to debt-related misconduct or fraud. A utility company cannot refuse to supply service due to a bankruptcy filing, but it can levy a reasonable deposit to secure future payment.

Dischargeable Debt Timing

It’s not only about the type of debt you have. When you get into debt, the obligation comes into play as well. This is how it goes.

Debt that hasn’t been filed yet. A pre-petition debt is one that you have accrued prior to filing for bankruptcy. The bankruptcy court will dismiss all qualifying pre-petition debt, such as credit card bills, personal loans, and medical debt, at the conclusion of your case.

Debt incurred after the filing of the tax return. Post-petition debt refers to the bills you accrue after filing your original bankruptcy case. You are still responsible for any outstanding balances beyond the original filing date. As a result, even if your lawsuit isn’t finished, you can go into fresh debt.

In other words, only debts incurred prior to the filing date of Chapter 7 are forgiven. Any debt you incur after filing your petition but before securing a discharge is your responsibility.

Prioritization vs. Nonprioritization Debt that isn’t secured

You must organize your debt into categories before filing for bankruptcy. If funds are available, the trustee will pay some creditors before others, depending on whether the claim is secured, priority unsecured, or nonpriority unsecured. Higher-ranking claims are paid first, followed by lower-ranking debt.

For example, “priority” debt is given special consideration and is paid first. Common examples are child support payments and tax debt. After a Chapter 7 bankruptcy, you’ll be responsible for a variety of priority debts.

Bills that you can discharge are usually classified as “nonpriority unsecured” debt. (Unsecured debt isn’t backed up by anything.) Secured debt, on the other hand, includes things like a home mortgage or a car loan.) However, a few non-priority unsecured obligations are not forgiven. For example, you won’t be able to discharge student loan debts in bankruptcy unless you file a separate lawsuit and demonstrate that you meet certain criteria.

The majority of liens will remain on the property.

Despite the fact that a debtor is no longer personally liable for discharged obligations, any legitimate lien that has not been avoided (rendered unenforceable) will remain in the bankruptcy case. For example, if you don’t sign a reaffirmation agreement to continue paying your car payment, the discharge will cancel your duty to pay the car loan; nevertheless, you won’t be able to keep the automobile. The lender will seize the vehicle using its lien rights.

After you’ve filed for bankruptcy, you can no longer receive collection calls.

If a creditor calls you after you file bankruptcy, giving them your case number and filing date will almost certainly put an end to the calls. It’s simple to find your filing date. Take a look at any bankruptcy documents that have been filed with the court. (Even if you hire a lawyer, you’ll get copies of all notices.) Next to your case number, the filing date will display at the top of the page.

A creditor can use the information to rapidly verify your bankruptcy, and if the calls don’t cease, the creditor will face consequences.

In the United States, Chapter 7 bankruptcy is one of the most powerful debt relief options. It can assist customers in escaping poverty and giving them a fresh start. It allows you to start again by wiping your debts. However, bankruptcy is a personal choice, and you should carefully examine if it is the best option for you. The advantages and disadvantages of Chapter 7 bankruptcy are discussed in this article.

What are the Benefits of Filing for Bankruptcy under Chapter 7?

An immediate sense of relief in the form of a much-needed breathing spell

You are protected from creditors as soon as your bankruptcy case is filed with the bankruptcy court. When you file for bankruptcy, all collection operations are automatically halted. All phone calls, garnishments, and collection letters must cease immediately. Repossessions, evictions, and foreclosures were all put on hold for the time being.

A bankruptcy discharge provides permanent debt relief.

Most sorts of debt, including credit card debt, medical bills, and personal loans, are erased when you file Chapter 7 bankruptcy. When the bankruptcy court grants you a bankruptcy discharge, you no longer have to pay these sorts of unsecured debts.

It’s almost certain that you’ll get your bankruptcy discharged.

You can achieve your bankruptcy discharge in as short as three months if you’ve never filed bankruptcy before, pass the means test, and act honestly with the bankruptcy court and the bankruptcy trustee. It’s virtually automatic if you make sure you meet all conditions before and after filing your bankruptcy petition.

You’ll almost certainly get to keep all you own.

