Chapter 7 Bankruptcy

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is a liquidation proceeding where all of your unsecured debts can be discharged. Unsecured debts are debts that are secured only by your signature such as credit card bills and medical bills. This does not affect secured loans, like your mortgage or a car loan, which use the property that is being financed as collateral. However, you are also able to discharge secured debts, but the condition is to surrender the property you are holding (i.e., your home, your car, etc.)
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Eligibility for Chapter 7 Bankruptcy

Eligibility for chapter 7 bankruptcy is determined in 2 steps. Step 1 is the means test which is determined based on your income and number of dependants versus the median income for that area. This is designed to prevent people of high income from being able to file for bankruptcy. The second step compares your gross income with your expenses and makes sure that the excess funds are low. However, if your excess funds are sufficient to pay off your debts within a 3 to 5 year period the bankruptcy trustee may change your chapter 7 bankruptcy into a chapter 13. Assuming you pass these two tests you may be eligible for a discharge.
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Bankruptcy Trustee

In chapter 7 bankruptcy the bankruptcy trustee can sell your nonexempt assets in order to pay your creditors. However, much of your property may be exempt. For the majority of individuals out there, it is unlikely that the bankruptcy trustee will sell any of your assets. However, you must consult Bankruptcy Attorney to determine if that is the case. Exemptions allow you to keep as much as $23,000 of your belongings, and sometimes more (this includes the equity of your home). Therefore in many chapter 7 bankruptcy filings the bankruptcy trustee does not sell any of your assets and the creditors holding unsecured debt get nothing. However, it is recommended to speak to a Bankruptcy Attorney for additional clarification.
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Debtors Counseling

As a part of any bankruptcy, you are also required to complete debtors counseling. Debtors counseling is a short 90 minute course that informs you about how to manage your debt. This is a required course that can be taken online for a nominal fee. Once your bankruptcy petition has been filed, an automatic stay is triggered which will stop any and all foreclosure sales, lawsuits, wage garnishments, bank levies and evictions.

Pre-Discharge Debtors Counseling

The final steps toward receiving your discharge is the attendance at the creditors meeting and pre discharge debtors counseling. The creditors meeting is a short meeting where the bankruptcy trustee will ask questions about your debt. Pre-discharge debtors counseling is another short course, which can be taken online, about managing your finances and rebuilding your credit. This course must be completed. Otherwise, the bankruptcy court will dismiss your case without a discharge. Once the bankruptcy discharge is granted you will be unable to file another Chapter 7 Bankruptcy for another 8 years.

Alternatives to Bankruptcy

Are you overwhelmed by the mound of debt you owe. Are you behind on your mortgage?  Credit Card debt? Auto loan?Lawsuits?Wage Garnishments? There are alternatives to a Chapter 7 or Chapter 13 Bankruptcy.  However, each one must be carefully considered before considering to file for bankruptcy.  Each alternative has its pros as well as cons.

Credit Card and Personal Loan Debt

If you owe a mound of credit card debt.  There are ways of reducing the amount you may owe.  You may consider debt settlement where you pay only a percentage of the amount you owe.  For example, should you owe $10,000 to a credit card company, the creditor may take $6,000 to settle the debt.  However, what consumers do not understand is that this is considered debt forgiveness.  That is, the amount that is forgiven ($4,000), will be considered income to you.  The creditor will 1099 you the following year and you therefore will owe taxes on this amount forgiven to the IRS.
An additional problem with debt settlement is that one creditor may take an offer of $6,000 for a $10,000 debt, but you have 4 other credit cards for which you have not negotiated.  Those other 4 creditors may not be as forgiving.  Now, you have paid $6,000 to one creditor and still owe the rest in full.  You are now back at square one – the consideration of filing for bankruptcy.

Auto Loans

Unfortunately, automobile loans are usually not very flexible when renegotiating a loan.  Even while a debtor may be in bankruptcy, creditors generally do not renegotiate the amount you owe or the interest rate.  However, they may extend the term of the loan so that your payments are a bit more manageable.

