CHAPTER 7 BANKRUPTCY
WHAT IS BANKRUPTCY?
Bankruptcy is a legal proceeding where people who are unable to pay their debts can “discharge,” or get rid of their debts, and get a new financial start. These proceedings are handled by the United States Bankruptcy Courts, including the U.S. Bankruptcy Court for the District of Hawaii, located in Honolulu.
WHAT IS A CHAPTER 7 BANKRUPTCY?
“Chapter 7” refers to chapter 7 of the U.S. Bankruptcy code, or a “liquidation” bankruptcy. It is referred to as a liquidation because people filing a Chapter 7 bankruptcy may be required to liquidate, or give up assets that exceed exemptions for each filing person. In actual practice however, the vast majority of people filing chapter 7 bankruptcy do not need to liquidate any of their individual property. This is because filers are given “exemptions” from the liquidation, allowing them to keep a reasonable amount of property in different categories. Exemptions are discussed below. In a bankruptcy, the person filing bankruptcy is referred to as a “debtor,” and the organizations or persons to whom money is owed are referred to as “creditors.” A “secured creditor” is one that is owed money by the debtor, and the debtor has pledged some piece of property as collateral (typically a house or car) for the debt.
WHAT EFFECT WILL A BANKRUPTCY HAVE ON ME?
Immediately upon filing, creditors will stop their collection actions against you. This means that they can no longer call you, all garnishments on your pay will be stopped, any ongoing legal proceedings against you must cease. If you are using an attorney to handle your bankruptcy, all communication from the creditors will go to your attorney. However, if you have a secured debt, you will still need to make payments on that debt if you wish to keep the secured property (a secured debt is one that is “attached” to a particular piece of property, such as a car/car loan or a house/mortgage).
A bankruptcy filing will stay on your credit report for ten years. During this time, it does not mean that you cannot obtain new credit. However, for a time, it may make it more difficult to obtain credit on terms as favorable as before. (see the Credit discussion below)
WHAT ARE EXEMPTIONS?
Exemptions are limits set by law as to how much property each person filing a Chapter 7 may keep, while still wiping out his or her debts. Examples of some exemptions are those for a home, pensions/retirement, a car, and personal property, such as clothing, household furnishings, jewelry, tools, and other items. We can talk to you about the specific exemptions and their amounts.
WHAT KIND OF DEBTS CAN BE DISCHARGED?
Typical types of debts discharged in a Chapter 7 bankruptcy are credit card debts, unsecured bank loans, monies owing from the repossession of a car, medical bills, and lawsuit judgments. Also, loans that are secured by a piece of property, such as a car or house may be discharged, if the individual is giving up the car or house.
WHAT KIND OF DEBTS CANNOT BE DISCHARGED?
Generally, the types of debts that CANNOT be discharged in a Chapter 7 bankruptcy are: tax debts (with some exceptions), student loans (again, with some exceptions), back child support, back alimony, and fines or tickets issued by a court. Questions about whether or not a particular debt is dischargable should be directed to a bankruptcy attorney.
WILL I BE ABLE TO CREDIT AGAIN? HOW LONG WILL IT TAKE?
This is one of the most common questions The answer is yes. Bankruptcy is not the death of credit, but the start of credit. As an example, we recently filed a Chapter 7 case in May 2010. The clients received a discharge and their case was closed in August 2010. Very shortly thereafter, the clients received a letter from Capital One stating: “records as of August 10, 2010, show you’ve successfully put bankruptcy behind you. And we’d like to welcome you back to a card offer that can help you rebuild your good credit.” While we cannot guarantee what kind of credit you will receive, this is just an example of what might be possible.
You may ask why would a bank give you credit if you just filed for bankruptcy. Well, they do so for a number of reasons. One is that if you filed a Chapter 7 case, you cannot file another Chapter 7 for another eight years. So possible lenders know that if you get credit, but do not pay, you will not be able to file another Chapter 7 for some time, and they can garnish you wages without having to worry about you filing a Chapter 7. Another reason may be that although you have a bankruptcy on your record and “bad credit” after bankruptcy, you may have ZERO debt. Since you have ZERO debt, you may actually be a better credit risk than someone who has perfect credit but a lot of debt.
From a common sense approach and as an example, which one of your friends would you rather lend money to:
a. Joe, who makes $60,000 a year and has perfect credit, but has $50,000 in credit card debt and is living paycheck to paycheck, or
b. Jim, who also makes $60,000 a year and just filed for bankruptcy, and now has ZERO debt.
SHOULD I FEEL BAD FOR FILING BANKRUPTCY?
The simple answer is that you should not. Why should you? If you were a big big business (AIG, General Motors Corporation, Chrysler, and Bank of America) and you ran into financial trouble, then you did not need to file for bankruptcy. You would get preferential treatment from the government, and they would bail you out.
Now wouldn’t it be nice if we could all get bailed out by Uncle Sam? But for most individuals, the only realistic and legal alternative, is to file a bankruptcy case.
WHERE DO I START?
Prior to scheduling a consultation, it is very helpful to work on one of our questionnaires/worksheets, in order to help us understand your individual situation. Clicking below will bring up our INDIVIDUAL or BUSINESS bankruptcy worksheets, in Adobe Acrobat (R), or .pdf format:
If you do not have Adobe Acrobat (R) or Adobe Acrobat Reader (R), you can go the Adobe website to download Adobe Acrobat Reader (R) for free. Note that the “Individual” worksheet is appropriate both for single persons as well as married persons filing together.
If you are significantly in debt, and don’t know what to do, TALK TO US, and we can discuss your options. If you have questions, or would like to set up a free consult, e-mail firstname.lastname@example.org or call us at 593-2199. We’ll be happy to hear from you!
WE ARE A DEBT RELIEF AGENCY PURSUANT TO SECTION 524 OF TITLE 11 OF THE UNITED STATES CODE. WE PROVIDE LEGAL ASSISTANCE AND HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE.