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Chapter 7 is known as straight bankruptcy or liquidation. In a Chapter 7, a list of all your assets and debts is filed with the Bankruptcy Court. The court will appoint a trustee to represent the interests of your creditors and can sell your property to pay debts. In most Chapter 7 cases, however, much (if not all) of your personal property will be exempt by law, and can’t be sold to satisfy your creditors’ claims, and your residence is generally protected. When your Chapter 7 case is over, called the Discharge, most of your debts will be erased. If you filed under Chapter 7 and your debts were discharged, you must wait eight (8) years before filing another Chapter 7. See what happens if I file Chapter 7 bankruptcy below. **

What Chapter 7 Can Do:

  • Stop foreclosure of your home and allow you to catch up on missed payments.
  • Stop repossession of a car or other property, or, in some situations, force the creditor to return property even after it has been repossessed.
  • Stop debt collection harassment.
  • Stop Creditors from Garnishing your wages or bank accounts.
  • Restore or prevent termination of your utilities for nonpayment of previous bills.
  • Restore your driver’s license if it was suspended because you failed to pay court-ordered damages for a driving accident (unless the accident involved a DUI).
  • Eliminate the legal obligation to pay most or all of your debts. 

What Chapter 7 Cannot Do:

  • Discharge past-due child support, property taxes, recent IRS debts, and most student loans.
  • Protect you from criminal charges, or waive criminal fines, fees, penalties and restitution.
  • Discharge debts that arise after the bankruptcy has been filed.
  • Eliminate the obligation of a co-signer on your loan in most cases.
  • Eliminate creditor’s rights to secured property like car loans and home mortgages. Chapter 7 can discharge the debt, but not the creditor’s lien or legal claim. After bankruptcy, your home can still be foreclosed, and your car repossessed if you don’t make the payments. See Chapter 13 bankruptcy below***

Frequently Asked Questions

Can I Keep My House In Chapter 7 Bankruptcy?

Fortunately, the law is only concerned with the amount of equity you have built up in your home (your primary residence) and looks on that part as an asset. You can determine your equity in the house by taking the fair market value of your home and subtracting the balances of your mortgages and liens. The difference is your equity. A considerable portion of that value is exempt from seizure. Specific rules vary from state to state, but Massachusetts allows couples to have up to $500,000 and individuals up to $250,000 in equity in the value of one’s homestead (although rules differ for elderly and disabled applicants) so long as you have a recorded declaration of homestead and you have owned your home for over 3 ½ years. If you have owned your house for less than 3 ½ years please contact us and we can explain your options and how best to protect your real estate.

Can I Keep My Car In Chapter 7 Bankruptcy?

The short answer is YES as long as you make your auto loan payments. Exemptions typically allow you to keep your car, or make it exempt from liquidation. You typically have two options:(1) Reaffirmation: If you can negotiate an agreement with your creditor, you can essentially reaffirm the terms of the original debt. In layman’s terms, it means that both you and the creditor ignore the fact that your bankruptcy took place, and you continue to make car payments as if nothing happened; or, (2) Redemption: Slightly less common, you can reach an agreement with the creditor to which you will make a lump-sum payment that is equal to the value of the car rather than the remaining balance owed.

Depending on their specific circumstances, some individuals choose to surrender the asset back to the creditor — with any deficiency balance being discharged in the bankruptcy. At this point, the creditor will sell the car and apply the sale price to the balance you owe. Since the car is nolonger in your possession, the difference between the sale price and the remaining balance (often called the deficiency) is an unsecured debt that is discharged in your bankruptcy.

How Long Will Chapter 7 Effect My Credit?

A Chapter 7 Bankruptcy can stay on a consumer credit report for seven (7) years from your filing date. However, this does not prevent you from re-establishing credit. In fact, many of our clients obtain credit cards, car loans and personal loans only six (6) months after their Chapter 7 Bankruptcy. Clients have also obtained mortgages in as little as twelve (12) months after their Chapter 7 Bankruptcy.

What Debts Are Not Included Or Discharged In Chapter 7 Bankruptcy?

Certain debts cannot be discharged in a Chapter 7 Bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, criminal charges/fines, fees, penalties and restitution and certain items charged.

How Much Debt Do I Need To File A Chapter 7 Bankruptcy?

The federal government does not require a person to have a minimum amount of debt to file for bankruptcy. Filing for bankruptcy depends on MANY other factors, such as whether you are able to pay your debts without filing, your creditors will work with you or whether you can discharge the debts you have.

Can I Be Denied In A Chapter 7 Bankruptcy?

Although extremely rare, a Chapter 7 Bankruptcy case can be denied a Discharge or have his/her case dismissed if: the Debtor fails to attend & complete the required 2 online credit counseling and Debtor Education courses; their income(s), expense(s), and debt(s) only allow for a Chapter 13 filing; the Debtor attempted to defraud creditors or the bankruptcy court; you previously filed a Chapter 7 Bankruptcy in the past eight (8) years; or, if you had debts discharged within the past six (6) years under Chapter 13.

**What Happens If I File Chapter 7 Bankruptcy?

A discharge of debt in a Chapter 7 Bankruptcy releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a Chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge.

In most cases, unless a creditor (or other interested party) files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively quickly. The grounds for denying an individual debtor a discharge in a Chapter 7 case include that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management.

Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court setting forth the amount of the debt being reaffirmed and that the debtor's personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement.

An individual receives a discharge for most of his or her debts in a Chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in Chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. The debtor will continue to be liable for these types of debts to the extent that they are not paid in the Chapter 7 case.

The court may revoke a Chapter 7 discharge on the request of a creditor or a trustee if the discharge was obtained through fraud by the debtor, if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee, or if the debtor (without a satisfactory explanation) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor's case.

***Chapter 13 Bankruptcy

A Chapter 13 bankruptcy allows a person to reduce his or her debt by reorganizing it into a repayment plan based on his or her disposable income. A person must have both the willingness to make regular payments to a trustee and the income to make the payments. Unlike Chapter 7, a person can keep all of his or her property, including exempt and non-exempt property. If a person is facing foreclosure, Chapter 13 offers a way for you to keep your home as long as the payments are made under the plan. Chapter 13 plans are typically anywhere between 3-5 years in duration, so the process is longer than Chapter 7.

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