More than 95 percent of people who file Chapter 7 bankruptcy in the United States keep everything they own. This is because certain property, known as exempt property, is protected from creditors under the law. If it’s covered by an exemption, you get to retain it, whether it’s your monthly social security check, your watch, or your kitchen table.

You can even keep your car after filing for bankruptcy if you want to.

You’ll still have to pay for it, but isn’t that just? If you don’t want to keep it, though, Chapter 7 bankruptcy permits you to walk away from both the car and the loan! Here’s all you need to know about preserving your car after declaring bankruptcy under Chapter 7.

Missed monthly payments and other negative entries on your credit report no longer affect your credit score after bankruptcy.

When your bankruptcy is discharged, you will be given a clean slate on which to rebuild your credit and raise your credit score. One year after filing Chapter 7, the majority of folks have a higher credit score than they did when they first started the bankruptcy process.

Improved Credit and Banking Access

You’ll get more credit card offers than you know what to do with shortly after you file for bankruptcy. This will not only assist you in rebuilding your credit and increasing your credit score, but it will also provide you with the security net that comes with owning a credit card in the event of an emergency.

What are the Disadvantages of Chapter 7 Bankruptcy?

Filing for bankruptcy under Chapter 7 is not for everyone. Even if it appears to be the best debt relief choice for you, once you consider some of the disadvantages of Chapter 7, it may not be.

If you earn too much money, you won’t be able to file Chapter 7.

If you earn less than the median income, you may be perplexed as to how this is even feasible. Don’t be concerned; this isn’t about you. This refers to people who have money left over after paying their basic living needs.

The means test determines whether or not you have disposable income. You won’t be able to simply walk away from your debt if you have too much disposable income. While you won’t be able to file for Chapter 7, you will be able to acquire a bankruptcy discharge if you complete a Chapter 13 repayment plan.

If you have good credit, it will almost certainly suffer a temporary setback.

Those who are able to make their monthly payments on time and maintain a high credit score before filing for bankruptcy will notice their score dip at first. However, a bankruptcy filing frequently benefits the filer’s credit score more than it hurts it. Plus, after their bankruptcy is discharged, they can immediately start working on improving their credit score.

It does not completely eliminate all unsecured debts.

Some unsecured debts, such as alimony and child support, are not dischargeable in bankruptcy. Other debts, such as tax debts and student loans, can be difficult to discharge in bankruptcy.

Certain forms of property can be lost.

The obligation to give up certain pricey objects is one of the trade-offs for achieving a bankruptcy discharge in a handful of months. Property that is not exempt from the bankruptcy trustee’s ability to sell to pay creditors in a Chapter 7 bankruptcy case is uncommon.

If you hold valuable property that you don’t want to lose, you should consult a bankruptcy attorney. Then you’ll know whether that’s a real possibility for you, and if it is, whether filing Chapter 13 is a better debt relief choice.

Others are not protected by your Chapter 7 bankruptcy filing.

Only your obligation to pay the debt is eliminated when you file for Chapter 7 bankruptcy. It does not relieve anyone else of their debt. The only sort of bankruptcy that can protect a co-signer is Chapter 13, but that only works if you pay off the debt under your repayment plan.

What are the advantages and disadvantages of filing for Chapter 13 bankruptcy?

For those in need of a fresh start, both Chapter 7 and Chapter 13 bankruptcy are viable possibilities. However, the benefits and drawbacks of Chapter 13 bankruptcy differ significantly from those of Chapter 7. Chapter 13 bankruptcy may be ideal for you if you have a lot of disposable income or non-exempt assets you want to protect. Learn more about the benefits and drawbacks of Chapter 13 bankruptcy in this article.

Bankruptcy is a costly process.

For Chapter 7 cases, the bankruptcy court imposes a $338 filing fee. You must pay this filing fee if your income exceeds 150 percent of the federal poverty level. If you can’t pay the amount all at once, you can file your case and pay the charge in up to four installments. However, if you do not pay it in full, the court will dismiss your lawsuit.

You’ll have to pay their attorney fees in addition to the court filing expenses if you employ a law firm or a bankruptcy lawyer to assist you. This normally amounts to around $1,500, which must be paid before your case can be filed. This is in addition to the filing fee and the cost of the required credit counseling classes.

Hiring the correct bankruptcy lawyer for your case might be a wonderful investment depending on your financial condition and the goals you want to achieve with your bankruptcy petition. However, many Chapter 7 cases are straightforward and can be finished without the assistance of a lawyer.

