Chapter 7 bankruptcy, often called a fresh start, straight or liquidation bankruptcy, is the most often used bankruptcy in the United States. This type of bankruptcy discharges most types of debt including credit cards, medical and other types of unsecured debt. A discharge means that you are no longer liable to those creditors and they cannot collect or try to collect payment from you. Chapter 7 bankruptcies are designed specifically for individuals and businesses that no longer have the means to pay their debts.
Chapter 7 can protect your assets including:
- Home and investment home
- Retirement – 401k, IRAs, Pensions
- Social Security
- Workers’ Compensation Benefits
There are certain types of debt that cannot be discharged in a bankruptcy including:
- Child support and alimony
- Criminal fines, penalties and restitution
- Debts incurred through fraud
- Most tax debt less than 3 years old
- Student loans
When a debt cannot be discharged through a Chapter 7, you will continue to owe that debt until it has been paid off or is satisfied in some other manner. Chapter 7 Bankruptcy Phoenix Arizona Attorney Shawn Louis Stone can advise you whether the specific debt that you have can be discharged in a bankruptcy.
In most cases, secured assets such as homes and vehicles may be either reaffirmed or surrendered. When an asset is reaffirmed, it means that you sign an agreement with the creditor and continue making payments as though you had never filed bankruptcy. If the asset is surrendered, the asset must be returned to the creditor, but once the bankruptcy is completed you will no longer owe anything on the debt. The creditor will be barred from collecting the debt, even if it sells the item for less than the amount that is owed on it.
Once you file a Chapter 7 bankruptcy, an automatic stay goes into place. This means that your creditors are barred from attempting to collect the debt from you. Creditors cannot send you collection letters or call you on the telephone.
If you own a home that is in foreclosure, the foreclosure process is halted. While the Chapter 7 is pending you are not required to make mortgage payments. You will probably be required to move from your home after the Chapter 7 is final, but you will not be liable for paying the difference, if any, between what the home sells for and what is owed.
According to state law, certain assets are exempt from being sold by the bankruptcy trustee for the benefit of your creditors. For example, the state of Arizona allows an exemption of $4,000 for personal property including appliances and household furnishings, and a $150,000 homestead exemption. A list of the categories and exemptions are listed on the United States Bankruptcy Court for the District of Arizona’s website. If all of the assets that you own can be exempted, the bankruptcy is termed a Chapter 7 no asset case.
In order to qualify to file a Chapter 7 bankruptcy, you must first complete a means test. That test is designed by the court to determine whether you have the ability to pay your debts. It takes into account your income versus your expenses. For example, your total income less your mortgage and other secured debt payments along with your living expenses. Simply because you may have a high income does not automatically bar you from filing a Chapter 7. If the means test does find that you can pay some or all of your debt, you will not be qualified to file a Chapter 7.
Chapter 7 bankruptcies are complex. There are numerous schedules and other documentation that must be completed and numerous requirements that must be met. In order to file and complete a Chapter 7 bankruptcy successfully, it is in your best interest to contact a qualified attorney to assist you in obtaining a fresh start through bankruptcy. Contact Chapter 7 Bankruptcy Phoenix Arizona Attorney Shawn Louis Stone for a free initial consultation to find out if bankruptcy is the right choice for you.