Chapter 7 Bankruptcy

Jessica · Posted: Tue Nov 08, 2005 11:12 pm Post subject: Chapter 7 Bankruptcy

Chapter 7 is one of the common forms of bankruptcy filed by individuals as well as businesses when they fail to make their payments on mortgages and other debts. The chapter 7 bankruptcy includes the repayment of debts from the sale proceeds of the debtor's assets.

In the process of clearing debts, individuals need to pay off secured debts prior to the unsecured ones. A debtor needs to file a petition in the court in which he makes a list of his assets and liabilities. Debtors are allowed to keep the exempt properties whereas the non-exempt assets are utilized to pay off outstanding debts.

There are two categories of debts - secured and unsecured debts. In case of a secured debt, a creditor retains an interest in the property of the debtor. This is why in chapter 7 bankruptcy the secured debts are paid off before the repayment of the unsecured debts. But if the sale proceeds are not enough to pay off all the debts, then unpaid balance on "dischargeable debts" is discharged. There are also some debts which are not dischargeable under this category of bankruptcy. These can be cleared by filing Chapter 13 after chapter 7 has been filed.

Eligibility for filing Chapter 7

You should have qualified in the Means Test if your income is above the median income level.
You should have gone through a credit counseling session before filing bankruptcy.
You must have filed any overdue tax returns within few weeks of filing Chapter 7 bankruptcy.
You must occupy a property or own a business in the same state where you are filing bankruptcy.
You must not have received a discharge from Chapter 7 bankruptcy since the past 6 years and you should not have completed Chapter 13 in a short time.
The court may not have dismissed your bankruptcy filing within 180 days before you have filed.

Debtors filing Chapter 7 usually get discharged from their debts within 3 to 5 months from the date of filing. But there are some debts which cannot be wiped out by this form of bankruptcy. These debts include:

Student loans
Alimony
Child support
Debts resulting from frauds
Criminal fees and penalties
Liability due to drunken driving
Tax debts which are not secured or those which are recent

With a Chapter 7 filing, debtors can prevent the following actions:

Stop debt collection:
After you have filed bankruptcy under Chapter 7, the court prevents you from harassment at the hands of debt collection agencies that your creditor has approached for debt collection. But even if this continues then the creditor will have to take the liability of paying fees related to court sanction and other legal formalities.
Prevention of foreclosure:
Filing chapter 7 helps to receive an "automatic stay" which delays the foreclosure in case of mortgage loans. The foreclosure is delayed till the debtor receives a discharge from bankruptcy. But the lender may apply to the Court for a relief from the automatic stay. In that case it is better that you talk to the lender personally so that you can keep those assets.
Remove tax liens:
Chapter 7 helps to eliminate tax liens imposed by the U.S Federal government but there are certain conditions for removal of such liens.
- The IRS has not recorded any tax lien against your property.
- You should have filed the tax return at least 2 years before the date of filing.
- You are not involved in activities related to fraud.
- You have not missed any tax payments.
- You should have received your tax-assessment copy within 240 days prior to filing bankruptcy.

Chapter 7 bankruptcy not only helps individual debtors to get rid off debts but also allows companies to discharge their debts and terminate their business. But personal bankruptcies remain in the credit report for about 10 years often making credit unavailable with unfavorable terms and conditions. This is often compensated by the discharge of debts under the filing. Thus, bankruptcy may have an adverse effect on the credit score but it also provides a fair method of release of debts.

Related Article

Check whether you qualify for Chapter 7 or chapter 13

Related Forum Discussion

Guest 0.10 Dollars($)

my husband and i would like to file chp 7 and infact need to badly, but he has no tax returns because he was paid under the table. however i do have mine. we werent married until march of this year though. Can we still file without a tax return to prove income.

helping_user · Posted: Sun May 21, 2006 8:52 pm Post subject: Re: File tax return

Guest 0.10 Dollars($)

i own a home with very little equity in it (10k)
i have outstanding debt of 15k (badloan,phonebill,carinsurance,other misc.)
i have a full time income of 40k and my taxes are filled and are in good shape. only 1 year left on my mortgage term and im scared of not getting renewed with anyone and forced to sell. If I file chpt 7, can i keep my home. or should i sell it first then file?
thanks,
Tony

Jessica

Hi Tony,

Welcome to our community forums.

If only 1 year is left out of the mortgage, try paying it off as you have been doing. For the other bills, you can go for debt consolidation program. But I don't think you need to file chapter 7 or 13 just to pay off the mortgage and most importantly you will first have to qualify for the bankruptcy type before you can file.

Alternatively, you can sell off the home if you are not keen on keeping it and then file bankruptcy for debts other than the mortgage, preferably chapter 13 which will have better impact on your credit score compared to chapter 7.

Any thoughts that you would like to discuss further?

0.10 Dollars($)

Tony,

i donth think you need file 7. As mentioned above- keep paying off as you have been doing and for other bills go for consolidation program:0

Riko

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Riko,

Welcome to the forum.

Good information mate Smile

. Why don't you join this community.

I think you can help the community with some sound suggestions and valuable information and at the same time can earn some $$$. Also can make thousand of friends from all over the world Smile

You can also introduce yourself and let the world know about yourself at http://www.mortgagefit.com/introduce-yourself.html

Best of luck,
Larry

Guest 0.10 Dollars($)

WE HAVE SOME CHECK CASHING LOANS, WILL BANKRUPTCY STAY PREVENT THEM FROM CASHING THOSE CHECKS.

Guest 0.10 Dollars($)

I don't think bankruptcy can prevent one from cashing checks, even though it's chapter 7 bk.

Guest 0.10 Dollars($)

I am thinking about filing chapter 7. i have two mortgages. I acheived them as stated income. Does stated income constitute fraud?

Caron · Posted: Fri Oct 10, 2008 6:02 am Post subject:

Hi sassy,

Welcome to our forums.

I don't think stated income constitutes fraud. But what makes you think so?

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