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Chapter 7 Bankruptcy filing and exemptions

Posted on: 08th Nov, 2005 10:12 pm
If you have no hope of repaying debts and are about to be sued by creditors/lenders, it's time you file Chapter 7 bankruptcy. With this type of bankruptcy, the court sells your nonexempt property to repay as much of your debt as possible. To learn how Chapter 7 bankruptcy works and how it can help you, go through the information below:

When to file Chapter 7 bankruptcy

You can file Chapter 7 if you are in any of the situations given below:
  • You don't have any money to pay off the debts.
  • You don't have cosigners to repay debt.
  • Your creditors are about to sue you.
  • Some of your accounts are in collection.

How to qualify for chapter 7

You need to fulfill the following in order to qualify for Chapter 7 bankruptcy.
  • Credit counseling: You must have attended a credit counseling session 6 months prior to filing chapter 7 bankruptcy.
  • Means Test: You must qualify under the Chapter 7 bankruptcy Means Test. Under the Means Test, if your income is less than the median income of another family of the same size in your state, you qualify to file Chapter 7. Find out how Means Test determines if you qualify for chapter 7. Check out how Means Test determines if you qualify for chapter 7 or 13.
  • Prior bankruptcy: You have received a Chapter 7 bankruptcy discharge within the past 8 years or a Chapter 13 discharge within the past 6 years.
  • Bankruptcy dismissal: You have not had your bankruptcy dismissed within the past 6 months for failure to appear or contempt of court.

Chapter 7 Non-exempt Assets

Most of the assets that are sold during Chapter 7 are personal property, such as your electronics or clothes. You will have to list all your assets as well as your liabilities when you file Chapter 7. The trustee will review the list of assets and divide your property according to what state law has said you may keep. The Federal government has enacted an exemption scheme that a few states allow you to use as an alternative to a state scheme, or if you are ineligible for the state exemptions due to residency requirements.

Bankruptcy Chapter 7 exemptions

Each state allows you to keep different types of property when you file Chapter 7 bankruptcy. Every state allows you to keep a part of your interest in your home and car if you include them in the bankruptcy estate. Many states have exemptions that allow you to keep heirlooms and other personal property, as well as your retirement funds.

Every state has a residency requirement that you must meet when you file Chapter 7. You must have been living in the state for at least 2 years before filing bankruptcy in that state or if you have not lived in any other state within the previous 2 years, but have spent the majority of the 180 day period preceding the 2 year period in that state.

Exemptions on house and car:
Bankruptcy Chapter 7 exemptions apply only if you have equity (your current home value minus costs of sale less balance on mortgage or other liens) in the property. If your home equity exceeds the State or Federal exemption, you may lose the home. However, if you have no equity in the house, it cannot be used to pay off your debts. In this case, you can keep the home as long as you pay the mortgage.

The same is true for a car, if you have no equity, you can keep it. If your equity in the car exceeds the exemption, it can be sold off to repay your car loan. Learn more about bankruptcy Chapter 7 exemptions.

If you wish to reaffirm your car loan and/or mortgage, then the property will not be included in the bankruptcy estate and you will be able to keep them.

Other Exemptions:
Apart from your home and car, there are other assets which may qualify for exemptions under Chapter 7 bankruptcy. The Federal government and most states allow debtors to keep all or part of their pensions, IRAs, and social security during bankruptcy. You can also receive protection for certain business assets if you are involved in a partnership or are a sole business owner.

