Chapter 7 Bankruptcy

Chapter 7 is a bankruptcy liquidation, commonly referred to as a “straight bankruptcy”. Chapter 7 Bankruptcy allows individuals, self-employed individuals or debtors otherwise engaged in business, including incorporated entities, as well as Debtors engaged in business, to discharge their debts.

Chapter 7 provides complete relief of unsecured debts, in a relatively short period of time, in that it normally takes 4-5 months from the date of filing to the date of discharge. A bankruptcy discharge releases individual debtors from personal liability for their debt. The main purpose of a Chapter 7 filing is to discharge unsecured debts, such as credit cards, personal loans, repossession deficiencies, hospital bills, pay-day loans, business debt on which your are personally obligated, and certain old personal or corporate income taxes. If you are behind in payments on secured debt, such as a house or a car, a Chapter 13, rather than a Chapter 7 is typically the better option, because Chapter 7 does not provide a way to cure secured debt arrearages as Chapter 13 does.

Certain debts are not dischargeable in bankruptcy, such as child support, alimony, fines, certain non-dischargeable taxes, credit card debt obtained through fraudulent use, student loan obligations, or debts incurred while driving under the influence of alcohol or drugs. If you are behind in certain non-dischargeable obligations, such as child support or priority taxes, a Chapter 13 may be a viable option for you to conveniently catch up with those payments.

When filing bankruptcy, it is important that you provide complete information regarding all of your debt and creditors, because unlisted debt will not be discharged under Chapter 7 or Chapter 13.

In either Chapter 7 or Chapter 13, consumer debtors must take a pre-filing credit counseling course, as well as a debtor education course, and must also attend a 341 Meeting of Creditors, which is a hearing conducted by the Trustee. I personally prepare my clients for that hearing, and will attend the hearing with you.

The Automatic Stay, which provides immediate protection from and stops creditor action against you, is imposed immediately upon the filing of any bankruptcy case, with some exceptions for repeat filers.

You may file Chapter 7 bankruptcy and still keep your house and car that is exempt, as long as the payments on this secured debt are current. Exempt property is that which the debtor may keep from the reach of creditors in a bankruptcy case, and this includes cars, work-related tools, household furnishing, and other personal property. Non-exempt property may be sold by a Court appointed official – a Trustee, for the benefit of creditors. However, 90% of the consumer cases are no-assets cases, because the net value of automobiles and other personal property is typically within Delaware exemption limits. It is important to disclose all assets so that we may evaluate your assets and the exemptions that apply to your case.

To qualify for Chapter 7 relief, your asset’s net value must not exceed Delaware’s exemption limits. Also, your income must be sufficiently low. The means test compares your family income to the median income of other residents in the State of Delaware with your family size. Many individuals with secured debt obligations, whose income exceeds the median, may still qualify for Chapter 7 bankruptcy. We will evaluate your case to determine whether or not you qualify for a Chapter 7, or whether debt negotiation or Chapter 13 would be a better option for you.

Advantages of Chapter 7

  • Bankruptcy provides complete and immediate relief from discharged debt, as compared to debt settlement, which requires a monthly payment plan to resolve. In my view, bankruptcy is also more expedient as compared to plans offered by many credit counseling agencies, which do not actually reduce the amount due, but works with the creditor to obtain more favorable monthly payments that the minimum monthly payments, and in the end, after having paid on these plans for years, you may emerge with impaired credit/late pays, and further creditor action, including lawsuits, when creditors do not accept the terms of the credit counseling arrangements.
  • The Chapter 7 bankruptcy discharge occurs within 4-5 months of filing, which is short-term and expedient.
  • Chapter 7 would also immediately stops IRS liens and seizures dischargeable taxes, lawsuits, creditor harassment, and wage garnishments.

The smartest way to get a fresh financial start is to retain an experienced bankruptcy attorney to represent you. I have been practicing bankruptcy law for 16 years, and have seen many individuals attempt to file their own bankruptcy cases, or pursue other avenues based solely on price. This could lead to disastrous results, requiring several amendments to the Petition, embarrassment at the 341 hearing, the sale of assets by the Trustee as a result of an improperly-prepared petition, and other issues that arise after the bankruptcy case has been closed, which I have been called on to fix.

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