Read on to learn more about the costs of Chapter 7 bankruptcy in 2021.

How Much Does a Lawyer Charge for Chapter 7 Bankruptcy?

The first thing you probably want to know about bankruptcy is how much it will cost. Everyone who files for Chapter 7 has to pay for:

• the filing fee ($338 in 2022, unless your income is low enough to qualify for a waiver), and
• two required bankruptcy counseling courses (about $60 or less each).

The average cost a lawyer charges for Chapter 7 bankruptcy is $1,350 with costs varying from $1,200 to $1,500 for the US in 2021 That said, the charges can vary and be greater than this depending on your location, the complications associated with the case and the experience your lawyer has. For example, you may find it costs as little as $4,500 but sometimes can be upwards of $2,200.

Factors Affecting Fees

• If you live in certain states, Attorneys will charge more for the same services. The cheapest state in the US to file bankruptcy is North Dakota while the most expensive states are Nevada, Maine and New Hampshire, often up to three times as much.
• Chapter 11 bankruptcies for businesses wishing to continue operations are far more costly and complicated than a Chapter 7 bankruptcy, hence the lower cost of Chapter 7 bankruptcy filing. Chapter 13 bankruptcy is usually somewhere between the price of Chapter 7 and Chapter 11 cases.
• A simple case where you have just one [profession, simple credit card debt and only basic assets will probably cost less than when you have a spouse, six children, winnings from betting on horses, tax debt, a mortgage, a vacation home in Florida and a wide range of physical assets.
• An experienced attorney will cost more than an inexperienced one but if your case is complex, it may be worthwhile to have the experienced attorney.

Excessive Fees

Courts do not want people paying too much in attorney fees when they file for bankrupt. An attorney has to disclose the fees charges on a special form called “Disclosure of Compensation.” The appointed trustee reviews this and if they consider excessive fees to have been charged, a motion can be filed requesting the judge to return part of the fee or cancel the fee. The person filing for bankruptcy can also file that charge.

Bankruptcy Discharge: Different Results for Different Debts

In Chapter 7 bankruptcy, you can usually wipe out almost all qualifying debts: those that aren’t “secured” (meaning you haven’t promised to give back property like a house or car if you don’t make the payments; more on that below) or “priority” (like unpaid child or spousal support). Our readers had great results getting their qualifying debts wiped out, mixed results on some debts with special rules (back taxes), and poor results with student loan debt.

Qualifying Debts

More than nine out of ten readers had balances on their credit cards when they filed for bankruptcy—the most common kind of debt they reported by far. Almost all of them (98%) got those debts completely wiped out in their Chapter 7 cases. Also, nearly half of our readers had unpaid medical bills, and they were nearly as successful in getting relief for those debts (95% received a full discharge, while another 4% received a partial discharge). In general, readers also had high discharge rates for other types of qualifying debts, including:

• Lawsuit judgments (after creditors sued and received a judgment against you in court)
• Business debts for which you’re personally liable, and
• Utility and phone bills.
• Back Taxes
• It’s difficult—but not impossible—to discharge some older debts for unpaid income taxes 
• Usually, you can’t wipe out student loan debt in bankruptcy. But there is an exception if you file a separate lawsuit (known as an adversary proceeding) and prove that it would be an “undue hardship” for you to repay the loans.

Chapter 7 Bankruptcy Exemptions in Arizona

Chapter 7 Bankruptcy Exemptions In Arizon

The Bankruptcy Code is governed by federal law, which means that many aspects of bankruptcy such as the “automatic stay” apply similarly regardless of the state the petitioner lives and files in. However, it’s important to know that Arizona has legally opted out of many federal bankruptcy exemptions under the code. So people who file for bankruptcy in the state can obtain exemptions only according to state laws. This particularly pertains to property exemptions. State bankruptcy exemptions work similarly for both Chapter 7 and Chapter 13 bankruptcy in the state. If you are filing for a Chapter 7 bankruptcy, read below to find out which exemptions you may qualify for in the state:

Residential Property and Homestead Assets

Arizona’s homestead exemption allows debtors to exempt up to $150,000 equity value from any real property considered a home. Other real property may also qualify if it falls within Arizona’s homestead laws. The exemption is the same for single as well as married couples. You will have to contact a lawyer regarding which of your real properties can be exempted under the homestead exemption clause in the state.

