When is Chapter 7 bankruptcy appropriate?
While Chapter 13 works well for those who can afford some kind of payment plan, Chapter 7 is a debt liquidation solution reserved for those who have no means to pay on their debts.
To evaluate whether this is the correct course of action, a Chapter 7 bankruptcy attorney from our firm will need to review your budget of income and expenses. If a budget analysis shows no ability to pay, after living needs are considered, then Chapter 7 may be the best and only option to discharge debts.
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What debts are canceled in Chapter 7?
Most debts are discharged or canceled in a Chapter 7 case. There are exceptions to the broad discharge of debts. Some debts that usually cannot be discharged in Chapter 7 bankruptcy include:
- Debts for most taxes
- Student loans
- Child support
- Alimony/spousal support
- Debts due to fraud, dishonesty or misconduct
Bankruptcy relief from debt can be denied to those who attempt to abuse the law to their advantage or are guilty of some kind of misconduct such as destroying, concealing or disposing of their assets or financial records. Criminal charges or sentences are not affected by filing bankruptcy. Unless a debt is excepted from discharge, it will be canceled or discharged at the conclusion of the case. Most bankruptcy cases are routine as long as they are properly prepared and the client is honest in disclosing all financial information on the schedules. An attorney from our firm can guide you through the process so that your case is presented correctly.
What property is at risk in a Chapter 7?
Although most is not at risk when a qualified attorney advises you to file Chapter 7 bankruptcy, sometimes property can be taken by the bankruptcy official (trustee) and sold to pay on your debts.
Exemptions are assets and property that a debtor may keep from the case. Most property in a typical Chapter 7 is “exempt” from creditors in the bankruptcy, but if assets exceed the exemption limits, they are at risk and may be taken and sold to pay creditors.
Only a qualified attorney can give up-to-date advice on what is exempt and what is not exempt. Preparing in advance for your interview includes filling out forms and listing the value of your assets. The biggest question will usually be “what is your property worth?” Whether your property is exempt may depend on its fair market value. If property has a mortgage, then the value of the asset to the owner is the equity. The amount of equity in a property will determine whether the property is at risk in Chapter 7 bankruptcy.
If property is at risk and is needed by the debtor, sometimes it is better to choose Chapter 13 since there is little risk of losing assets as long as payments are made under the Chapter 13 payment plan. Chapter 13 is also the only way to save a home from foreclosure or a car from being repossessed if the debtor is behind and cannot catch up in time to satisfy the creditor. Chapter 7 does not “reorganize” debts like a Chapter 13 plan, so under a Chapter 7 one needs to stay current on mortgages and car loans in order to retain them, while under Chapter 13, a debtor can stretch out the catch up process.
Andersen, Ellis & Shephard (formerly David Andersen & Associates), our policy is to review each case thoroughly before a decision is made to file Chapter 7 or Chapter 13. Contact us to learn more.
How do I keep paying on my home and car or truck?
If you want to keep your home or vehicle, and have payments due on these items, it is normal to continue paying on these debts after the bankruptcy is filed. However, in a chapter 7 bankruptcy, before the case is “discharged” or closed, you need to sign and file with the court an agreement to reaffirm or reassume these debts. This agreement is called a “reaffirmation.”
If no reaffirmation agreement is filed requiring the debtor to keep paying, the debt is canceled and the creditor may not accept payments on the account and may want to repossess or foreclose on the property. The attorney will work with the debtor and creditor to negotiate and sign the reaffirmation agreement, and there is normally a modest fee for doing so. This is done after the case is filed and must be completed and signed prior to the chapter 7 discharge.
What does it mean to “discharge” debt?
A discharge of debt means that the debt is legally canceled. This is the primary reason to file for bankruptcy. Most kinds of consumer debt can be discharged in a normal bankruptcy situation, including credit card debts, loans, lawsuits, judgments, repossessions and medical debts.
A Chapter 7 bankruptcy is ideal for individuals with unsecured consumer debt, such as credit cards. In a typical Chapter 7 bankruptcy filing, the debtor is allowed to keep important assets such as the home, vehicles, and household contents. Upon completion of the Chapter 7 bankruptcy filing, most debts are extinguished.
Work With An Experienced Bankruptcy Lawyer
Some people attempt Chapter 7 bankruptcy alone, or with a legal document service but it’s important to know how to file for Chapter 7 bankruptcy. However, if the wrong choice is made or the case is not prepared correctly, disastrous consequences may occur. If you are considering Chapter 7 bankruptcy in Michigan be sure you are getting the maximum benefit available under the law by working with an experienced Chapter 7 bankruptcy lawyer. We have offices in Grand Rapids, Lansing, Muskegon, Big Rapids and Kalamazoo to assist you with your Chapter 7 bankruptcy needs.