Short Sale

Should you own a home but can’t afford to keep it, a Short Sale may be appropriate for you.  A Short Sale means that the banks are willing to accept less than the loan amount when you sell your home to an approved buyer.  Generally, you will not be pursued by the lender for the remaining balance.  Should you perform a Short-Sale while in bankruptcy, you must seek approval by the Bankruptcy Trustee.  That is why it is either best to perform a Short Sale prior to filing bankruptcy or immediately after discharge of your bankruptcy.
With respect to investment property, a Short Sale may not be the best option for you.  The law allows the lender to 1099 you for  any difference between what you owed on the mortgage and what the home sold for in the Short Sale.  This difference will be considered taxable income to you.  This scenario also applies to individuals going through foreclosure.  The ideal option for consumers who own investment property is to file for a Chapter 7 or Chapter 13 Bankruptcy .  Additionally, there are options for consumers to reduce the principal of their home or investment property in a Chapter 13 – something to consider.

Foreclosure

Foreclosure is an option.  However, if you are attempting to reside in the house for a little while longer, or attempting a loan modification, bankruptcy might be the right decision for you.  By filing for bankruptcy, this will stop the foreclosure temporarily.  In addition, lenders are more willing to work out a loan modification with individuals that have filed for bankruptcy for various reasons.  One reason may be that the debts you owed prior to filing for bankruptcy will now be considered discharged.  Therefore, you have additional income to spend towards your mortgage.  This situation may possibly qualify you for a modification.

Loan Modification

A loan modification changes the terms of your mortgage.  The lender may reduce the interest rate temporarily or permanently.  The lender may extend the life of the loan from a 30 year to a 40 year mortgage.  More often than not, the lender will not reduce the principal of the mortgage because they have no incentive to.   However, by filing for Chapter 13 bankruptcy, it is possible to reduce the principal balance on your home or investment property.   Contact our office should you wish to explore this option.
Bankruptcy Exemptions – Will I lose everything?
Am I going to lose everything when I file for bankruptcy? When filing for bankruptcy in California there are two separate exemption statutes to chose from – California Code of Civil Procedure (C.C.P.) sections 703 or 704. You may only choose one set of exemptions. In order to determine which set of exemptions best fits your situation, it is best to consult with your bankruptcy attorney, such as the Law Offices of Chapter 7 Law Office. Below, you will find a quick outline of the basic exemptions.
Exemptions under C.C.P. 703
Homestead – Up to $20,725 in value of equity for your primary residence
If you don’t have that much in equity, any remaining amount can be applied to any property
Vehicles – Up to $3,300 in equity value in one vehicle
Personal property including household items such as animals, appliances, clothes, etc. up to $525 for each item. Also jewelry and heirlooms up to $1,350.
Tools of the trade up to $2,075 in value
Insurance – Including disability benefits, life insurance with specific details for allowing it.
Pensions – Some benefits and private retirement account, with details that apply.
Public benefits – Such as unemployment, workers’ compensation, welfare, social security or veteran’s benefits.
Alimony and child support
Exemptions under C.C.P. 704
Homestead – There are various categories of the amount of equity allowed under this section starting with $50,000 for an individual all the way up to $125,000 for various other situations. Contact your attorney for exact details
Vehicle – Up to $1,900 in value in one vehicle
Personal property – All household items are exempt, jewelry and heirlooms up to $5000.
Tools of the trade – Up to $5000 or double if that if married and both use tools.
Insurance – Including disability benefits, life insurance with specific details for allowing it. Speak with your attorney for details
Pensions – County & public employee pensions, public retirement benefits and private retirement accounts with details that apply.
Public benefits – Unemployment, welfare, workers’ compensation and financial aid to students.
Alimony and child support

