Chapter 7 Bankruptcy FAQ
Our Chapter 7 bankruptcy attorneys, Kristen L. Krol and Gregory W. Smith, have a combined 50 years of experience in analyzing and proposing solutions to individual debt problems. We are a debt relief agency. We help people file for bankruptcy relief under the United States Bankruptcy Code. Find some frequently asked questions about Chapter 7 Bankruptcy below:
- What Is Chapter 7?
- How Long Will a Bankruptcy Affect My Credit Report?
- What About Future Credit?
- Does A Chapter 7 Bankruptcy Stop Creditor Actions and Collections Such As Garnishments?
- Exemptions – How Much Property Can I Keep?
- Turnover – Will I Lose Any Property?
- Are There Exceptions To Discharge?
- Are Co-Debtors or Co-Signers Discharged From Their Debts If I File Bankruptcy?
- Can I Repay Some Of My Creditors?
- Is Property I Obtain After Discharge Affected?
- Will I Have To Go To Court?
- How Long Will The Bankruptcy Take?
- What is the “Means” Test?
- What About Credit Counseling and Debtor Education?
What Is Chapter 7?
A Chapter 7 bankruptcy is commonly referred to as a fresh-start bankruptcy. When you file a Chapter 7 bankruptcy, you generally discharge all debts. A discharge extinguishes your legal obligation to pay the debt. When a lien exists against your property, you generally have three choices: (1) surrender the property and discharge the debt; (2) reaffirm your obligation to the creditor and continue to make regular payments; or (3) redeem the property by paying its cash value and discharge the balance of the debt.
How Long Will a Bankruptcy Affect My Credit Report?
The public record associated with the filing of a bankruptcy can remain on your credit report for up to ten years from the date of filing of a Chapter 7 case.
What About Future Credit?
Many people who file a Chapter 7 Bankruptcy do obtain credit after they receive a discharge of their debts. Creditors look at many things when determining whether to issue you credit, such as the amount of your indebtedness, your income and your ability to repay. A Chapter 7 Bankruptcy may actually improve your chances of obtaining credit, because your discharge eliminates your debt load and creditors know that you cannot file another Chapter 7 bankruptcy for at least eight years.
Does A Chapter 7 Bankruptcy Stop Creditor Actions and Collections Such As Garnishments?
Yes. When a Chapter 7 bankruptcy is filed, an “automatic stay” goes into effect, which prohibits creditors from engaging in any action toward the collection of their debt. This means that court actions, foreclosures and garnishments stop. Creditors are prohibited from even contacting you.
Exemptions – How Much Property Can I Keep?
Debtors are permitted to keep certain limits of property. These limits are updated, and usually increased, periodically by Congress. The exact amount of property you can keep will depend upon the typeand value of property you own. For example, a married couple who own a home together can keep in excess of $44,000 in equity in their home, $22,000 in household goods, personal belongings and clothing, $3,000 in jewelry and other assets. To the extent you don’t use your residence exemption, you may keep up to $22,000 in other kinds of property, such as cash, stocks and bonds, and boats. In Michigan, you have a choice of using exemptions granted by federal or state law. Your asset and exemption limits should be carefully assessed by a qualified attorney.
Turnover – Will I Lose Any Property?
If you own property which is worth more than you are allowed to exempt, the property may be turned over to the bankruptcy Trustee, who will sell it to pay off your creditors. If you possess non-exempt assets, a Chapter 13 may be better suited to your needs.
Are There Exceptions To Discharge?
Yes. Certain types of debts are not dischargeable. Debts incurred by larceny, embezzlement, fraud, and willful or malicious destruction of property may be non-dischargeable, though they may be modified in Chapter 13. Alimony, child support, criminal restitution, drunk driving or drug-related auto accidents, certain types of fines and penalties, student loans and certain types taxes are not dischargeable. Advice from experienced bankruptcy counsel is essential if you have any debts of this nature.
Are Co-Debtors or Co-Signers Discharged From Their Debts If I File Bankruptcy?
A co-signer’s obligation to pay a joint debt is discharged only if the co-signer is your spouse and you are filing a joint bankruptcy . Co-signers generally remain obligated in the event of a primary borrower’s discharge in bankruptcy. If you desire to protect a co-signer from an indebtedness, you may want to consider Chapter 13.
Can I Repay Some Of My Creditors?
Yes. The law requires you to disclose all of your liabilities and all of your assets. However, you can still repay a creditor and if that creditor has a collateral interest in some of your property and you want to retain the property.
Is Property I Obtain After I File A Bankruptcy?
If you receive a right to insurance proceeds, inheritances or divorce settlement proceeds within six months after the date of the filing of your Chapter 7 petition, then that property will become property of your bankruptcy estate. All other property obtained after the date of filing is for your sole benefit.
Will I Have To Go To Court?
Yes. Generally, there is one hearing that you must attend with a Chapter 7 Trustee. The hearing is called your Meeting of Creditors. At Debt Relief Legal Clinic, your attorney will represent you at the hearing.
How Long Will The Bankruptcy Take?
You should receive your Discharge Order approximately four months after your case is filed. However, the discharge becomes effective as of your date of filing, retroactively.
What is the “Means” Test?
The Means Test was established by Congress’s most recent major amendment of the Bankruptcy Code in 2005. It is an artificial calculation that uses your last six months’ income to determine whether your historical income exceeds the median income of a family your size in Michigan. If so, it uses a rather complex formula to determine whether you have disposable income, according to Congress, that would allow you to make some payment toward your debts, rather than be entitled to receive a complete discharge of your debts. In that case, granting you relief under Chapter 7 would constitute an “abuse of the Bankruptcy System.” This has added a great complexity to the process. You need an experienced bankruptcy attorney to properly advise you in this regard.
What About Credit Counseling and Debtor Education?
The new bankruptcy law requires certificates to be filed with the court showing that you have completed these requirements. The first is called a pre-filing course and the second is a pre-discharge course. The first is required prior to filing a case, and the second is required prior to receiving the discharge. Without the first course, a filed case can be almost immediately discharged by the court clerk’s office. Without the second course, a case can be closed without a discharge. Both courses can be completed through the internet or over the telephone. They are not difficult, but they add an expense of approximately $30.00 to the process.
Call us at 517-321-6804 to set up your initial office consultation!