What is Chapter 7 Bankruptcy?
The overwhelming majority of bankruptcy cases are filed under chapter 7 of the bankruptcy code. Chapter 7 bankruptcy provides an opportunity for those experiencing serious debt issues to get a fresh start through the elimination of most, if not all, debt. Chapter 7 bankruptcy is best suited for those who are having difficulty paying their credit card bills, medical bills, or who are dealing with a wage garnishment or lawsuit. Such debts are typically completely eliminated through a chapter 7 bankruptcy filing.
Do You Qualify For A Chapter 7 Bankruptcy?
You may remember that back in 2005 Congress did an overhaul of the bankruptcy code. These changes to the bankruptcy code have made it more difficult for some to file a chapter 7 bankruptcy; however for most chapter 7 bankruptcy relief is still readily available.
So what changed? The main thing that changed is now you must qualify to file a chapter 7 bankruptcy. We determine if you qualify by analyzing your financial situation, specifically your monthly income, household size, and monthly expenses to determine if you qualify. Your income must be at or below the average income for a family of your size in Arizona. If your income exceeds the median income for your household size in Arizona, you may have to file a chapter 13 bankruptcy.
Do You have Enough Debt to File Bankruptcy?
Quite often I get asked if there is a certain amount of debt required to be able to file for bankruptcy. The answer is no, but it is important that we evaluate your specific situation to determine if bankruptcy is a good option. The amount of debt you have is not as important as your ability to repay the debt. If you have a relatively small amount of debt but also have very limited or low income then bankruptcy may be a good option. The opposite is also true.
Will You Lose Assets in Bankruptcy?
Chapter 7 bankruptcy is a liquidating bankruptcy. This means that if you have assets that you own free and clear of any liens, the bankruptcy court can seize those assets and auction them off to pay your creditors. The good news is most assets are considered exempt under Arizona and federal law. This means that even though you own a particular asset outright, it will be protected during the bankruptcy process.
The exemption most people are familiar with is the homestead exemption that protects your home. There are also exemptions for household goods, wedding rings, cars, and retirement accounts like 401(k)s and IRAs. Most people do not lose any assets during the chapter 7 bankruptcy process.
Chapter 7 Bankruptcy – What Types of Debts are Eliminated?
As stated above, chapter 7 bankruptcy is best suited for unsecured type debts (i.e. credit cards, medical bills, etc.). The following is a list of debts that are typically discharged in a chapter 7 bankruptcy:
- Credit card debt
- Medical bills
- Civil Judgments
- Unsecured loans
However, not all unsecured debts are discharged/eliminated. The following are typical debts that are not discharged in a chapter 7 bankruptcy:
- Unpaid taxes (there are some exceptions to this rule)
- Student loans
- Child support
- Criminal fines
- Secured loans such as car payments or house payments
The Chapter 7 Bankruptcy Process – What You Can Expect
Once all of the documents and information have been gathered, you have completed an online credit counseling course, and your bankruptcy documents have been prepared, we will file your case with the bankruptcy court. Immediately upon the filing of your case, the bankruptcy court will issue an injunction that stops all collection efforts against you. This means that collectors cannot call you, your wages cannot be garnished, and your home cannot be foreclosed on.
About one month after your bankruptcy case is filed you will be required to attend a meeting with a bankruptcy trustee who has been assigned to your case. This meeting is called the Meeting of Creditors. I will attend this meeting with you.
This is an opportunity for your bankruptcy trustee and your creditors to ask you questions. In 99% of the cases there are no creditors that appear to ask you questions. The meeting is brief, usually about 5 minutes, and typically is simply an opportunity for your bankruptcy trustee to ask you about the truthfulness of the information disclosed in your bankruptcy filing.
About 60 to 90 days after the Meeting of Creditors the bankruptcy court will enter your discharge. This is the order from the bankruptcy court that officially eliminates your debts. Prior to the entry of the discharge order, you will be required to complete second credit counseling class that can be done online.
Shortly after the discharge order is entered your case will be officially closed with the bankruptcy court.
Set Up a Free Bankruptcy Consultation Today
I offer a free bankruptcy consultation where we can discuss your specific situation and determine if chapter 7 bankruptcy is a good option for you or if there are non-bankruptcy alternatives that will help you with your debt problems.
Arizona bankruptcy attorney John Skiba can be reached at (480) 420-4028 or via email at email@example.com.