Certain Types of Personal Property

The courts allow debtors to get exemptions for various items that can be considered “personal property.” Your personal property includes items you own like clothes, computers, guns, furniture, books, pet animals, musical instruments, health aids, and wrongful death awards among others. The state allocates a specific amount of each personal property as exemptions. For example, Chapter 7 petitioners can exempt up to $2,000 for a wedding ring. You should refer to Ariz. Rev. Stat. §§ 33–1123, 33–1125 and 33–1127 for more information, or ask an experienced bankruptcy lawyer.

Deposits

A debtor filing for bankruptcy can exempt up to $300 from deposits in one bank account. If you have multiple bank accounts, contact a bankruptcy attorney in Scottsdale to find out how you can obtain exemptions.

Motor Vehicles

Arizona has very specific exemptions for motor vehicles for Chapter 7 bankruptcy. The courts allow debtors to exempt up to $6,000 equity for each vehicle owned. Elderly petitioners or their elderly or disabled spouses can exempt up to $12,000.  Again, consultation with your legal counsel is essential.

Retirement Benefits and Pension Funds

Under federal rules, qualified retirement plans such as 401ks and IRAs, which have tax-exempt status, are also exempt in bankruptcy proceedings. Arizona upholds this rule. In addition, debtors who benefit from any type of state employee pension plan can obtain exemptions. Amounts will vary depending on the type of plan you have.  So let’s say you have $200,000 in retirement assets, you can still file and procure a bankruptcy discharge and still own your $200,000 in retirement accounts post-discharge.

Life Insurance Benefits

Up to $20,000 in life insurance that could be paid to a child or a living spouse can be exempted when filing for Chapter 7 bankruptcy. Cash surrender value will be considered for exemptions. Similar exemptions can be obtained for insurance plans that cover ill health, accidents or disability. Insurance claims for damages or destruction to property that is exempt will also be exempted from proceedings. There are many insurance exemptions, but there are also exceptions. It’s important to ask a highly qualified lawyer whether your insurance benefits can be exempted under Chapter 7 bankruptcy proceedings.

Child Support

Arizona exempts all child support or alimony payments from discharge when filing for bankruptcy. So filing for bankruptcy is not a valid reason to not pay court ordered alimony or child support.  You are your estate (after you die) will owe child support and alimony for life—and even then, your estate will be compelled to pay.

Fraternal Benefit Society Benefits

If you claim benefits from the Fraternal Benefit Society, they will all be exempted under Arizona law.

How Long Does it Take to File for Chapter 7 Bankruptcy?

Usually, the entire Chapter 7 bankruptcy process starting from the first consultation of your credit to the court’s discharge of the remaining debts, is something that can take up to six months to finish.

However, your case may take longer, for example, when the trustee asks you to submit other documents, or whether they must sell your property to pay creditors. Or maybe you want to try to get your student loan discharged in bankruptcy. That is possible, but challenging, and may require a lengthy trial.

Here are ways to discover if you can file for Chapter 7 bankruptcy.

How High Is Your Income?

If your income is less than or equal to the median income for your state, you are usually eligible for Chapter 7 bankruptcy.

Do You Have Enough Disposable Income to Repay Some Debts?

The means test indicates whether you have enough disposable income to repay some of your debts over five years. Unsecured debts are those debts not backed by collateral.

The bankruptcy trustee will look at Schedule I: Your Income and Schedule J: Your Expenses. If there is enough left over each month to make a notable payment to your creditors, the trustee will recommend Chapter 13 to the court.

You Previously Received a Bankruptcy Discharge

You can’t get another Chapter 7 bankruptcy discharge if you obtained a Chapter 7 Bankruptcy discharge within the last eight years, or a Chapter 13 case within the last six years.

You will not be able to proceed if the court has turned down your bankruptcy discharge in the last 180 days when: 

• A court order has been violated
• the court ruled that your filing was an abuse of the system or fraudulent
• A creditor requested an automatic stay before you filed

You Defrauded Your Creditors

• A bankruptcy court might dismiss the case if they suspect you concealed assets from your creditors.
• The Filer Is a Corporation or LLC
• A business can file for bankruptcy but Chapter 7 bankruptcy won’t clear the debt of a corporation or LLC. Instead, the trustee will liquidate the assets of the company and distribute the proceeds to creditors.