Bankruptcy Myths

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When facing an overwhelming amount of debt that you just don’t know how to handle, it is vital for you to fully understand your legal rights and options. The Law Offices of Chapter 7 Law Office is happy to answer your questions by offering a free initial consultation with a bankruptcy lawyer. We have compiled a list of common Bankruptcy Myths that many people believe are true, which we can assure you are not what you can expect to occur in your bankruptcy.
Everyone will know I have filed for bankruptcy.
Unless you are a very important person or a major corporation, chances are that the only people that will know about your bankruptcy are your creditors. Although filing bankruptcy is of public record, the number of people filing everyday are so massive, publications are unlikely to run it.
All debts are wiped out in a Chapter 7 Bankruptcy.
Unfortunately not. There are certain types of debts that can’t be eliminated. For example, child support and alimony, student loans, and debts incurred as a result of fraud. If you defrauded someone and a judgment has been made against you, that won’t erase either.
I will lose everything.
This is definitely not true. Generally, debtors are able to keep most of their belongings – especially their home and car (as long as there is very little equity in each). It is not true that the government will sell everything you have and you will have to start over in a cardboard box. In actuality, you are entitled to keep approximately $21,000 in assets (that is, equity) without having the bankruptcy court touch it! Every state has exemptions which protect certain types of assets (i.e., your house, car, retirement plans, household goods, clothing). If you are worried that you will lose everything in bankruptcy, contact our office to learn more.
I will never get credit again.
False. After receiving a discharge from bankruptcy, you will begin receiving credit card offers. However, be aware that they will be for high interest rate credit cards. I advise you not to run up your credit cards again because it will be another eight years before you can file another Chapter 7 bankruptcy petition again.
If you are married, both spouses have to file for bankruptcy.
Not True. Although it may be a better option to file a joint petition, it is not required of married couples. There are various reasons why married couples may not file jointly – i.e., the debt one spouse incurred took place prior to being married.
It is really hard to file for bankruptcy.
Although it may be hard to file for bankruptcy due to the vast amount of paperwork involved, it is not difficult to qualify for bankruptcy.
Only deadbeats file for bankruptcy.
Although there use to be a stigma associated to filing for bankruptcy, in today’s society, the same does not hold. The economy after the real estate bust has placed a lot of individuals in the unemployment line through no fault of their own. Consider this, an individual who once use to be employed now has been laid off. Due to his layoff, he was unable to make his credit card payment. By missing this credit card payment, it caused his interest rate to jump from 9.00% to $29.00. His $100.00 payment is now $300.00. This causes confusion to many households – which debt or expense should I pay this month. It then becomes a snowball effect where the debtor is now missing other credit card payments, mortgage payments, utility payments, etc… This is what our society has become – no deadbeats – only unfortunate households.
You cannot get rid of back taxes.
Generally speaking, this is true. However, if you have taxes that are over 3 years old and you had filed all your tax returns, it may be eligible for discharge. However, speak to an attorney to learn more about discharging tax debt.
I can max out all my credit cards.
Unfortunately, the bankruptcy courts disfavor this type of activity. Should they be aware of this type of activity (and they usually are), they may either dismiss your case entirely or require you to be responsible for this amount of debt incurred in your recent transactions.

Bankruptcy Overview

Many families are working hard and struggling to stay afloat due to the tough economic times. You or someone you many know many have been affected by being laid off from their job or had their hours of work reduced. Bankruptcy allows such individuals to start fresh. Due to unforeseen medical bills, divorce, even a death in the family, you might find yourself in this situation. Although no one wants to confront filing for bankruptcy, it is unfortunate that today more and more individuals are having to do so. If you are in such a position, you need an experienced bankruptcy attorney to direct you through the process and get you back on your feet. At the Law Offices of Chapter 7 Law Office, our attorneys provides the guidance needed when making this important decision. You do have choices that will better your situation, and our attorneys are here to assist you make the right decision.

How Much Do You Have to be in Debt to File Chapter 7?

No minimum debt for Chapter 7 bankruptcy, but there is a maximum debt. You cannot have more than $1.25 millions in secured debt (house, car, boat or motorhouse) or over $419K in unsecured debt (credit cards, personal loans or medical bills).

CHAPTER 7

Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. You may claim certain of your property exempt under governing law. The trustee may then liquidate the non-exempt property as necessary and uses the proceeds to pay your creditors according to priorities of the Bankruptcy Code.
The purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the court, and the purpose for which you filed the bankruptcy petition will be defeated.
Even if you receive a discharge, there are some debts that are not discharged under the law.
Therefore, you may still be responsible for such debts as certain taxes and student loans, alimony and support payments, criminal restitution, and debts for death or personal injury caused by driving while intoxicated from alcohol or drugs.
Under certain circumstances you may keep property that you have purchased subject to a valid security interest. Your attorney can explain the options that are available to you.

CHAPTER 11

This is the reorganization chapter most commonly used by businesses, but it is also available to individuals. Creditors vote on whether to accept or reject a plan, which also must be approved by the Court. While the debtor normally remains in control of the assets, the Court can order the appointment of a trustee to take possession and control of the business.

CHAPTER 12

This chapter offers bankruptcy relief to those who qualify as family farmers. Family farmers must propose a plan to repay their creditors during a three to five year period. This plan must be approved by the Court. Plan payments are made through the Chapter 12 Trustee, who also monitors the debtors’ farming operation while the plan is pending.