Pros and Cons of filing chapter 7 bankruptcy

Here are some of the pros and cons of filing Chapter 7 bankruptcy.
  • No Personal liability: Chapter 7 releases your personal liability towards any debts that are included in your bankruptcy estate and not repaid during Chapter 7. You receive a discharge order within 4 months of filing the petition.
  • Exemptions: You can retain certain assets under chapter 7.
  • Prevents legal actions: Once you file Chapter 7, it stops all lawsuits and collection actions being pursued by your creditors. Under Chapter 7 bankruptcy law, creditors cannot make harassing calls demanding payments from debtors until and unless the case has been dismissed.
  • Fresh financial start: Since Chapter 7 discharges your debts, you get the chance to organize and manage your finances better.
  • Lose assets: You lose assets if they are sold off to pay your creditors/lenders.
  • Retain property liens: Chapter 7 does not remove property liens due to secured debts (mortgage or car loan) unless you give up the house or car during Chapter 7. So, even if you get a discharge, you'll have to pay off the lien in order to save your property from foreclosure or repossession if you keep the house or car.
  • Effect on Credit Score: Your credit score decreases by 250 points or so when you file Chapter 7 bankruptcy. The bankruptcy remains on your credit report for 10 years.
  • New credit/mortgage: It's difficult to qualify for new credit or a mortgage after you file Chapter 7 bankruptcy. If the market isn't doing well, no lender would offer you a mortgage even at high interest rates. It'll take at least 2 years to qualify for an FHA loan and 4 years for a conventional mortgage at an affordable interest rate. Check out this forum discussion on getting mortgage after bankruptcy.
Chapter 7 bankruptcy helps you eliminate debts but there are negative aspects as well. You need to understand how bankruptcy can work in your favor. Only then you can use it to your benefit and lead a debt free life.

Related Forum Discussions
my husband and i would like to file chapter 7 bankruptcy 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.
Posted on: 21st May, 2006 08:42 pm
Can we still file without a tax return to prove income."

You can file chapter 7 bankruptcy without a tax return. But you need to clear any overdue tax return within few weeks of filing chapter 7. Otherwise, you get disqualified for bankruptcy chapter 7.

Posted on: 21st May, 2006 08:52 pm
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 chapter 7 bankruptcy, can i keep my home. or should i sell it first then file?
Posted on: 05th Mar, 2008 07:21 am
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 bankruptcy 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 bankruptcy.

Any thoughts that you would like to discuss further?
Posted on: 05th Mar, 2008 11:06 pm

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

Posted on: 06th Mar, 2008 06:50 am
Hi Riko,

Welcome to the forum.

Good information mate :). 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 :)

You can also introduce yourself and let the world know about yourself at

Best of luck,
Posted on: 06th Mar, 2008 11:52 am
We have some check cashing loans, will chapter 7 bankruptcy stay prevent them from cashing those checks.
Posted on: 19th Apr, 2008 01:47 pm
I don't think bankruptcy can prevent one from cashing checks, even though it's chapter 7 bankruptcy.
Posted on: 21st Apr, 2008 11:54 pm
I am thinking about filing chapter 7 bankruptcy. i have two mortgages. I acheived them as stated income. Does stated income constitute fraud?
Posted on: 03rd Oct, 2008 05:53 pm
Hi sassy,

Welcome to our forums.

I don't think stated income constitutes fraud. But what makes you think so?
Posted on: 10th Oct, 2008 06:02 am
I have PDLoans and I want to know if they are legitimate PDL Companies: 1. United Cash loans
2. Cash Advance USA
3. Shop on line
4. Cashnet USA

Thank you

Posted on: 13th Oct, 2008 11:58 am
Hi In our Hearts!

Among all this companies, United Cash Loans is the one on which there has been a lot of discussions. You can go through this link to know whether people are satisfied or not.


Posted on: 14th Oct, 2008 04:22 am
Hi, my bankruptcy got thrown out of court because I was in the hospital after an accident and when i got out I wasnt given enough time to get all the documents out. How soon after can I file? Also, I had credit counceling if I have to wait do I have to re-take itr?
Posted on: 26th Dec, 2008 03:08 pm
hi unknown

you will be able to file bankruptcy again though it has been dismissed once. but in case, if your bankruptcy has been discharged due to your failure to obey the court, then you may have to wait for 180 days after dismissal before filing bankruptcy again. to know more about the same topic, check out the following link:

Posted on: 29th Dec, 2008 02:05 am
I am planning to file Chapter 7 bankruptcy because of the huge debts that I ve incurred. Can you tell me if I file bankruptcy, will it affect my wifes credit?
Posted on: 16th Jan, 2009 04:53 am
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