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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.
Pros:
  • 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.
Cons:
  • 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
Hi anonymous,

Your father may be notified about the fact that you've filed bankruptcy. If you file bankruptcy, the lender can come after your father in order to recover the dues.

Thanks
Posted on: 07th Apr, 2011 12:22 am
IF I HAVE A THOUSAND TO PAY THE LAWYER YET TO COMPLETE THE FILING HOW LONG AFTER THIS BEFORE IT IS ALL SAID AND DONE?
Posted on: 18th Apr, 2011 10:04 am
Hi Guest!

Welcome to forums!

It will depend upon the type of bankruptcy you file. You can contact your bankruptcy attorney in this regard and he will help you in a better manner.

Feel free to ask if you've further queries.

Sussane
Posted on: 18th Apr, 2011 11:21 pm
I OWNN A BUSSINESS WITH 4 OTHER PARTNERS
WOULD THEY GO AFTER MY SHARE OF BUSSINESS I OWN 20 % BUT THE BUSSINESS HASNT SHOWN A PROFIET IN OVER 3 YEARS
Posted on: 22nd Apr, 2011 11:15 am
I WOULD LIKE TO HAVE A FRESH START CHAPTER 7
Posted on: 22nd Apr, 2011 11:15 am
Hi BLUEBOY,

They may go after your share of the business if you file Chapter 7. Your share in the business will be considered as your asset and it can be liquidated in order to pay off your creditors.

Thanks
Posted on: 22nd Apr, 2011 10:07 pm
I received $13,000 ssdi BACK PAY a couple of monthe ago but wife and I are going to file Ch 7 bankruptcy in ILLINOIS.Funds have all been spent on car repairs,driveway rock,plumbing issues,but do not have the receipts,will this be a problem?Should we wait 6 months or so to file or is it OK to proceed now?Thank you!
Posted on: 26th May, 2011 11:37 am
Recd SSDI backpay,already spent ,no receipts,will this be a problem with Ch7 bankruptcy in IL?
Posted on: 26th May, 2011 12:21 pm
Hi,

You should contact your bankruptcy attorney and he will look into the whole issue. The bankruptcy attorney will be the best person to let you know what steps you can take in this regard.

Thanks
Posted on: 26th May, 2011 11:34 pm
I have a home and it is has a homestead exemption on it (In Texas) I filed chapter 7 and it was listed in the discharge and I have equity in the home, I also have a piece of property that I was wanting to sell my current home with the exemption and roll the equity over to the new house. If I have a judgment on me what will be the outcome of my equity? Thanks. I cant get a strait answer. I am confused. I have been paying on my piece of property hoping I can build on it but what about the money from my proceeds of selling of my current house? I need something to go in my favor.
Posted on: 26th Sep, 2011 11:40 am
Hi Guest!

Welcome to forums!

If there is a lien on the property, then the equity in the property will be used to pay off that lien. Nevertheless, you should have a word with your bankruptcy attorney and take his opinion regarding the equity in your property.

Feel free to ask if you've further queries.

Sussane
Posted on: 26th Sep, 2011 11:33 pm
in chapter 13 bankruptcy, can i keep a 6 year jaguar s type car that i just paid off but is worth $12,000?
Posted on: 05th Oct, 2011 02:12 pm
Hi Georgia Guy!

Welcome to forums!

As far as I know, you will be able to keep that car as in Chapter 13, you will get a payment plan in order to pay off your debts. Normally, in Chapter 13, the trustee doesn't sell off the assets to pay the creditors. Nevertheless, it will be a better option to contact your bankruptcy attorney in this matter and take his opinion.

Feel free to ask if you've further queries.

Sussane
Posted on: 05th Oct, 2011 11:08 pm
My estranged spouse is filing Ch 7 and the 341 hearing is next week. He has stopped assisting with the mortgage, hm equity loan, and payments on the car has physical possession of. What can I do to protect myself and should he still be making payments towards the afore mentioned items?
Posted on: 19th Oct, 2011 07:38 am
Welcome Guest,

If he has filed bankruptcy, then you cannot force him to make the payments. He will get a discharge from the debts and won't be personally liable for them. If your name is mentioned on the mortgage/loan docs, then the lender will come after you in order to recover the debts.
Posted on: 19th Oct, 2011 09:45 pm
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