Among the most common questions for people overwhelmed by debt are, how can I get out of this, and can the bankruptcy laws help me? The answer to the second question actually answers both questions. When your debt seems insurmountable and you are in danger of losing everything you have worked for, bankruptcy can provide a way out. The key question is not, can bankruptcy help me, but how can bankruptcy help me.
In Arizona, Nevada and Colorado, the bankruptcy attorneys of Want a Fresh Start, LLC can help you make the right choice. There are different kinds of bankruptcy. To find out which type of bankruptcy filing can best suit your particular needs, you can contact us for a free consultation at (866) 780-4855, or through our online contact form.
Chapter 7 Bankruptcy is a Popular Option That Can Help You Escape Your Debt
Chapter 7 bankruptcy often is called “liquidation bankruptcy.” There is a means test for individual debtors to file under Chapter 7, but other than that, debtor may be an individual, a partnership, a corporation or any other form of business.
Under Chapter 7, the debtor does not file a plan of repayment as in Chapter 13. The court appoints a bankruptcy trustee, who sells the debtor’s nonexempt assets and uses those funds to pay the creditors under the methods set forth in the bankruptcy code. Some property is exempt, but beyond exempt assets, the trustee will liquidate all of the debtor’s remaining assets. Under Chapter 7, then, a debtor is likely to lose some property of some kind. The law provides for a certain amount of persona property to be exempt, with the amount generally set by state law. The trustee will not be selling all of your furniture and clothing to pay off your debts. Still, you are likely to lose some personal property.
The upside is, as long as a debtor qualifies for a Chapter 7 filing, almost all debts are discharged in a Chapter 7 bankruptcy. Under Chapter 7 the debtor need not file a repayment plan. Some assets may be sold by the bankruptcy trustee to satisfy debts if those assets are non-exempt. Other of the debtor’s assets may be subject to security liens, such as property mortgages, and those debts may require that the secured properties be sold to satisfy the liens or mortgages. Secured creditors, such as the lenders for automobile loans and home mortgages, have collateral for their loans (the car or house) and are first in line. If the car or house is sold, the lender for that asset gets the proceeds.
Bankruptcy law allows debtors to keep “exempt” property. For example, most states have “homestead” exemptions that protect a certain amount of equity that the debtor has in his or her principal residence. However, the vast majority of a debtor’s unsecured debts will be discharged under Chapter 7.
A discharge under Chapter 7 discharge relieves the debtor of responsibility for most debts and halts creditors from attempting to collect on those debts. With the exception of secured creditors, who might retain rights to seize the secured property, unsecured debts generally are discharged fairly quickly under Chapter 7. If a debtor wants to retain secured property, such as an automobile, it is possible to reaffirm the debt, meaning there is a formal agreement between the debtor and the creditor that the debtor will continue to make payments for the vehicle. In the absence of such an agreement, the creditor may be able to repossess the vehicle, particularly if the debtor fails to continue to make payments. Reaffirmation must take place before discharge.
What Debts Cannot be Discharged in Chapter 7?
There are certain debts that cannot be discharged in Chapter 7. These include:
- Most back taxes: This includes income taxes, Social Security taxes, tax penalties or, for businesses, unpaid withholding tax for employees;
- Child support and alimony;
- Student loans: Normally, these cannot be discharged, but if you can show that you cannot afford to repay your student loans, are unlikely to be able to do so in the future and have genuinely tried, the court may consider discharging student loan debt;
- Home mortgages and other property liens: If there is a lien on your property, such as a home mortgage, you cannot have the mortgage discharged in bankruptcy. State laws vary and provide differing amounts of “homestead exemptions” that allow you to protect a certain amount of equity, but in general your mortgage or lien holder’s interests cannot be discharged;
- Debts from fraud, embezzlement, larceny, or from “willful and reckless acts”;
- Automobile loans, if you want to keep your vehicle. If you don’t, the lender can repossess your vehicle and the debt is discharged, regardless of whether the car is worth what is still owed;
- Debt that doesn’t belong to you: You cannot discharge debt that is in the name of your ex-spouse, child or another person other than you;
- New credit card debt: You can’t run up credit card debt right before you file bankruptcy and expect to get rid of it.
How Do I File for Chapter 7?
The debtor must file a petition with the bankruptcy court to launch a Chapter 7 case. The petition must be accompanied by a number of documents, including schedules of assets and liabilities, information on current income and expenditures, your tax return for the most recent tax year, and other documents the court might require. Also, individual debtors likely will have to file a certificate of credit counseling as well as evidence of income, among other things. These are the sorts of things a bankruptcy attorney will help you with.
Contact Want a Fresh Start, LLC today
If you are considering bankruptcy in Colorado, Nevada or Arizona, you need to consult with an experienced bankruptcy lawyer to explore your options. The bankruptcy lawyers of Want a Fresh Start, LLC can present you with all of your options and guide you to making the right choices. You can reach us at (866) 780-4855 or through our online contact form.