CHAPTER 7 BANKRUPTCY OVERVIEW
Filing Chapter 7 bankruptcy provides two primary benefits to the debtor. First, an automatic stay goes into effect immediately upon filing. The automatic stay prevents further collection activities by creditors. This means that all lawsuits, foreclosures, repossessions, wage garnishments, bank levies, and creditor harrassment must stop the moment the Chapter 7 bankruptcy case is filed.
The second benefit of filing Chapter 7 bankruptcy is the discharge. A discharge removes the debtor’s liability for their debts permanently. This means that once the case is finished the debtor no longer owes the creditors payment for the debts listed in the bankruptcy case. There are certain debts that usually cannot be discharged. These include:
- Student Loans
- Child Support
- Income Taxes
- Criminal Fines
In some cases student loans and income taxes can be discharged but only debtors that have a very specific situation are entitled to this type of relief.
What happens to my house and car?
Debtors in Chapter 7 cases can keep their house, cars, and other secured property. In order to keep secured property they have to continue making payments each month to the creditors who hold a lien on the property. They should also sign a reaffirmation agreement, which basically says that they agree that the lender’s claim will not be discharged in the bankruptcy case. The lender signs the agreement as well and it is filed with the court so that a judge can approve the reaffirmation agreement.
How much is Chapter 7 bankruptcy going to cost me?
For most debtors the cost of filing Chapter 7 bankruptcy is fairly low considering the benefits they gain. These costs include attorney’s fees, the court’s filing fee, and the costs associated with ordering a credit report and taking two financial management courses.
In some cases there is an additional cost resulting from the liquidation of assets by the bankruptcy trustee. In Chapter 7 bankruptcy, debtors list all of their assets and assign a value to each piece of property. Exemptions are applied to these assets. Exemptions are laws that protect property from creditors. Property that cannot be covered by the exemptions is called nonexempt property. Nonexempt property can be taken by a trustee, liquidated, and the proceeds paid to the creditors in the case. But don’t worry too much. In Texas we have very good exemptions. In the vast majority of Chapter 7 cases filed in Texas there are no nonexempt assets and the trustee does not liquidate any property.
How long does the process take?
Chapter 7 bankruptcy cases usually last about four to five months. The case begins when a petition is filed with the court. Approximately forty-five days after the case is filed the debtor and their attorney will meet with a trustee. At the meeting the trustee will review the documents filed in the case and ask the debtor questions about their situation and the documents they filed. The entire meeting generally lasts between five and ten minutes. After this meeting the creditors are given sixty days to review the petition and respond. This very rarely happens in consumer cases. At the end of the sixty days the trustee will ask a bankrutpcy judge to discharge the debtor from their case. Once the judge signs the discharge order the debtor is out of bankruptcy.
For more information about filing Chapter 7 bankruptcy in Plano or McKinney, Texas, contact a local bankruptcy lawyer.