At a Glance
Bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans. In a Chapter 7 or “liquidation bankruptcy,” some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. Some assets may be exempted, like those deemed necessary to support you and your dependents (such as your clothes, car, and household furnishings). This bankruptcy is the most common filing for business failures. It cancels most debts, but you have to let the bankruptcy trustee liquidate nonexempt property for the benefit of creditors. If you don’t have any property or all of your property is exempt, then you will have a “no asset” case.
In Depth – Liquidation
Bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans. In a Chapter 7 or “liquidation bankruptcy,” some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. Some assets may be exempted, like those deemed necessary to support you and your dependents (such as your clothes, car, and household furnishings). This bankruptcy is the most common filing for business failures. It cancels most debts, but you have to let the bankruptcy trustee liquidate nonexempt property for the benefit of creditors. If you don’t have any property or all of your property is exempt, then you will have a “no asset” case.
If you owe money on a secured debt (for example, a car loan, where the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property.
A Chapter 7 case begins with the debtor filing a petition with the bankruptcy court. In addition to the petition, in a Chapter 7 bankruptcy case the debtor must also file with the court various schedules of assets and liabilities; current income and expenditures; contracts and unexpired leases. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case. Additional document filing requirements include a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts.
The Bankruptcy Act limits the ability of a debtor to file under Chapter 7. You can only file for “liquidation bankruptcy” if your median income is below the state median income; if it is higher, and you can afford to pay out $100 monthly to liquidate debt, you may only file under Chapter 13. There are benefits to filing a chapter 13 including the “stripping off” of 2nd mortgages, etc. The new law also mandates credit counseling ahead of filing in a government-approved program.
Debts that are not dischargeable after Chapter 7 filing:
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
The Law Offices of Alex Leon will explain all available options so you can make the best informed decision for you and your family.
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