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CHAPTER 7  -  Bankruptcy


 

Chapter 7 is sometimes called 'straight bankruptcy'.  The actual title in the Bankruptcy Code for Chapter 7 is 'Liquidation'.

This is the Chapter where you eliminate all of your debts, with some exceptions.

The common exceptions are income taxes, student loans and child support.

You can file individually or a joint case with your spouse.  Other co-signers are not protected.

You keep all property which you are able to claim 'exempt' under a different list for each state.

Collateral loans like home mortgages and car loans can also be included but you have certain choices;

You can keep paying & keep the item (reaffirm), or you can give it back & not owe any balance (surrender), or buy the item at it's actual value & not owe any balance (redeem)

If your household income exceeds the average income for your state a formula is used (means test) to see if the case should be dismissed for 'abuse'.

The case is open for about 4 months after which the court clerk mails out the 'discharge of debtor'


Filing either bankruptcy chapter stops creditors from all collection attempts (automatic stay)

This applies to all phone calls, letters, lawsuits, garnishments, repossessions and foreclosures.

Certain pre-bankruptcy conduct is scrutinized.  Running up credit card balances in the prior 70 days, undervalued transfers of property in the past two years, large repayments on preferred debts in the past 90 days (1 year for relatives)

Chapter 7 stays on your credit report for 10 years.  Credit is usually still available since you can't file another bankruptcy for 8 years.  Usually two years for a conventional home mortgage and credit for other reasonable debts.

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