Posted on: 08th Nov, 2005 10:12 pm
If you have no hope of repaying debts and are about to be sued by creditors/lenders, it's time you file Chapter 7 bankruptcy. With this type of bankruptcy, the court sells your nonexempt property to repay as much of your debt as possible. To learn how Chapter 7 bankruptcy works and how it can help you, go through the information below:
- When to file chapter 7 bankruptcy
- How to qualify for chapter 7
- How to file chapter 7 bankruptcy
- Chapter 7 Non-exempt Assets
- Bankruptcy Chapter 7 exemptions
- Pros and Cons of filing Chapter 7 bankruptcy
When to file Chapter 7 bankruptcy
You can file Chapter 7 if you are in any of the situations given below:
- You don't have any money to pay off the debts.
- You don't have cosigners to repay debt.
- Your creditors are about to sue you.
- Some of your accounts are in collection.
How to qualify for chapter 7
You need to fulfill the following in order to qualify for Chapter 7 bankruptcy.
- Credit counseling: You must have attended a credit counseling session 6 months prior to filing chapter 7 bankruptcy.
- Means Test: You must qualify under the Chapter 7 bankruptcy Means Test. Under the Means Test, if your income is less than the median income of another family of the same size in your state, you qualify to file Chapter 7. Find out how Means Test determines if you qualify for chapter 7. Check out how Means Test determines if you qualify for chapter 7 or 13.
- Prior bankruptcy: You have received a Chapter 7 bankruptcy discharge within the past 8 years or a Chapter 13 discharge within the past 6 years.
- Bankruptcy dismissal: You have not had your bankruptcy dismissed within the past 6 months for failure to appear or contempt of court.
Chapter 7 Non-exempt Assets
Most of the assets that are sold during Chapter 7 are personal property, such as your electronics or clothes. You will have to list all your assets as well as your liabilities when you file Chapter 7. The trustee will review the list of assets and divide your property according to what state law has said you may keep. The Federal government has enacted an exemption scheme that a few states allow you to use as an alternative to a state scheme, or if you are ineligible for the state exemptions due to residency requirements.
Bankruptcy Chapter 7 exemptions
Each state allows you to keep different types of property when you file Chapter 7 bankruptcy. Every state allows you to keep a part of your interest in your home and car if you include them in the bankruptcy estate. Many states have exemptions that allow you to keep heirlooms and other personal property, as well as your retirement funds.
Every state has a residency requirement that you must meet when you file Chapter 7. You must have been living in the state for at least 2 years before filing bankruptcy in that state or if you have not lived in any other state within the previous 2 years, but have spent the majority of the 180 day period preceding the 2 year period in that state.
Exemptions on house and car:
Bankruptcy Chapter 7 exemptions apply only if you have equity (your current home value minus costs of sale less balance on mortgage or other liens) in the property. If your home equity exceeds the State or Federal exemption, you may lose the home. However, if you have no equity in the house, it cannot be used to pay off your debts. In this case, you can keep the home as long as you pay the mortgage.
The same is true for a car, if you have no equity, you can keep it. If your equity in the car exceeds the exemption, it can be sold off to repay your car loan. Learn more about bankruptcy Chapter 7 exemptions.
If you wish to reaffirm your car loan and/or mortgage, then the property will not be included in the bankruptcy estate and you will be able to keep them.
Other Exemptions:
Apart from your home and car, there are other assets which may qualify for exemptions under Chapter 7 bankruptcy. The Federal government and most states allow debtors to keep all or part of their pensions, IRAs, and social security during bankruptcy. You can also receive protection for certain business assets if you are involved in a partnership or are a sole business owner.
Every state has a residency requirement that you must meet when you file Chapter 7. You must have been living in the state for at least 2 years before filing bankruptcy in that state or if you have not lived in any other state within the previous 2 years, but have spent the majority of the 180 day period preceding the 2 year period in that state.
