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James D. Huls and Associates

Chapter 7 Bankruptcy Basics

Are you drowning in debt? Are you struggling to make your minimum monthly payments on your credit cards? Do you have unpaid credit cards, medical bills, or judgment from a lawsuit? Are your currently suffering from wage garnishment? Have you considered bankruptcy relief? The bankruptcy laws can provide help to individuals sometimes stopping foreclosure, wage garnishment, and providing individuals with the fresh start that they need. If you feel that bankruptcy relief is the appropriate option for you contact our office at 815-455-4755 for a free no obligation initial consultation to discuss your case.

Reasons to File for Bankruptcy

Filing bankruptcy may be a solution to your legal problems, but it is not for everyone. When deciding whether bankruptcy is right for you, it is a good idea to look at reasons for and against why you may want to file bankruptcy.

Reasons to File:

  • Most debts are discharged (wiped out), giving you a fresh start;
  • Bankruptcy stops garnishments and harassment by collection agencies;
  • Foreclosures and repossessions are stopped and cannot go ahead without court approval;
  • You can keep exempt property;
  • You can stop utility shutoffs, or restore service after paying a reasonable deposit, then pay only for current service;
  • Employers and public agencies cannot retaliate against you for filing bankruptcy;
  • If your driver’s license has been suspended for not paying a debt that is dischargeable in bankruptcy, you can get you license reinstated.

Reasons Against Filing:

  • Bankruptcy stays on your credit rating for 10 years;
  • Getting credit may be a little more difficult or more expensive;
  • May cause a strain in relationships with a co-signer;
  • You can only get a Chapter 7 discharge once in an eight year period;
  • You may be able to protect your property and income without filing bankruptcy.

Protections if you File:

Automatic Stay
Once you file bankruptcy, all collection activity by your creditors or collection agencies MUST
Stop. Foreclosures and repossessions cannot go ahead unless the Bankruptcy Court gives its
permission.
However, there is an exception if you have filed for bankruptcy before and the case was dismissed in the previous year. In such cases special rules apply to the automatic stay.

Fresh Start
After a bankruptcy is filed and your debts are discharged, you can start to rebuild your credit by practicing good management.

 

 

Property of the Bankruptcy Estate

When you file a bankruptcy case, all of your property comes under the jurisdiction of the bankruptcy court. This means that your property will be the property of the “bankruptcy estate”. No creditor can sell, seize or exercise any control over your property without permission from the bankruptcy court. This is true even if a creditor has a lien on the property. You cannot sell or transfer the property without permission from the bankruptcy trustee or the court.

Creditors and Bankruptcy
A creditor is a person or source that you owe money or property to. There are two kinds of creditors involved in a bankruptcy who you may owe this money or property to: Secured and Unsecured.

Secured Creditor
Secured creditors are those who have the right to get their property back if they are not receiving payment for it: Some examples include:

  • A first or second mortgage on a house
  • Cars
  • Furniture
  • Major appliances
  • Jewelry

 

Unsecured Creditor
An unsecured creditor is one who has no right to the return of any property no matter how much is owed. Some examples include:

  • Credit cards
  • Medical bills
  • Utility bills

 

Debts

In a Chapter 7 bankruptcy, you receive a “discharge” of most of your debts. A “discharge” is a court order that says certain debts are cancelled and you no longer have to pay the debt. Most debts are discharged, or cancelled. However, there are some debts that are not dischargeable in a Chapter 7 bankruptcy. These debts must still be listed on the bankruptcy schedules, but they cannot be wiped out:

Debts that cannot be discharged include:

  • Child support
  • Alimony
  • Fines
  • Most taxes
  • Criminal restitution orders
  • Debts due to fraud, theft or embezzlement
  • Damages to another person caused by drunk driving or willful and malicious conduct
  • Debts arising out of a property settlement in a divorce
  • Student loans unless paying back the student loan would be an undue hardship
  • Some other types of debts

 

Property

In a Chapter 7 bankruptcy, there are certain types of property that cannot be taken from you. This property is called “exempt”. You can keep exempt property as long as it is not subject to a lien (a mortgage security interest).

The major types of exempt property are:

  • Up to $15,000.00 of equity in a home, including a mobile home, coop or condominium
  • Up to $2,400.00 of equity in one motor vehicle
  • Necessary clothing
  • Up to $4,000.00 of personal property of any kind
  • Up to $1,500.00 tools of the trade
  • Pension benefits and qualified retirement accounts, like 401Ks and IRAs.

 

Garnishment

Chapter 7 bankruptcy stops garnishment of wages or other income for any debts other than child support or alimony.

What a Chapter 7 Bankruptcy Cannot Do

There are certain things a Chapter 7 bankruptcy cannot accomplish, such as:

  • Release you from non-dischargeable debts;
  • Eliminate a security interest, such as a mortgage or security in a car;
  • Protect co-signers, unless they also file bankruptcy;
  • Release you from credit card debts incurred close in time before bankruptcy is filed;
  • Discharge debts that are incurred after the bankruptcy is filed;
  • Allow you to discharge debts the court decides debtor can afford to pay, if the debtor has significant income)
  • Allow you to keep valuable property, such as a vacation home, an RV or expensive jewelry.

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