BANKRUPTCY

The Basics of Chapter 7 Bankruptcy

Chapter 7 bankruptcy, sometimes called “liquidation bankruptcy,” cancels your unsecured debts without further repayment. In exchange, you might have to surrender some of your property. The whole Chapter 7 bankruptcy process takes about three months, and commonly requires only one trip to the courthouse.

If you’re thinking about filing bankruptcy, you’ll probably want to know what property you’ll be able to keep. Both federal and state law may allow you to keep your homestead, your automobile, household furnishings, and other basic items. These items are called “exempt property,” and the laws that specify what property is exempt are called “exemption statutes.” In the overwhelming majority of bankruptcies filed by individuals, all (or virtually all) of the debtor’s property is exempt.

Filing for bankruptcy puts into effect what is called the “automatic stay.” The automatic stay immediately stops your creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally empty your bank account; go after your car, house, or other property; or cut off your utility service.

Until your bankruptcy case ends, your financial problems are in the hands of the bankruptcy court. It assumes legal control of the property you own (except your exempt property, which is yours to keep) and the debts you owe as of the date you file. Nothing can be sold or paid without the court’s consent. The court exercises its control through a court-appointed person called a “bankruptcy trustee.” The trustee is mostly interested in what you own and what property you claim as exempt. This is because the trustee’s primary duty is to see that your creditors are paid as much as possible on what you owe them.

If you’ve pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of secured debts are mortgage loans and auto loans. In most cases, you’ll either have to continue to pay for the collateral according to the loan agreement or surrender it to the creditor. If a judgment creditor has recorded a lien against your property, that debt is also secured. You may be able to wipe out a judgment lien in bankruptcy.

If you’re a party to a contract or lease, you may choose to cancel (or reject) the contract or lease without further payment. Alternatively, you may choose to accept (or assume) the contract or lease by continuing to honor the terms of the written agreement.

At the end of the bankruptcy process, the debts that qualify for discharge are wiped out by the court. You no longer legally owe such debts. You can’t file for Chapter 7 bankruptcy again for another eight (8) years from the date of your Chapter 7 filing.

If you’re deeply in debt, bankruptcy may seem like a magic wand. But there are drawbacks. Bankruptcy can be intrusive. You are required to disclose your prior financial activities as well as your current property holdings, allowing the trustee to look for anything of value that the law allows to be taken and sold to pay your creditors.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:

On October 17, 2005, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" took effect. Despite its impressive title, the main effect of the revised bankruptcy laws is to discourage honest but unfortunate debtors from filing for bankruptcy. While it is true that the new law makes the process more complicated, the basic right to file bankruptcy and the benefits derived from filing remain unchanged for many consumers. For creditors, the law has been changed to favor the collection of certain debts and provide more defenses in the event that a creditor is sued. Now, more than ever, you need one-on-one expert advice from an attorney that has the background and experience necessary to guide you through the bankruptcy process.