Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is typically referred to as a liquidation style bankruptcy. Individuals of a certain income level can file for Chapter 7 for a discharge of most of their debts. Once an individual files a Chapter 7 bankruptcy a few things happen. First, the protection of the ‘automatic stay’ is put into place. Second, all assets are considered to be transferred to the bankruptcy estate. In a typical Chapter 7 case, an individual’s assets are not liquidated, as most are able to be protected by the exemptions allowed by law. For example, an individual in Massachusetts is able to protect $500,000 worth of equity in a home through the MA homestead protection and $7,500 worth of equity in a car. There are other exemptions for most of the standard assets such as household furnishings and a small amount of cash.
A Chapter 7 bankruptcy discharges most credit card debt, medical bills, car loan deficiencies, and mortgage deficiencies. Also, secured debts are discharged against the individual – but the creditor must still be paid if the debtor wants to keep the property. Taxes that are over 3 years old can be discharged depending on the circumstances, but that is rare. There are some taxes that are not discharged in a Chapter 7 bankruptcy, absent exceptional circumstances, such as student loans.
Frequently Asked Questions
I'm living on a shoestring as it is, can I even afford to file for a Chapter 7 bankruptcy?
Yes, our firm is able to work a payment arrangement with most of the people who contact our firm. Our legal fee for a 'basic Chapter 7' starts at $1,099. While this is reasonable rate within our legal community, it is still a significant amount of money, which is why our firm works with each client to develop a payment plan that works for the client's financial situation. Another thing to keep in mind is that each client is responsible for various out of pocket fees - including the filing fee with the bankruptcy court. Feel free to contact the firm for a free consultation and quote of the fees involved with your filing.
What is the income limit for a Chapter 7 bankruptcy?
An individual has to pass what is referred to as the ‘means test.’ This test takes into consideration the debtor’s household income, household size, and certain expenses. Debtors who are below the median income level for a household of their size in Massachusetts are generally able to file a Chapter 7. Even if your household income is a bit over the median, you can still be eligible. Please feel free to call for an analysis on whether your financial situation would allow you to file a Chapter 7.
Will I lose my house?
It depends. If you are current on your mortgage, almost all debtors are able to keep their house. If you are behind on your mortgage payments but still want to keep your home, a Chapter 13 bankruptcy is an option to explore. The same is true here for a financed car. If you are current on the car payments, you can usually keep the car. If you are behind, a Chapter 13 might be to your advantage.
How long does a Chapter 7 last?
It depends on the complexity of the case, but most simple Chapter 7 cases are over within 4-5 months from the date of filing.
What happens to the pending debt collection suit against me?
The Automatic Stay will stop this suit. Usually these debts are discharged in the Chapter 7, and collection (in the form of a lawsuit or otherwise) cannot be attempted after the bankruptcy discharge.