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Overview of Chapter 7 Bankruptcy
A Chapter 7 bankruptcy allows a debtor to discharge unsecured debts and relieves the debtor from the obligation to repay unsecured creditors. In other words, unsecured debts are wiped out. The filing of a Chapter 7 bankruptcy will generally stop garnishments, levies on bank accounts or other property, immediate repossessions, attachments of liens and executions.
Common examples of unsecured debts are credit cards, charge cards, department store cards, medical bills, and deficiencies from foreclosures on real property and repossession of vehicles, unsecured bank loans, payday loans, check cash loans or any type of loan where there is no collateral. You must list all debts in a Chapter 7 bankruptcy. Any debt incurred after the filing of a Chapter 7 cannot be discharged.
Some types of debt that are not normally discharged in Chapter 7 include student loans, taxes owed to the IRS, restitution from criminal cases, fines, child support or alimony. Even though this is the general rule, in some cases student loans and IRS debt may be discharged.
The Chapter 7 process usually takes four to six months to complete. Generally, you will only have to appear in Court one time. This appearance is known as a 341 Meeting of Creditors and is held in Jackson, Tennessee at the Ed Jones Federal Building. The 341 Meeting of Creditors is usually held within 30 to 60 days after the case is filed.
In many cases, individuals who file Chapter 7 are able to keep or reaffirm their home, automobile or certain other debts when they are not behind on the payment to the particular creditor and there is no excess equity in the property.
Tennessee’s Homestead Exemption statute allows most individuals to keep their homes. Usually the creditor will prepare a reaffirmation agreement, and the debtor will continue to make regular payments to the creditor. The creditor must agree to reaffirm the debt.
Under the Bankruptcy Reform Act of 2005, you must qualify for a Chapter 7 bankruptcy and the Court must consider many factors including all of your income, expenses, assets and liabilities. Walker, Walker & Walker, PLC offers a free consultation so you can discuss your case with an attorney and find out whether Chapter 7 is right for you.
Reaffirmation of a Debt
To reaffirm a debt means to keep the debt and continue to have an obligation to satisfy that debt. For example, you could choose to reaffirm the debt on your house or your car. The creditor is required to prepare and file a reaffirmation agreement with the Court. The creditor will usually appear in Court to present a reaffirmation or mail the reaffirmation to our office. You will need to continue to make the regular payments on any debts which you intend to reaffirm. Those payments need to be kept current. A creditor does not have to allow you to reaffirm a debt. However, most of the time, creditors want to enter into reaffirmation agreements for secured debts. If a reaffirmation agreement is entered, then you still owe the debt after discharge.
The failure of a creditor to file a reaffirmation agreement, however, does not mean that a creditor will repossess the item. Many of our clients continue to make payments on debts such as cars and houses when no official reaffirmation agreement exists. Once the Court orders the discharge of a debt, the debt is erased unless there is a reaffirmation agreement.
Will Filing a Chapter 7 Affect My Credit?
The filing of a Chapter 7 bankruptcy can remain on your credit record for a period of ten years. Since many clients keep their houses and automobiles, it is not unusual to see an increased credit score a few years after the bankruptcy is discharged, especially if there is an increase in income.
Can I Keep My House in Chapter 7?
Most people who file Chapter 7 bankruptcy can keep their home if it is their principal residence. If you are current on the payments for your home, the mortgage company or bank will want to reaffirm or let you keep the house. Also, Tennessee’s Homestead Exemption statute allows you an exemption for a home in which you live at the time of the filing. This usually results in you being able to keep your home, especially if there is no excess equity or value in the property.
Can I Keep My Vehicle in Chapter 7?
Tennessee allows a personal property exemption, which means that you can keep up to a certain amount of personal property. This allowance is $10,000.00 for a single individual and up to $20,000.00 for married couples. This allowance is generally used to keep tools, equipment or vehicles that are paid off. In most cases, a vehicle which is financed has little or no equity because the vehicle has depreciated in value since purchase. Therefore, just like with a house, if you are current on the payments on your vehicle, the bank or finance company would be agreeable to reaffirm or let you keep the vehicle.
What Debts Can I Discharge in Chapter 7?
In a Chapter 7 bankruptcy, you erase general unsecured debts including credit cards, charge cards, department store cards, medical bills, deficiencies from foreclosures and repossessions, unsecured bank loans, payday loans, check cash loans and any other type of loan where there is no collateral pledged for the debt.
Are There Any Debts I Cannot Discharge in Chapter 7?
Generally, student loans, IRS taxes, restitution from criminal cases, fines, child support and alimony cannot be erased in a Chapter 7. Also, any debt which involved misrepresentation or fraud cannot be discharged.
Can I Discharge or Erase IRS Debt?
The general rule is that IRS taxes will not be discharged in a Chapter 7 bankruptcy. Taxes may be discharged in certain circumstances such as cases where taxes have been outstanding for several years. If the tax returns were filed and are older than three and one-half years from the date they were due, they may be discharged. However, there are many exceptions when dealing with IRS debt, so you should consult with us in detail on these matters.
Marital Debt in Chapter 7
In Chapter 7 you cannot discharge any part of alimony, child support or any other debt relating to a Court order or Marital Dissolution Agreement. This would include a debt to your ex-spouse. Many times it is difficult to determine whether a debt is in the nature of support or just a separation of property. In either case, any time there are questions like this you should consider a Chapter 13 bankruptcy rather than a Chapter 7.
The Automatic Stay in Chapter 7
Upon filing a Chapter 7 bankruptcy, a federal injunction or restraining order is automatically issued which stops all collection efforts by creditors. This is referred to as the automatic stay. The automatic stay protects you from creditors taking further steps to collect a debt while you are involved in bankruptcy proceedings. If a creditor continues collection efforts against you after they have been advised of the filing of a Chapter 7 bankruptcy, you will need to advise your attorney so they may take steps to stop the creditor.
You will be required to attend a 341 Meeting of Creditors which is a meeting conducted by the Chapter 7 Trustee and held in Jackson, Tennessee at the Ed Jones Federal Building. This is commonly referred to as your Court date, and usually this will be the only date you will be required to appear. The 341 Meeting of Creditors is usually held within 30 to 60 days after the case is filed. At the Meeting of Creditors, you will be required to show a Photo ID as well as a Social Security Card. Failure to attend the 341 Meeting of Creditors will result in your case being dismissed by the Court.
Credit Counseling / Financial Management
Our local court requires that a credit counseling class as well as a financial management class be completed. The credit counseling class must be completed prior to filing a case and can be completed on the telephone or online. The financial management class is required to be completed prior to receiving a discharge in the Chapter 7 bankruptcy.
What to Bring to Your Appointment
- Tax returns from the last 2 years (if you were required to file)
- Pay stubs from the last 6 months
- Driver's License or Government Issued Photo ID
- Social security card
- List of all debts including the name of the creditor, the address of the creditor, the account number and the current balance
- A declarations page from your automobile insurance company (if you are filing a Chapter 13)
This is a general outline of the basic principles and differences between Chapter 7 and Chapter 13 bankruptcies. It is not intended to be a substitute for sound legal advice from an attorney. You should make an appointment with our office to discuss financial problems so that we can advise you based on your particular situation. We offer a free consultation.
We are a debt relief agency. We help people file for bankruptcy relief under the bankruptcy code.