Chapter 7 Bankruptcy

Sometimes referred to as “liquidation bankruptcy,” Chapter 7 bankruptcy is an option for both consumers and business owners. Generally all of the filer’s assets are protected from the creditors and outstanding debts. Chapter 7 could be the answer for you because once it is finalized you will be released from most of your debts. In reality, there is very little downside to filing.  A good attorney can help weigh the pros and cons so that you make the best decision for your individual situation. Your attorney can also guide you through the process if you decide to file for bankruptcy so that you avoid making costly mistakes and get the best result possible.

Chapter 7 Bankruptcy

If you are considering Chapter 7 bankruptcy there are some factors to consider:

Eligibility

Eligibility for filing Chapter 7 is based in part upon a “means test.” The means test considers several factors, the first of which is income. Wages, child support, retirement earnings and most other sources of income are included in this calculation.  If your income is above the state median, subsequent factors are analyzed.

  1. Ability to pay part of debt: If your income is above the median state income, the court gauges the ability to pay some of the unsecured debt. If, after necessary and exempt expenses like food and housing are paid, you have money left to pay for part of the debt, you will need to consider a Chapter 13 bankruptcy repayment plan.
  2. Credit counseling requirement: If you fail to participate in mandated credit counseling during the 180 days preceding the filing, the case will be dismissed.
  3. Another bankruptcy case was dismissed in the preceding 180 days: If another bankruptcy filing for Chapter 7 or 13 was filed and dismissed in the previous 180 days we will need to show the court what is different now in your life and how those changed circumstances will allow you to be successful this time.
  4. Previous bankruptcy: If you had Chapter 7 or Chapter 13 bankruptcy filings in the previous 8 years then you have a special circumstance that needs to be considered.
  5. Filer deception: You are prohibited from engaging in certain activities before bankruptcy. You can engage in legal ways to protect otherwise non-exempt property before the proceedings begin. However, there are improper actions that should not be taken; when activities such as these are discovered, the court could dismiss your case. Examples are destroying property, buying luxury items or transferring items of value to friends or family members.  Before you realize it, you could make a major misstep like an illegal asset transfer that will hurt you during the bankruptcy process.  These situations need to be discussed with an experienced attorney before filing.

Loss of Property

One deterrent for potential bankruptcy filers is the thought of losing their possessions.  Fortunately, under the provisions of Chapter 7, many items if not all, are protected, including your home, car and other personal possessions.  Your retirement funds are protected; do not liquidate these.  It is important you do not make a decision or take action without the guidance of an experienced bankruptcy attorney.

Impact on Credit

A Chapter 7 bankruptcy will remain on your credit record for 10 years, but with proper guidance your credit score will be repaired in 2 or 3 years. On the other hand, not filing for bankruptcy and dealing with delinquent payments, lawsuits and repossessions separately also hurts your credit for seven or more years, as well as your emotional and physical well-being.  A bankruptcy attorney can help determine if filing is the right choice for your situation.

Remaining Financial Obligations

Some debts are non-dischargeable in a Chapter 7 bankruptcy. You will still be responsible for school loans and child support, alimony payments and divorce agreement issues, but the bulk of the overwhelming debts will be cleared away; the remaining obligations will become more manageable. With a smaller debt-load, you will be able to start a whole new chapter in your life.

Deciding to declare bankruptcy is tough and you will want good advice.  A bankruptcy attorney can steer you through all of the steps and decisions that you encounter. If you are considering filing for bankruptcy and want to make the process as pain-free as possible, consult a bankruptcy attorney in Philadelphia like William D. Schroeder, Jr.. For more information or further questions, contact us at 215-822-2728.