Chapter 7
A Look At Chapter 7 Bankruptcy
Because of a combination of factors resulting from the economic crisis, many people have been left with overwhelming debt that they must address before they can begin rebuilding their lives and credit. According to the American Bankruptcy Institute, in 2009, 1.4 million people filed for relief of debts and it is anticipated that 1.6 million people will file in 2010. This is a 34% increase in the number of people who have no other way out than to seek the protection of the courts to start over. Of the 136,142 bankruptcies filed in May, 2010, 26% were Chapter 13, with 74% of individuals filing a Chapter 7 bankruptcy. This article will discuss Chapter 7 and why it may be the best choice for you if you are considering bankruptcy as an option for debt relief.
People generally file for this type of bankruptcy when they have suffered a major life change. The contributor factors to filing have been the double digit unemployment and people being out of work for over a year. Another factor are the incredibly high mortgage costs that have forced many people to walk away from their homes, allowing them to go into foreclosure. People who have exhausted their savings, have been living on credit cards, and have no savings left to make payments on debts, have been forced to consider getting relief through the courts.
Since 2005, the bankruptcy code has had a "means test". An individuals' income over the past six months is the basis for calculating your ability to pay on debts. This is called your "presumed income". If there is over $182.50 disposable income available, the trustee that is assigned to your case will determine what must be paid to creditors. An individual who does not meet the state median is not required to participate in the means test.
You are not allowed relief from some types of debt such as mortgage liens, certain taxes, spousal support, and others. However, most people are filing on unsecured debt, which is why this type of filing is also called a "straight" or "liquidation" filing. Each state has different items and amounts that are exempt from being assessed and sold to pay creditors. If you own a car that is paid off and old, it likely will not fall into the category that will require it be sold. However, if you own a new car that is paid off, it may not meet the dollar amount allowed for you to keep your vehicle.
From the time of the filing, creditors may no longer harass you or make contact with you regarding the debt. This is called an "automatic stay". If you use an attorney to represent you it will be to your benefit to refer any credit or collection calls to the attorney who will represent you. It will be important that you get your credit reports from the 3 top credit reporting agencies.
Once you have received the credit reports, use the debts listed when you are filling out your paperwork for filing. In this way you will not miss an old debt that may be on your report. The credit report that you receive from the agencies will have all of the information you need for filling out the forms properly. An accurate address, the amount owed, the date the debt was incurred, the address of the creditor, and the date and amount that the last payment was made.
When you want to keep a car or home, you can sign a "voluntary affirmation". The debt must still be included in your bankruptcy filing, and you must catch up payments in order to sign the reaffirmation. When you have signed a voluntary affirmation, the item, such as a car, cannot be used as an asset to be sold to satisfy your creditors. However, you will be responsible for paying that debt and must be able to make the payment. In some cases a lender will not accept an affirmation and you will need to return the item.
Bankruptcy is a very complex process and it is very easy to miss an important step in the filing process. Therefore, talking to a legal professional who is knowledgeable in this type of law will be helpful. The attorney will be able to provide you with important information regarding the length of time that the process will take and how your credit will be affected after filing. While some people choose to handle their own filing, the majority of individuals seek the assistance of an attorney who will help them navigate through the process and represent you with creditors, the trustee that is assigned to your case, and accompany you to court hearings.