Understanding the Basics of a Chapter 7 Bankruptcy
- September 1, 2020
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Personal bankruptcy is designed to help those who have exhausted all other options and need help with regaining control of their finances. For many people, seeking a Chapter 7 bankruptcy is the most practical way to accomplish this goal. There’s a lot of information available about this form or bankruptcy; not all of it is factual. Here are some of the most common questions that people ask about Chapter 7 bankruptcy in Illinois and how you can determine if this is the right course of action for you.
What is a Chapter 7 Intended to Accomplish?
The purpose of a Chapter 7 bankruptcy is to eliminate all of your debt and allow you to enjoy a fresh financial start. For those who qualify for this type of protection, it stops all collection efforts, up to and including lawsuits designed to result in the garnishment of wages or the seizure of assets. A trustee is assigned to the case, evaluates your circumstances, and then takes actions that are compliant with current bankruptcy laws. If there are no complications, you eventually receive a discharge that leaves you free from those old debts and able to plot a better financial future.
Who is Eligible to Receive a Chapter 7 Bankruptcy?
In order to qualify for a Chapter 7 bankruptcy, it’s necessary to pass what’s known as a means test. This is simply an evaluation of your assets, secured and unsecured debts, and disposable income to determine if this type of bankruptcy is feasible. The results of the test will determine if you have any assets that could be sold in order to partially settle the debt, and if your income is sufficiently below what’s considered the median income level needed to keep paying off those debts.
The types of debt you currently hold are also considered. Your legal counsel may find that seeking a different form of bankruptcy would be in your best interests.
Can All My Debts Be Discharged as Part of a Chapter 7?
Some people believe that all forms of debt can be discharged as part of a Chapter 7 bankruptcy. That’s not the case. There is a broad range of secured and unsecured debts that can be discharged. A narrow range of debt can be discharged only if very specific circumstances apply. There are also other debts that cannot be discharged as part of a Chapter 7.
The latter group of debt includes tax debt. This applies to state as well as federal taxes in most cases. Outstanding child or spousal support are also exceptions. If you have lost a personal injury case and owe damages, those obligations cannot be included. Student loans are also rarely eligible for inclusion. In order to determine if there’s any circumstances that might allow one of these debts to be included, have a word with Casey Kepple and find out before attempting to file.
Will I Have to Give Up All My Assets?
While it’s possible that you may have to surrender some of your assets to the bankruptcy trustee, there are protected assets that are not considered eligible for sale. These are typically referred to as exempt assets. This group of assets is considered to be things that you need in order to maintain a reasonable standard of living.
The home where you live is likely to be considered an exempt asset. The same goes for the home’s furnishings and appliances. You can expect the court to allow you to keep the car that you drive to and from work. Your personal effects like clothing and jewelry that’s under a certain value is also likely to remain in your possession.
What sort of assets may the court consider non-exempt? Additional vehicles, other real estate, bank account balances over a certain amount, and even valuables like artwork may need to be turned over to the court for sale. The funds from the sales are then used to partially settle your debts before the remaining balance is discharged.
Will I Have to Take Financial Management Courses?
As part of your compliance with the court, it will be necessary to complete and pass coursed in financial management. You don’t get to pick the courses at random; the bankruptcy court has a list of approved courses and you are free to select from that list. Upon successfully completing the course, the court and your legal counsel are notified and the completion is recorded as part of the bankruptcy proceedings.
Today, it’s often possible to take the courses in an online environment. While traditional classes are still available in many instances, online courses can be taken any time of the day or night. It’s in your best interests to complete the courses early in the bankruptcy process.
Do My Creditors Have Any Say?
Your creditors are not left out of the loop. Once your bankruptcy lawyer files the initial petition, the court will notify all creditors. They will be invited to file any objections to your request for bankruptcy protection. There’s also a meeting of creditors scheduled before the court approves the bankruptcy petition. All of your creditors are free to attend that meeting and ask any questions related to the debt that you owe them.
From a practical point of view, few if any creditors are likely to attend. Even if some do show up for the meeting, your legal counsel is there along with the trustee to ensure that everything is done in accordance with proper court procedure. In most cases, the meeting of creditors is over in 30 minutes or less.
How Long Does it Take to Complete a Chapter 7 Bankruptcy?
In the event there are no complications, it’s not unusual for a Chapter 7 bankruptcy to be completed in four to six months. You’ll be notified once the court discharges the last of the debt. At that point, you no longer have any obligation to the creditors who were included in the petition.
What Will My Credit Be Like When the Bankruptcy is Over?
Filing for a Chapter 7 will impact your credit rating. For those who already had accounts that were in arrears, the bankruptcy will not likely make things much worse. In any event, expect the action to remain on your credit reports for the next decade.
It will be possible to file for bankruptcy protection again for several years. This may make you attractive to some high-risk lenders and credit card issuers. For your own good, it’s important to not open a bunch of new accounts just because they’re offered to you.
If you think that you might be a candidate for a Chapter 7 bankruptcy, contact the Kepple Law Group today and request a free 30-minute consultation. What you learn during that meeting will help you decide if this is the form of bankruptcy that you should pursue, or if some other solution would work best.