So many folks, even those who realize bankruptcy is an option, wait to pull the trigger on filing. They then find themselves in the difficult position of having liens on their property, wage garnishments, or waking up one day to find their bank account frozen. These are folks that didn’t know when to file bankruptcy Chapter 7 and waited too long, allowing creditors to file lawsuits, win judgments, and then seize control of their property. In this article, we’ll help you determine if and when Chapter 7 is the best option for you.
Questions to Ask Yourself Before Filing for Chapter 7
There are two primary things that you should know before filing for Chapter 7 bankruptcy. The first is that not everyone can file under Chapter 7. Of those who can, the second thing to bear in mind is that not everyone should file for Chapter 7. What questions should you ask yourself before filing Chapter 7?
Am I Judgment Proof?
“Judgment proof” is a term that describes a debtor who has little to no assets that are capable of being mined to repay a creditor. Those that don’t have a steady income stream and only have modest household items and a car they use to get around are generally considered judgment proof. That means that even if the creditor did go through the effort of hiring a lawyer or a collections agency to recover the unpaid debt, they would have no legal ability to do anything about it. If you’re judgment proof, you may not have to file for bankruptcy.
Additionally, some streams of income cannot be garnished or levied by private creditors. This includes Social Security income, retirement funds, child support payments, alimony, and veteran benefits.
Those with real estate or other valuable assets should consider filing for Chapter 7 as a creditor can put a lien on their homestead property and this cannot be removed simply by filing for bankruptcy.
What Type of Debt Do I Owe?
Chapter 7 is best for discharging medical and credit card debt (unsecured debt). Certain types of debt cannot be discharged in a Chapter 7 bankruptcy, so you’ll want to know how much of your debt you can discharge in Chapter 7. The following types of debt are not subject to a Chapter 7 discharge:
- Unpaid child support or alimony
- Student loans (with some exemptions)
- Income taxes (if they are less than three years old)
- Court judgments or personal injury settlements arising from DUI
In addition, if you’ve made any recent luxury purchases, the creditor is likely to raise an objection to the discharge of that debt during your Chapter 7 proceeding. Secured debt, such as your mortgage or car payments, cannot be discharged in Chapter 7 without losing your home or car.
Creditor objections can make debts nondischargeable. If you are accused of fraud, lying on a credit card application, embezzling, or other crimes that involve a breach of trust, a creditor may appeal to the court to refuse to allow the debt to be discharged.
How Much of My Property Do I Have to Surrender?
Chapter 7 is a form of liquidation bankruptcy. The trustee will take control of your estate and determine what, if any, valuable assets you have to repay your creditors. If any is found, you may have to surrender that property in order to repay your creditors. However, you are allowed to use exemptions to protect the property you want to keep. There are both state and federal rules regarding bankruptcy exemptions. This is something that you will want to discuss with your bankruptcy attorney.
When to File Bankruptcy Chapter 7
If you are currently facing multiple lawsuits from creditors that you know you’re going to lose, you’re going to want to look over your finances, your assets, and your debts and determine if you stand more to gain than lose by filing for Chapter 7.
If you’re unsure whether or not a Chapter 7 bankruptcy, Jack G. Lezman will help you determine if filing for Chapter 7 is right for you.
If creditors are harassing you and threatening to file lawsuits for unpaid debts, call the Law Office of Jack G. Lezman, PLLC and we can discuss your options for managing your current debt problems.