Exemptions on house and car:
Bankruptcy Chapter 7 exemptions apply only if you have equity (your current home value minus costs of sale less balance on mortgage or other liens) in the property. If your home equity exceeds the State or Federal exemption, you may lose the home. However, if you have no equity in the house, it cannot be used to pay off your debts. In this case, you can keep the home as long as you pay the mortgage.
The same is true for a car, if you have no equity, you can keep it. If your equity in the car exceeds the exemption, it can be sold off to repay your car loan. Learn more about bankruptcy Chapter 7 exemptions.
If you wish to reaffirm your car loan and/or mortgage, then the property will not be included in the bankruptcy estate and you will be able to keep them.
Other Exemptions:
Apart from your home and car, there are other assets which may qualify for exemptions under Chapter 7 bankruptcy. The Federal government and most states allow debtors to keep all or part of their pensions, IRAs, and social security during bankruptcy. You can also receive protection for certain business assets if you are involved in a partnership or are a sole business owner.
Pros and Cons of filing chapter 7 bankruptcy
Here are some of the pros and cons of filing Chapter 7 bankruptcy.
Pros:
Pros:
- No Personal liability: Chapter 7 releases your personal liability towards any debts that are included in your bankruptcy estate and not repaid during Chapter 7. You receive a discharge order within 4 months of filing the petition.
- Exemptions: You can retain certain assets under chapter 7.
- Prevents legal actions: Once you file Chapter 7, it stops all lawsuits and collection actions being pursued by your creditors. Under Chapter 7 bankruptcy law, creditors cannot make harassing calls demanding payments from debtors until and unless the case has been dismissed.
- Fresh financial start: Since Chapter 7 discharges your debts, you get the chance to organize and manage your finances better.
- Lose assets: You lose assets if they are sold off to pay your creditors/lenders.
- Retain property liens: Chapter 7 does not remove property liens due to secured debts (mortgage or car loan) unless you give up the house or car during Chapter 7. So, even if you get a discharge, you'll have to pay off the lien in order to save your property from foreclosure or repossession if you keep the house or car.
- Effect on Credit Score: Your credit score decreases by 250 points or so when you file Chapter 7 bankruptcy. The bankruptcy remains on your credit report for 10 years.
- New credit/mortgage: It's difficult to qualify for new credit or a mortgage after you file Chapter 7 bankruptcy. If the market isn't doing well, no lender would offer you a mortgage even at high interest rates. It'll take at least 2 years to qualify for an FHA loan and 4 years for a conventional mortgage at an affordable interest rate. Check out this forum discussion on getting mortgage after bankruptcy.
Related Forum Discussions
we have a mortgage in florida. The lender refueses to give us a dil because it was 100% mortage. The market is so bad that shortsale has not been possible and they are also saying that if they forclose we will still be liable for the smaller loan regardless of wether they forgive the large loan. I have a few questions a) who will be liable for the payment to the irs if a 1099 is issued? will it be split between both lenders, how is this decision made, b) is it ok to file bankrupcy after the forclosure decision and 1099 etc has been made or is it advisable if considering it to do it now?
hi guest,
if you foreclose the property, you will be liable for the second mortgage dues. if the lender forgives the dues, a 1099 form will be issued. the forgiven amount will be considered as your income and you will have to pay taxes on it. however, depending upon the mortgage debt relief act, you may not have to pay the taxes on the forgiven amount. you can file bankruptcy before or after you receive the pre-foreclosure documents.
if you foreclose the property, you will be liable for the second mortgage dues. if the lender forgives the dues, a 1099 form will be issued. the forgiven amount will be considered as your income and you will have to pay taxes on it. however, depending upon the mortgage debt relief act, you may not have to pay the taxes on the forgiven amount. you can file bankruptcy before or after you receive the pre-foreclosure documents.
i am going to court 02/04/2010...for a unpaid balance for a furniture place that was back in february of 2005.i got divorce in february 2006 my exhusband took everything we got from there and other place.but in my divorce decree it says>respondent shall be responsible for the follwing debits..it's three of them and one of them is the place taking me to court...but what i want to know is can they take anything from me or take my monthly checks that i get from social security income and three of my kids get S.S.I can they take those from me? please help me im scared im gonna lose all my money that i get to support my kids with. :(
Hi worriedparent,
The creditor may place lien on any of your properties or on your checking account in order to recover his dues. However, the lender would not be able to garnish your social security income or your retirement savings.
