Drowning in Debt? There’s Hope. Get the Legal Help You Need from Knight & Stockton, PLLC Today
If you are inundated on a daily basis with bills and collections notices from creditors, you’re not alone. In today’s changing economy, more and more people are faced with debts they are unable to pay. Contrary to popular belief, struggling with debt does not mean that a person has been irresponsible with their money or racked up credit card bills that they knew they couldn’t pay down. The majority of people who experience financial difficulties are simply faced with unexpected situations like the loss of a job or the inability to obtain affordable health insurance. It’s easy to become frustrated when collectors are calling you every day and demanding money that you simply don’t have, or when creditors harass you and make threats against you. If you’re facing financial challenges, you may have legal options available to you.
What is a Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy is a specific type of bankruptcy that involves the liquidation of the debtor’s assets in order to pay all or a portion of the debt that is owed to creditors. After the debtor’s assets have been liquidated and creditors have been paid, any remaining debt is discharged, with the exception of a few types of secured debts.
How is a Chapter 7 Bankruptcy Different from Other Types of Bankruptcy?
In any other type of bankruptcy, including a Chapter 13 bankruptcy, the debtor is able to keep his or her assets. However, the debtor is also responsible for satisfying all debts and this is typically done through a court supervised repayment plan. A Chapter 7 bankruptcy is the only type of bankruptcy that allows for the discharge of remaining debts once the debtor’s assets have been exhausted.
Qualifying for a Chapter 7 Bankruptcy
Not everyone is eligible to file for this type of bankruptcy. You must meet certain income and debt guidelines, and typically, if your income is too high, you will not be able to file a Chapter 7 and will be required to file a Chapter 13. This is to prevent individuals with high incomes who have the ability to pay down their debts from taking advantage of the fact a Chapter 7 bankruptcy allows many debts to be discharged.
The simplest way to determine whether or not a debtor is eligible to file a Chapter 7 bankruptcy is to take the means test. If your income is less than the median income for a family your size in your area, you automatically pass the means test and can file a Chapter 7. If you make more than the median income for a family your size in your area, this does not mean that you fail the means test. It does, however, become more complex to calculate whether you have enough disposable income to repay some of your debts. Your allowed expenses, such as your rent and your utility payments, are deducted from your current average monthly income, and the money left over is considered disposable. If your disposable income is less than the allowed amount, you will be considered eligible for a Chapter 7 bankruptcy.
Many people believe that a Chapter 7 bankruptcy will require the liquidation of all possessions, including their home or car. However, this is a common misconception and in most cases, it isn’t true. When the bankruptcy is first filed, the debtor fills out what is called an exemption form. Many of the debtor’s assets that are required to satisfy basic needs may be able to be listed as exempt. This means that the possessions listed as exempt are not eligible to be liquidated to satisfy any debts. For example, a debtor may be able to list their car or their pension as exempt, since the court often considers these a “reasonable” necessity.
The Automatic Stay
An automatic stay occurs as soon as a debtor files for bankruptcy. Creditors are notified that the debtor is pursuing a Chapter 7 bankruptcy and at that point, all collections activity must cease. Creditors and collections agencies will no longer be able to contact you via letter, phone, or email to discuss your debt and they must do so through the bankruptcy court or your lawyer. It also prevents them from freezing your bank accounts, garnishing your wages, or repossessing your car.
The Bankruptcy Process
The bankruptcy process can be a complex one and involves many steps.
1. You Are Placing Your Debts and Assets in the Hands of the Bankruptcy Court
When you file for bankruptcy, you are placing your debts and your assets in the hands of the bankruptcy court. The court can decide whether to liquidate your assets and what debts need to be paid with those funds, as well as what debts can be discharged. While the technical loss of control over one’s debts and assets sounds frightening at first, many people who have been overwhelmed with debt find it relieving to no longer have to worry about when to pay what.
2. A Bankruptcy Trustee Will Be Appointed to Your Case
The next step in the process is for a bankruptcy trustee to be appointed to your case. The trustee must review your petition for bankruptcy and all related documents, and he or she is also responsible for examining you under oath. It is the trustee’s job to identify non-exempt assets and liquidate them, as well as making payments to your creditors using those funds.
3. Your Creditors Will Meet With Each Other to Discuss Your Debts
A few weeks after you file for bankruptcy, what is known as the “creditor meeting” takes place. The bankruptcy trustee arranges the meeting, which will involve both you and the creditors you listed in your bankruptcy documents. You will be sworn in under oath and will be asked questions about the information contained in your bankruptcy petition and supporting documents.
4. Bankruptcy Resolution
Once your assets are liquidated and your creditors are paid, remaining unsecured debts are typically discharged. Secured debts like taxes and student loans will likely still be your responsibility to pay after the bankruptcy has been resolved.
Moving Forward After a Chapter 7 Bankruptcy
Having a clean financial slate in which to start over is an exciting prospect after your bankruptcy has been resolved. It can also be a little frightening, especially considering that now is the time to build your credit back up. Your credit score will have taken a nosedive as a result of the bankruptcy, however, building it back up simply takes time and diligence in paying your debts going forward. Sound financial management is key to moving forward after a bankruptcy, and your attorney can help you find valuable resources on how to manage your money after a Chapter 7 bankruptcy.
Contact Knight & Stockton, PLLC Today
At Knight & Stockton, PLLC, we are proud to offer individuals and families who are struggling with debt a solution. We have significant experience working with people who are involved in a variety of debt situations and are able to utilize the skills we’ve learned to benefit your case. We will consult with you to help you determine if bankruptcy truly is the best option for you, and we’ll guide you step by step through the process so you always know what to expect. Contact us today for an appointment to speak with an experienced bankruptcy lawyer about your case and find out how to take the next step in gaining financial freedom.