Chapter 7 bankruptcy will remain on your credit report for ten years although bankruptcy filing takes only three to six months. Financial hardship from unforeseen circumstances is the leading reason people give for declaring bankruptcy. Chapter 7 bankruptcy will have a negative impact on your credit and may lower your credit score for years to come. Read on to learn more.

In Chapter 7 bankruptcy – those who file will no longer have to pay debt that is unsecured such as medical expenses, credit card of personal loans but settling secured loans will require the sale of their assets.

Credit Score Impact

The impact the bankruptcy has on your credit score will lesson as the years go by. So, expect a large drop at the beginning but for it to lessen over time. If you miss a credit card payment when you have a high score can take away more points than having a lower score – the same applies with bankruptcy. It also similarly applies if there is only a small number of accounts on your bankruptcy filing, the impact will be less on your credit score.

Some online sources suggest a score of around 780 will have between 200 and 240 points taken off their credit score but someone with a score of 680 will only lose between 130 and 150 points. Clearly it must be considered only when it is the final option on the table.

Source: https://www.cnbc.com/select/how-long-do-bankruptcies-stay-on-credit-report/

The average cost a lawyer charges for Chapter 7 bankruptcy is $1,350 with costs varying from $1,200 to $1,500 for the US in 2020. That said, the charges can vary and be greater than this depending on your location, the complications associated with the case and the experience your lawyer has. For example, you may find it costs as little as $4,500 but sometimes can be upwards of $2,200.

Factors Affecting Fees

• If you live in certain states, Attorneys will charge more for the same services. The cheapest state in the US to file bankruptcy is North Dakota while the most expensive states are Nevada, Maine and New Hampshire, often up to three times as much.
• Chapter 11 bankruptcies for businesses wishing to continue operations are far more costly and complicated than a Chapter 7 bankruptcy, hence the lower cost of Chapter 7 bankruptcy filing. Chapter 13 bankruptcy is usually somewhere between the price of Chapter 7 and Chapter 11 cases.
• A simple case where you have just one [profession, simple credit card debt and only basic assets will probably cost less than when you have a spouse, six children, winnings from betting on horses, tax debt, a mortgage, a vacation home in Florida and a wide range of physical assets.
• An experienced attorney will cost more than an inexperienced one but if your case is complex, it may be worthwhile to have the experienced attorney.

Excessive Fees

Courts do not want people paying too much in attorney fees when they file for bankrupt. An attorney has to disclose the fees charges on a special form called “Disclosure of Compensation.” The appointed trustee reviews this and if they consider excessive fees to have been charged, a motion can be filed requesting the judge to return part of the fee or cancel the fee. The person filing for bankruptcy can also file that charge.

Source: https://www.thebankruptcysite.org/resources/typical-attorney-fees-chapter-7-bankruptcy.htm

A liquidation or straight bankruptcy is also called a Chapter 7 bankruptcy. This bankruptcy type is one that can remove unsecured debts. If you have quite a few bills and are not able to afford all of the monthly payments as well as living expenses, then filing for Chapter 7 bankruptcy could be one way that you can reset all of your finances. However, you could end up losing some of your possessions, and it can negatively impact your creditworthiness.

How Chapter 7 Bankruptcy Works

Whenever you file for a chapter 7 bankruptcy, the court will put a stay on all of your current debts. What this does is stop any creditors from garnishing your wages, turning off your utilities, evicting you, repossessing your property, foreclosing on your home, and stops them from collecting wages.

The job of the trustee is to review your assets and finances while overseeing your bankruptcy. The trustee will sell certain things that bankruptcy will not let you keep, which is called nonexempt property. The money from this gets used to repay your creditors. Trustees also deal with meetings between you and any creditors where you show up to a courthouse and answer questions about filing.

The property that you do not have to turn over to creditors or items you do not have to sell, which is called exempt property and the value of what you can claim as exempt, will vary based on the state where you are residing. Some states allow you to choose between federal exemptions and the state exemption list. However, Chapter 7 usually is a no-asset case, which means that either all of the property is exempt or there are valid liens on the property.

