What Is Chapter 7 Bankruptcy?
For those who are experiencing heavy debts, a viable option might be declaring Chapter 7 bankruptcy, which helps debtors get a fresh start on their finances. Also known as straight or liquidation bankruptcy, Chapter 7 gets rid of many types of an individual’s debt in return for selling any nonexempt property. These include items like family heirlooms, cash, investments, stocks, bonds, second vehicles, second home, or any other valuable items.
You are allowed to protect certain exempt property from creditors under a Chapter 7 bankruptcy, which would include items such as clothing, necessary household furnishings, appliances, pensions, tools for a debtor’s job, personal injury damages, and a car up to a certain value. Debtors may also retain a certain portion of equity on their home. Under the North Carolina homestead exemption, those who are filing for Chapter 7 bankruptcy can protect up to $35,000 from their primary residence.
What Are the Benefits of Filing Chapter 7 Bankruptcy?
Filing for any kind of bankruptcy will get the creditors off your back immediately. Harassing phone calls and threats will stop once your petition has been followed. Some folks will be required to file under Chapter 13, but if you can prove your income is low enough or your hardship is great enough, you will be able to file under Chapter 7. Many find this preferable because it will discharge qualified debts immediately.
Gives You a Fresh Start
Chapter 7 bankruptcy allows the debtor a clean slate and a fresh start to begin anew. There are many types of debts that Chapter 7 can discharge. However, if the debt you owe is not among them, Chapter 13 may be the better option.
Lets You Keep Future Income
When you file for Chapter 7, your assets and property are considered a part of the bankruptcy estate. Property or investments that you acquire after filing for bankruptcy is not considered among the assets you will need to liquidate to satisfy your creditors.
Certain kinds of property, however, can be considered a part of the estate up to 180 days after filing. It’s generally assumed that if you’re filing for bankruptcy, it’s because you cannot satisfy your debts. If you go out and buy a Lamborghini the next day, it will raise some eyebrows. After six months, however, your Lamborghini is safe.
Does Not Impose Debt Limits
Unlike Chapter 13, Chapter 7 has no maximum limit on the amount of debt you are trying to discharge.
Has No Repayment Plan
Unlike Chapter 13, you won’t be expected to repay your debts based on a manageable repayment plan. Once the debt has been discharged, the debtor is no longer responsible for it.
Discharges Debt Quickly
Chapter 7 is the fastest way to discharge your outstanding debts. While there are limitations on the kinds of debts that can be discharged, and there are certain eligibility qualifications, qualified debtors can have the majority of their debts discharged in less than 3 months.
Establishing Eligibility for Chapter 7 Bankruptcy
In establishing if you are eligible for Chapter 7 bankruptcy, the courts will first look at your income and measure it against the income of families that are your size. If your income is low enough, then you may qualify for this type of bankruptcy without having to take any further steps to pursue your claim.
If you don’t qualify, however, then you are required to take a means test. The means test will determine if you have enough disposable income to pay off your debts. Based on these factors, the courts will confirm that you are not able to repay back either all or a partial amount of the debt within a reasonable number of years. If your income is too high or you fail the means test, then you may be able to file for Chapter 13 bankruptcy. For further information, contact a Charlotte bankruptcy attorney from the Law Office of Jack G. Lezman, PLLC who can give you wise legal counsel about how to proceed.
The Chapter 7 Bankruptcy Process
Under the Bankruptcy Code, there are certain procedures that an individual seeking to file for bankruptcy must follow. The United States Courts detail how one goes about this process, noting that much of the process is administrative, conducted outside a courthouse. After a person files for bankruptcy, the bankruptcy judge is the official in charge of deciding if that person is eligible or not.
The person filing for Chapter 7 bankruptcy will most likely not appear in court unless there is an issue with the case. If the judge grants permission to file, then a trustee takes over the debtor’s assets and turns them into cash. The money is then given to the creditors. If a person has no assets that can be liquidated, then that person will most likely receive a discharge that releases them from certain debts. If all goes well, then a debtor will most likely receive their discharge within a few months.
It is important to keep in mind, however, that not all debts can be discharged through a Chapter 7 bankruptcy. Some possible exceptions include alimony, student loans and fraudulent debts. Fortunately, this form of bankruptcy is often able to eliminate the majority of the filer’s debts and provide relief.
What Is the Role of the Bankruptcy Trustee?
A bankruptcy trustee is a neutral third party that takes control of the debtor’s non-exempt assets. The trustee’s function is to ensure that the creditors get paid to the degree that is possible. This means liquidating (or turning into cash) whatever can be turned into cash.
While the trustee is neither an advocate for the debtor nor the creditor, the trustee is paid relative to the amount of assets they can liquidate. But most trustees do not end up finding much of value to sell.
Which Assets Are Exempt From Liquidation?
Not everything you own is subject to liquidation under Chapter 7 bankruptcy. Some assets are protected or “exempt”. These differ from state to state. North Carolina allows for a number of exemptions. Those include:
- Homestead. The equity on your house is protected up to $35,000 or more if you are over the age of 65. If your home is jointly by you and your spouse (tenancy by the entirety, joint tenancy with right of survivorship) then a claim against one spouse would not be imparted on the other spouse.
- Personal property. Most of your “stuff” is protected from liquidation. Your clothes, your furniture, your dog, your appliances are protected so long as they were purchased over 90 days before filing. Also, your car is protected up to $3,500.
- Wages. Wages that you have earned but have not been paid are exempt.
- Pensions, 401(k)s, and IRAs. All of these are protected so long as they are not inherited from a deceased relative. If they are yours and in your name, they (nor the assets contained therein) can be touched.
- Public benefits. There are certain kinds of benefits that cannot be touched by the trustee. These include SSI or SSD, crime victim’s compensation, unemployment, or workers compensation.
- Work-related tools. Any tool that you use for your own employment cannot be touched by the trustee up $2000 in value.
- Insurance. The trustee would not be able to cash in insurance policies in order to satisfy your debt.
What Is the Creditors Meeting?
As soon as you file, your creditors will receive notice that you’ve filed for Chapter 7 bankruptcy. A few weeks later, there will be a “341 meeting of creditors” during which the trustee will review your application. Since it is a formal legal proceeding, you must be sworn in.
You will need to provide the trustee with information concerning your finances. This includes income, mortgages, car payments, divorce payments, real estate deeds, and so on. This information should be provided to the trustee prior to the 341 meeting.
During the meeting, you will only be asked to bring photo ID and your Social Security card. You are then asked a series of questions. Your involvement in the process is very limited. The whole thing should be over in less than thirty minutes.
Get in Touch With a Chapter 7 Bankruptcy Attorney!
It is important to understand the North Carolina laws surrounding bankruptcy. If you have a substantial amount of credit card or medical debt, Chapter 7 might be right for you. Don’t hesitate to seek legal counsel so you can stop getting harassed by creditors! By filing for Chapter 7 bankruptcy, you can get a fresh financial start in this liquidation process. Your assets are collected or sold and your debts are relieved. The trustee can sell your assets and pay you the amount that you were exempted.
For questions or inquiries regarding Chapter 7 bankruptcy, it is important to obtain relevant information from a Charlotte bankruptcy lawyer. At the Law Office of Jack G. Lezman, PLLC, we can get you the guidance you need from the beginning of the process through to the end. We can also help you protect your future and know what to expect during life after bankruptcy. Our firm understands that your financial future is of utmost importance and we will do whatever we can to ensure that you choose the best option. You deserve an experienced legal team that will do everything to protect your assets!
Contact a Charlotte Chapter 7 bankruptcy lawyer from our firm today for legal guidance through this difficult situation.