CHAPTER 13

Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time. You are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.
Under Chapter 13 you must file a plan with the court to repay your creditors all or part of the money that you owe them, using your future earnings. Usually, the period of time allowed by the court to repay your debts is three years, but no more than five years. Your plan must be approved by the court before it can take effect. This approval is called confirmation.
Under Chapter 13 , unlike Chapter 7 , you may propose a plan to keep all of your property, both exempt and non-exempt.
After completion of payments under your plan, most of your debts are discharged except alimony and support payments, student loans, certain debts including criminal fines and restitution and debts for death or personal injury caused by driving while intoxicated from alcohol or drugs, and long-term secured obligations( e.g., mortgages).
It is up to you, the Debtor, to decide which option best suits your needs. There are certain requirements which must be met under each Chapter and it is important that you disclose all relevant information concerning your financial affairs to your attorney in order to ensure that you make the choice that will best work for you.

How to Repair Your Credit?

Following some type of debt settlement or a bankruptcy, many people wonder if their credit is ruined for good. Well, this is not the case. There are ways to improve your credit rating and it is something that can be started right away. At Attorney Chapter 7 Law Office’s office, we are qualified Credit Restoration Attorneys who can work with you to restore your good credit.
Once your debt negotiation or bankruptcy goes through, there will be a number of negative items on your credit report that may end up costing you in other ways if not handled. Having been behind on your payments prior to the debt settlement or bankruptcy will appear on your record, as will the bankruptcy itself. But one of the good factors about having already settled your debt is that this now reflects on your credit report. It will show that you have little to no debt outstanding. If you used our services to negotiate your debt settlement, we would have ensured that we obtained a “satisfaction letter”, which will be sent to the credit bureaus to ensure that they show your debts as having been settled and no longer outstanding. Because your credit is rated by a FICO score, when a debt shows settled, this reduces the overall amount of debt that is being utilized, which over time will improve your score. A bankruptcy or credit counseling actually can reflect more negatively on your FICO score.

Credit Restoration Attorney

Regardless of the method used for your debt settlement, there are ways to help restore your good credit so that you will once again be able to obtain new credit. Having a good credit score can possibly impact your auto insurance rates as well as auto loan rates. The more you can improve your score through our help and guidance, the better your financial future will be.
Let us review your circumstances to see what we can do to help you improve your credit worthiness. Whether you are seeing us for advice on settling your debts or after you have already completed that step, we can assist you with the proper direction to take for your future financial health.

Creditor Harassment

What rights do I have?

The Federal Fair Debt Collection Practices Act has very strict guidelines as to what a debt collector is allowed to do to attempt to collect a debt. There are very specific methods that are definitely prohibited. The law is designed to protect consumers from the use of abusive, deceptive and unfair debt collection practices.
Some of the methods a debt collector may use are to contact you in person, by mail, telephone, telegram, or fax. However, they may not contact you at unusual times, including before 8 a.m. or after 9 p.m. If a debt collector contacts you at work and you advise him he may not do so again, he is no longer supposed to call you there. A debt collector must also stop contacting you if you write a letter to them advising them to stop. This letter should be sent certified mail to ensure they received it. Although they may not contact you again, this does not prevent the creditor you owe money to from suing you for the debt.
It is best in this situation that you find a professional debt management attorney to protect your rights. At the Law Offices of Chapter 7 Law Office, we understand the stress and emotional turmoil you may be going through during your financial difficulties. There are many ways to stop the harassment and put you on a path back to financial stability. Did you know that if you have an attorney, the debt collector must contact the attorney and can no longer contact you?

Bankruptcy Attorney

There are many unethical things that debt collectors do which you should be aware of. You may not even know that some of the things you are being told, or ways you are being contacted are illegal. To protect your piece of mind, below are listed just a few of the ways that are against the law and that a skilled bankruptcy attorney can easily put an end to.
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Contact people you know more than once.
Advise your employer or people you know that you are in debt
Use threats of violence or harm
Publish a list of people who “refuse” to pay their debts
Use obscene language to communicate to you
Annoy you repeatedly over the phone
Use false information about your situation when speaking to you or anyone you know
Threaten to have you arrested
Not only can our attorneys stop the harassment, but you also have the right to sue a collector in a state or federal court within one year from the date the law was violated.
Collection agencies are normally very aggressive, especially now with our current financial scene. Living with the crushing weight of unpaid debt can be quite overwhelming. However, we are here to help and can provide relief for you very quickly. Simply call our office today to get started!