During the end of this process, around six months after you file for bankruptcy, the court will then discharge remaining debts, which means that you no longer need to pay them. Although, there are some types of debts that cannot get discharged during bankruptcy like student loans, tax debts, court fees, alimony, and child support.

The Differences Between Chapter 13 and Chapter 7 Bankruptcy

Chapter 13 and Chapter 7 are the most common types of bankruptcy, which affects a person. Either can help when you do not have the means to pay off your bills, but there are some significant differences between these types of bankruptcies.

Chapter 13 bankruptcy will allow you to keep all of your items and get a much more affordable repayment plan with all of your creditors. You will need to have enough income for you to afford to make the payments and be below the maximum total limits of your debts, which is $1 million or more for secured debts and $400,000 for unsecured debts.

The court will then approve a repayment plan for Chapter 13 bankruptcy. It is a payment plan that will last up for five years, and a trustee collects your money and distributes it to your creditors. Once the plan gets completed, the remaining unsecured debt will get paid off.

Who is Eligible for Chapter 7 bankruptcy?

If you want to apply for Chapter 7 bankruptcy, some conditions need to get met:

• The average monthly income for the first six months will need to be under the median income of a family of the same size in your state, or you must pass a means test to decide whether your disposable income can cover partial payments to creditors. If you fail the means test, you can still apply for Chapter 13 bankruptcy protection.
• In the past six years, you have not been able to apply for Chapter 13 bankruptcy protection.
• If you try to file a Chapter 7 or Chapter 13 bankruptcy petition and your case is dismissed, you must wait at least 181 days before you can try again.
• Generally, you must complete an individual or group credit counseling course from an approved credit counseling agency within 180 days before applying.
• You may be eligible to file a lawsuit, but if the court decides that you are trying to defraud creditors, the court may dismiss your case. For example, if you take out a loan or use a credit card, then declare bankruptcy to avoid repaying the debt.
• In the past eight years, you have not been able to apply for Chapter 7 bankruptcy protection.

What Debts Get Gorgiven in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy usually releases your unsecured debts, such as credit card debt, medical expenses, and unsecured personal loans. At the end of the lawsuit, the court will usually clear these debts within four to six months after you start the lawsuit.

Certain types of unsecured debts do not usually get discharged through Chapter 7 bankruptcy, including:

• Unsecured debts that you intentionally did not mention during the filing
• Personal injury debts owed because of an accident caused by your intoxication
• Court penalties and fees
• Homeowners association fees
• Tax debts
• Student loans
• Alimony
• Child support

Your creditors can also object to and prevent specific debt relief. For example, a credit card company may object to the recent purchase of luxury goods or prepaid cash debts, and the court may decide that you still need to repay the credit card balance.

Besides, Chapter 7 bankruptcy may discharge your debts owed to the secured loan. A secured loan is secured by a mortgage, as in a home loan or the creditor has a property lien. However, even if the debt gets paid off, the creditor still has the right to cancel or recover your property.

How Long Does it Take to File for Chapter 7 Bankruptcy?

Usually, the entire Chapter 7 bankruptcy process starting from the first consultation of your credit to the court’s discharge of the remaining debts, is something that can take up to six months to finish.

However, your case may take longer, for example, when the trustee asks you to submit other documents, or whether they must sell your property to pay creditors. Or maybe you want to try to get your student loan discharged in bankruptcy. That is possible, but challenging, and may require a lengthy trial.

How Long Does Chapter 7 Bankruptcy Remain in your Credit Report?

Chapter 7 bankruptcy is a significant derogatory sign, and it may damage your credibility. From the filing date, Chapter 7 bankruptcy records can get retained on your credit report for up to 10 years, and from the filing date, a complete Chapter 13 bankruptcy can get retained on your credit report for seven years.

The accounts included in the bankruptcy may be deleted from your credit report earlier, as most negative signs will get deleted after seven years.

Life After Bankruptcy

Filing for bankruptcy can consume much energy financially, physically, and emotionally. However, this may be your best choice when bills continue to pile up, and you are unable to pay your creditors. You can also recover from bankruptcy and rebuild your finances and credit, but it will take time.

Source: https://www.experian.com/blogs/ask-experian/what-is-chapter-7-bankruptcy/