So, What is a Chapter 7 Bankruptcy?

White Male on White BackgroundA Chapter 7 is one of the chapters of the United States Bankruptcy Code.  It is commonly known as a “complete liquidation” of your debts.  Chapter 7 bankruptcy will normally wipe out most credit card debts, repossessions, medical bills, law suits, unsecured personal loans and most other unsecured debts. In some circumstance, Chapter 7 could, under certain circumstances, wipe out old state and federal taxes.

Chapter 7 bankruptcy will usually not eliminate recent taxes, student loans, child support and alimony, fraudulent debts, criminal restitution, and drunk driving civil debts.

Contrary to popular belief, most people who file Chapter 7 bankruptcy do not lose their house, car, clothes, or retirement accounts. Of course you cannot eliminate your mortgage on your house unless you are willing to surrender, or give back the house to the mortgage company in the Chapter 7 bankruptcy.  Most people who file Chapter 7 Bankruptcy continue to keep their house and continue making their normal mortgage payments.  However some people decide to eliminate the debt on their home, but they have to give the home back to the mortgage company.

Under federal law, using North Carolina state exemptions, you are entitled to exemptions that protect most, if not all, of your property. Duncan Law can provide you with the state and federal exemptions which should protect your property.

However, to file a Chapter 7 and keep your house, you must be current on your mortgage payments and continue making your regular mortgage payments.  If you are not current on your mortgage payments, you will probably need to file a Chapter 13 bankruptcy.  A Chapter 13 bankruptcy is similar to a repayment plan that helps you catch up on your mortgage payments.  We will discuss Chapter 13 bankruptcy in another section of this website.

In 2005 Congress changed the bankruptcy laws and enacted the “Means Test.”  The “infamous” means test requires a person who makes above the average person’s income in their area to file a Chapter 13, which is a five year repayment plan, instead of a Chapter 7 bankruptcy.  The theory behind this law is someone that makes a higher salary than a “normal person” can afford to pay back at least a portion of their debts over a sixty month payback plan. The good news is, if you make too much money, even if you fail the means test, you will still usually only pay back a small percentage of your debts over the sixty months. This is better than paying back the full amount and having creditors call you, harass you, and sue you.

If you file a Chapter 7 bankruptcy, you will receive the protection of the federal courts.  The federal bankruptcy judge issues an “automatic stay” order under section 362 of the bankruptcy code. The automatic stay is a court order to all of your creditors telling them not to call you or harass you.  The automatic stay also stops all collection activities and law suits against you. However, under some rare circumstances the creditor can ask the federal judge for “relief of the automatic stay” in which they can continue the collection activity.  In a Chapter 7 bankruptcy this is very rare, unless you are giving your house back to the mortgage company.  In this event, the debt on the house is still eliminated, but the mortgage company needs permission from the federal judge to eventually sell the house and get back a portion of their money.

A Chapter 7 bankruptcy is a very complicated court procedure involving numerous federal and state laws.  There is at least one court hearing you must attend in which a Chapter 7 bankruptcy trustee will question under oath about your debts.  The Chapter 7 Trustee is usually an attorney who represents your creditors as a group.  His job is to oversee your case and to try to collect any of your property that is “non-exempt”.

The Chapter 7 bankruptcy process usually last about 3-4 months.  At the end of the process, if everything went smoothly, you should receive a discharge of debts and a final decree order from the federal judge discharging or elimination all of your debts.

Why should I hire attorney Terry Duncan with Duncan Law in Salisbury/Rowan County area to handle my Chapter 7 bankruptcy?  Even though you may see services on the internet trying to sell you forms, it is you, not them, that can legally fill out about 40 plus pages of forms. You have the right to attempt the Chapter 7 bankruptcy and appear in court alone.  But should you really attempt this?

Let’s look at a hypothetical scenario. If you walked out into a parking lot and a robber shot you in the leg with a bullet.  You could probably sit down on the parking lot and take a pocket knife and dig out the bullet yourself!  Would that be very smart?  No! You could accidentally cut an artery and bleed to death.  The wound could become infected and you die from the infection. Plus it would hurt very bad to stick that knife in your leg and dig around for the bullet.  Why not go to an experienced physician in the hospital, have him put you to sleep and take out the bullet the right way.  That’s just the way it is if you try to file a Chapter 7 bankruptcy by yourself.  Could you afford to make mistakes and lose your home, car, furniture, and retirement plans?

Recently I was in court and saw a person trying to file a Chapter 7 bankruptcy without the help of an experienced attorney.  They valued their house to high and they used the wrong laws to protect the house.  The Trustee informed them he was going to try to seize and sell their house, because the person used the wrong exemptions.  The person saved some money by attempting to do the bankruptcy by themselves, but now they are losing their home.

At Duncan Law we have filed thousands and thousands of bankruptcies.  We do this all day long, almost every day. Contact us for a free consultation to discuss your options. We would be more than glad to set up a free phone or in person consultation for you also.