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
if i did my 341 meeting already and did not receive a discharge yet but my mortgage company sold my account to another company do i do anything? should i call my lawyer and tell them about it and pay extra to add the new loan company?
My husband and I got into several real estate deals that didn't pan out when the economy tanked. We cannot continue to service the loans and are getting ready to file chapter 7. We have a car loan with $9,000 negative equity and 100,000 miles on it. We still have 800+ credit scores and are considering buying a new Toyota Prius so that we can have lower monthly bills on gas and a lower car payment. Can we turn in the car with negative equity in the bankruptcy and keep the new car that will cost less in the long run? We are filing next Friday, and could buy the car this week prior to filing.
to filipino boy,
if you haven't received a discharge and if you're still in bankruptcy, then the lender will not be able to sell off your loan account to anyone else. i would suggest you to inform the bankruptcy attorney about this and take his opinion in this regard.
to guest,
while you are filing bankruptcy, it won't be a good option to buy a car now. you will have to include all your assets while you file bankruptcy or else it can considered as fraudulent and your filing can get dismissed. i would suggest you to contact a bankruptcy attorney before taking any further steps.
if you haven't received a discharge and if you're still in bankruptcy, then the lender will not be able to sell off your loan account to anyone else. i would suggest you to inform the bankruptcy attorney about this and take his opinion in this regard.
to guest,
while you are filing bankruptcy, it won't be a good option to buy a car now. you will have to include all your assets while you file bankruptcy or else it can considered as fraudulent and your filing can get dismissed. i would suggest you to contact a bankruptcy attorney before taking any further steps.
I filed over 1 year ago for Ch 7 and it was discharged. I kept my home and car but would like to sell my home and get the equity, so I can downsize and keep paying my bills. Do I have to wait 2 years from discharge date or from filing date before I can sell and take my equity ( if there is any) that is over the exemption limit?
I forgot to tell you my Ch 7 was in New Mexico
You need to contact a bankruptcy attorney and he would help you in a better way. Most important, if you had a mortgage on that property, then you will have to sell off the property and repay the debts first.
what if you don't have any assets to sell off, to help pay for your debt, can you still qualify for Ch. 7 bankruptcy?
Hi misstoy!
Welcome to forums!
You need to go through the means test to qualify for filing Chapter 7. If you clear the test, then you would be able to file it. In Chapter 7, the trustee mainly sells off your non-exempt assets to pay off your creditors. If you do not have any assets, then it would be difficult for you to qualify for Chapter 7. Nevertheless, you should have a word with your attorney and take his opinion in this regard.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You need to go through the means test to qualify for filing Chapter 7. If you clear the test, then you would be able to file it. In Chapter 7, the trustee mainly sells off your non-exempt assets to pay off your creditors. If you do not have any assets, then it would be difficult for you to qualify for Chapter 7. Nevertheless, you should have a word with your attorney and take his opinion in this regard.
Feel free to ask if you've further queries.
Sussane
i have $90,000.00 worth of land against a bank note my company owes..bank note totals 220,000.00 after trustee takes my 50 percent of membership from my llc does my partner which still operates the business , and is still running it like nothing happened, just get off the hook and if she ever pays the bank note off, does she get possession of my land.....the company only ownes $30,000 assets and owed $300,000 in liabilities, but shes got a rich boyfriend i'm sure will help her pay off the debt she has, which $40,000 in credit card debt was on my personal credit cards, because she had bad credit.and was wiped out from me filing, she was an added user on 2 of the credit cards, but i was the primary....Just doesn't seem fair the courts would not at least go after some of the assets the company has like the fork lift, warehouse items, desks, computers, frig, tables, etc....and i end up loosing everything and filed chapter 7 on mar 19.....the trustee now has my 50 percent, will they do anything with it or just turn my 50 percent over to her....... :evil:
If you've taken a mortgage against your business and filing bankruptcy now, then it will be included in your bankruptcy. Depending upon the situation, the trustee can sell off the business and repay your creditors. If your partner is paying her dues on time, then she would receive her share of the money from the sale proceeds. For further information in this regard, I would suggest you to have a word with your bankruptcy attorney.
My husband and I are sepearated and have not yet filed for divorce, I had to move in with my mother...I have $24,000 in debt and cannot make the payments to my credit cards...I only make around $18,000 a year...I have to make my car payment and help my mom pay the rent...Since we are seperated and living at 2 physical addresses....Can I file Chapter 7 without using his income?
You will be able to file Chapter 7 on your own. It is not mandatory for you to file bankruptcy jointly. I would suggest you to have a word with your bankruptcy attorney and he will suggest you as to which chapter of bankruptcy filing would be best suited for you.
My sister and I own the home that we grew up in after our mother passed away. My sister is now living in the house. My husband and I have to file bankruptcy and we need to know if we have to list this house as an asset and if so how do we go about it? The house has been paid for since the 70's. We do not know how much equity is in the house.
If your name is on the property, then you will have to list it as your asset while you file bankruptcy. If the property has equity, then the trustee will have the rights to sell it off and pay off the creditors. As your sister is also one of the owners of the property, she will get her share from the sale of the property.