Thanks
The creditor may place lien on any of your properties or on your checking account in order to recover his dues. However, the lender would not be able to garnish your social security income or your retirement savings.
Thanks
we are fileing chapter 7 we are about to file our tax returns and may be getting back as much as 14,ooo in returns. can we file now for taxes or should wait and if we file now can they consider the taxes and accet or take the tax return money? we just bought our house last year so all the tas returns are mostly from intrest from the house
Hi kristy,
If you file now, the bankruptcy trustee can use the dollars that you receive from your tax returns to pay off your creditors. You should speak to your bankruptcy attorney and then take a decision about filing bankruptcy.
If you file now, the bankruptcy trustee can use the dollars that you receive from your tax returns to pay off your creditors. You should speak to your bankruptcy attorney and then take a decision about filing bankruptcy.
BUt he said he could possibly do an excemption is this true? after I asked our laywer i told him we were going to pay him all his fees with the tax money and he told us to go ahead and file then but was hesetent before i told him this,we were going to buy a car cash with it too can they use this paid off car as an accet and take it? we are about to file taxes and dont know which way to go do it or not and if we do will we loose it? the bankruptcy papers have not been files with the courts yet till we pay him off so is it safe to get that much bk in taxes? we are so lost and with that tax money is that counted as income for the yr.
I would suggest you to contact a bankruptcy attorney and take his opinion in this case. The tax returns can be used to pay the creditors. If you purchase a car with that money, chances are that it can be considered as an asset and will be taken away by the trustee.
We have approximately $25,000.00 of credit card debt, the credit card companies have raised the apr's to rediculous %, one is 29.99%. My monthly income has changed once again but for the worse. I'm in sales & with this economy it's been tough but it's about to get tougher. We own a car, a pick up truck on it's way out engine wise & we owe around $3,000.00 on a motorcycle, we have a mortgage & a second on our home, could we file on these credit cards & be able to keep these items? Please help we aren't behind in payments but we are about to be. I'm scared & don't think we could ever get these cards paid off due to the finance charges.
rather than filing bankruptcy for the credit card debts, i would suggest you to contact your creditor and negotiate for a repayment plan. try to settle the dues with him. if you get an affordable repayment plan, it would be easier for you to pay off the credit card dues. thus, you won't have to file bankruptcy for the credit card debt and your score will also not get affected.
how much cash is exempt from bankruptcy?
It may vary depending upon your state laws. You need to contact your bankruptcy attorney and he would be the best person to help you in this regard.
My mother in law lives in senior housing in Vermont. She has no savings and about 30,000 in debt (credit card, personal loan, and car). She gets 1100.00 per month in social security. She is unable to make all of her payments in addition to her rent, medicare, food, and prescription drug costs. Would she be able to file for personal bankruptcy (7)? Would she need to give up her car? She has no other asses.
Your mother in law will be able to file personal bankruptcy. However, she should contact a bankruptcy attorney and discuss her case with him/her. This will help her know which chapter of bankruptcy would be best suited for her. She will have to list the car as her asset and the trustee may sell it off in order to pay off her creditors.
Hi there! My husband's name is on a rental property with his dad. We don't pay taxes nor get any income from it, but nonetheless we have a 50% stake in it. That said, the house is worth about $100K, no mortgage, so our equity is around $50k I imagine. We want to file Chapter 7 bankruptcy and in all honesty, wouldn't care if they sell our portion of the house. How does that work though with his father? Do they only auction off our part? Are there any exemptions we would qualify for? Thanks!!