Chapter 7 Bankruptcy
This article concerns a chapter 7 bankruptcy ("Seven") in Las Vegas, Nevada. Even though bankruptcy law is federal, certain parts of bankruptcy laws differ from state-to-state.
Chapter 7 Bankruptcy "A Fresh Start"
Arguably, the Seven is what most people think of when they think of bankruptcy. The seven, as it allows you to eliminate (discharge) most of your debts in three to four months, is known as a "fresh start". Also, the Seven requires minimal work, for the majority of Seven filers. The reason that it takes three to four months is that the bankruptcy code gives creditors a chance to challenge the dischargeability of your debts.
Debts Discharged Under The Chapter 7
A Seven will, under normal circumstances, will eliminate ("discharge") most of your debts. The following is a sample list of debts that are discharged under the Seven:
- credit cards
- legal judgments
- medical debts
- taxes (under some circumstances)
- penalties for breaking a lease
- penalties for violating a contract
. . .
Also, a Seven stops wage garnishments, lawsuits, and it allows you to break most contracts without penalties.
Limitations of The Seven
The Seven does not discharge certain types of debts. The most common nondischargeable debts are the following:
- education loans (in most cases)
- governmental penalties (traffic tickets, restitution, etc.)
- back child or support spousal support (alimony)
- criminal restitution penalties
The Automatic Stay
An Automatic Stay ("stay") which, stops lawsuits, repossessions, wage garnishments, and any further collection attempts, is enacted once a debtor declares bankruptcy. Also, the stay forbids creditors from either contacting or attempting to collect any debt from the debtor. Please note, the ability of the automatic stay to stop repossessions, in the Seven, is limited in that if you want to keep your car or house permanently, you will have to make up your current payments and also make up any overdue payments. If you decide that you don't want to keep your car or house or you cannot make up the past due payments, you may be able to continue driving your car for the three or four months during your bankruptcy, and if you own your house, you may be able to stay in your house through the bankruptcy. The only exceptions to you being allowed to drive a car or live in your home during your entire bankruptcy are if a creditor files a Motion To Lift the Stay; which, if it is approved the creditor will be able to either proceed with a repossession of your car or start foreclosure proceedings.
Who Can File the Seven?
A Seven is limited to people who can pass the means test. The means test states that you are only able to file a Seven if your income is less than a set amount. This income limit in the means test (derived from the IRS) is based upon the cost of living for where you live and how many dependents that are living in your household. According to the means test, if (after deducting your expenses from your income) you are over the statutory wage limit, you may then be forced to file a chapter 13. If you fail the means test, you will only be eligible for the seven if you have legitimate extraordinary expenses. If you fail the means test then, your only other option for debt relief by way of bankruptcy is the Chapter 13. However, a Chapter 13 bankruptcy ("13"), unless it is the only option, is not recommended for most debtors as a 13 requires monthly payments for three to five years.
Nevada's Bankruptcy Exemptions
A debtor's estate, which, gives a Bankruptcy trustee temporary control of your property, is formed when you file a Seven. One of the Trustees duties is to find all of your non-exempt property, sell your non-exempt property and then give the proceeds of the sale to the creditor. The trustee receives 10% of whatever they can recover. So, the trustee has an incentive to get the most they can from your estate.
Luckily though the bankruptcy code has bankruptcy exemptions ("exemptions"), and Nevada's exemptions are quite generous. Exemptions allow certain types of bankruptcy filers property to be free from creditors when you file for bankruptcy. For example, bankruptcy exemptions enable you to keep the necessities of life, like an automobile, furniture, and tools used for your profession. There are also exemptions for sentimental reasons: Keepsakes and family photos. Additionally, exemptions are also allowed for public policy reasons: $16,500 in personal injury awards that related to pain and suffering are exempt, vocational rehabilitation benefits are 100% exempted.
Because of Nevada's exemptions being very generous the vast majority of bankruptcy filers have what is considered to a be a no asset case; which means that a bankruptcy filer will not lose any property. For example, Nevada debtors, who are able to use Nevada's exemptions can keep a car worth up to $15,000 in equity (in Michigan it is only around $3,500, household furniture worth up to $12,000 and, if you file a homestead, $550,000 in equity for the house where you live.
Why Would You Not File A Seven If You Are Qualified?
The Seven though, even if you pass the means test, is not a proper choice for some debtors. First of all, you can only file a Seven once every eight years. So, you will be forced to file a Chapter 13 Bankruptcy if you filed another Seven within eight years. Also, the Seven does not allow you to catch up on past due mortgage or car payments. Additionally, a seven is not a good option if you want to keep the non-exempt property. (I.E., rentals, boats, dirt bikes, expensive antiques, etc.)
What Is Required To File Bankruptcy?
All filers, unless they are incapacitated, are required to take credit counseling. If you do not do the credit counseling, your case will be dismissed. Credit counseling, which is typically done online, is not expensive (courses range from $15 to $25), and the classes only take an hour or so to complete. You have to complete both pre-filing and post-filing credit counseling courses. Also, you will have to supply the bankruptcy court multiple documents like your last seven months of paychecks, six months of bank statements, mortgage statements, and your previous two years tax returns. Also, schedules are filed which give the Court information concerning your expenses, and income and all of your creditors will have to be notified of your bankruptcy filing.
What Happens After You File?
Approximately, 30 days after filing you will have to attend a 341 meeting. ("Meeting of creditors"), which gives creditors an opportunity to ask questions concerning your debt and if necessary argue that your debts should not be dischargeable. However, the majority of the time no creditors will appear at the 341 hearing. For most debtors, the 341 lasts only around three or so minutes or less. For the vast majority of debtors, two months after the 341 meeting, (assuming the two credit counseling courses are completed), they will be granted the discharge.
A Seven is time-consuming, and also paperwork intensive. Additionally, certain mistakes made in filing can leave the debtor in worse shape than if that had not even filed for bankruptcy. That is why it is highly recommended that you retain an attorney to prepare your bankruptcy petition. Hiring a lawyer also makes fiscal sense as the $700 or more than you pay your lawyer will result in savings of potentially millions once you receive the discharge.
This article is just a short explanation of the pros and cons of the seven. If you are considering bankruptcy call Martin Law P.C. for a free, no pressure, consultation to find out if bankruptcy is a solution for your financial woes.
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