A SIMPLE EXPLANATION OF CHAPTER 7 BANKRUPTCY
Chapter 7 Bankruptcy is often called “liquidation bankruptcy" or “straight bankruptcy."An individual, a married couple, a partnership, a corporation, or an LLC may file under Chapter 7, which normally takesonly about 4 ½ months from start to finish. You can completely cancel most kinds of debt outright, including all charge cards, medical bills, past due utility bills, collection agency accounts, personal loans, etc.. You are not required to make partial payments to creditors in a Chapter 7. It is a quick, painless way to make a fresh start.
The very day your case is filed, all creditors must stop all collection efforts, by Federal law. Harassing phone calls and letters must cease. If you are being sued, the lawsuit must stop immediately. If you have already been sued successfully and have a judgment against you, the creditor must stop all collection efforts; garnishing of your wages or bank accounts must stop, and often we can have money that was garnished returned to you.
If you have a car loan and it is current, and your equity in the car2 is not over $3,500, you can keep the car. If your mortgage payment is up to date, you can keep your house, as long as you keep up the payments and have no more than $21,500 equity,1 or $43,000 in equity for married couples. (If you are behind on your mortgage or car loan, or if you have more than the equity limits, you can file Chapter 13 bankruptcy and still keep your house and/or car.)
If your mortgage is behind, any efforts to foreclose must stop, including up until the morning of an auction sale. However, if you are behind in your mortgage payments and file Chapter 7, soon thereafter the mortgage lender will likely file a “Motion to Lift Stay" with the court, which means that after a court hearing, they are given permission by the court to go ahead and start advertising your house for foreclosure sale, unless your attorney can show why they should not. Since the hearing on the Motion is typically one or two months from when you filed bankruptcy, and since under Georgia law they must advertise any subsequent foreclosure sale for four weeks preceding the sale date, you generally have at least two or three months to get your mortgage caught up, if you can, and if your lender will work with you. (See my article, "Can I Save Myt House From Foreclosure?" also on this website.)
If you have other houses or lands, these must be auctioned off by the bankruptcy trustee and the proceeds applied to your debts. Therefore, people with other real estate property who want to keep it typically file Chapter 13 bankruptcy instead of Chapter 7, as a 13 allows them to keep all their property, if they can make the payments after getting bankruptcy relief from their other debts.
For most people, most household items and personal possessions are exempt from seizure by the Trustee, and may be kept. Perhaps 95% of all people filing Chapter 7 do not have to give anything up, as there are reasonable amounts of your goods and household which may be exempted. However, if you have possessions which are above the exemption limits, such as very valuable antiques, expensive art, extravagant jewelry, etc., you may have to surrender them to the Trustee for auction. Also, in a Chapter 7 you are not allowed to keep large amounts of cash, stocks, bonds, and other investments. However, anything in a retirement IRA or 401(k), or in a bank account from Social Security or disability payments, is yours to keep.
Certain kinds of debt cannot be cancelled. The most common of these “non-dischargeable debts" are child support, alimony, student loans, IRS taxes under three years old, judgments in cases of wrongful death or personal injury due to drunk driving, government fines, or debt incurred through fraud. Also, if you are an employer, unpaid salaries and unpaid payroll deduction taxes are non-dischargeable, as are sales taxes collected but not yet paid to the State of Georgia by merchants. There are a few others, but these are among the most common.
If you have monthly income higher than the median income for your state, your numbers are crunched in a procedure known as the “means test," which was designed to keep certain people with high income or high assets from being eligible to file under Chapter 7. If you are one of those who cannot file a 7 due to this test, you usually can file under Chapter 13 or Chapter 11.
1“Equity" means how much ownership interest you have in your house. To find out how much equity you have, take the present market value of your house and subtract the amount you still owe on the mortgage (usually called “Balance" on your mortgage statements). For example, if the purchase price of your house was $250,000, and the current market value is $180,000, and the amount still owed on your mortgage is $175,000, your equity would be $5,000 ($180,000 less $175,000).
2Actual wholesale cash value of the vehicle, less the amount owed
Entire article ©2012 The Williams Law Office LLC