Learn About Chapter 7 Bankruptcy
(The Best Plan For Debt Elimination)
The Bankruptcy laws are separated into chapters. For instance, there is Chapter 7 (sometimes called “total bankruptcy”, but that term is misleading), Chapter 13 (sometimes called “bill consolidation” or “wage earner plan”), Chapter 12 (bankruptcy for the family farmer), and Chapter 11 (bankruptcy for corporations).
The 2 chapters available to most people in need of help are Chapter 7 and Chapter 13. Let’s talk about Chapter 7 bankruptcy. Filing bankruptcy under Chapter 7 is truly amazing.
Links To Topics Covered Below: Filing bankruptcy can help you:
- Eliminate certain types of debt…permanently.
- Eliminate “debt” stress and worry.
- Keep and protect property you want to keep.
- Get out from under debt on property you are willing to say “goodbye” to.
- Stop Lawsuits, Creditor Harassment and Garnishments.
- Free up income for your family.
- Get into a position to earn more money and save.
- Get started rebuilding your credit.
- Important Disclaimer.
(1) Eliminate certain types of debt… permanently.
This is huge. There is nothing else like it in the world. Chapter 7 Bankruptcy gives you the right to eliminate most of the common types of unsecured debts, like credit card debt, medical bills, bank loans, finance company loans and credit union loans. It can also eliminate unsecured debts left over from a divorce, a failed business, personal guarantees, trade creditors….. and even certain income taxes over 3 years old…and the list goes on. We have clients who routinely eliminate….and we mean permanently, with no obligation to ever pay it back….anywhere between $5,000 and $150,000 worth of unsecured debt. Every day of the year, we have clients who eliminate $20,000, $30,000, $40,000 or more in unsecured debts.
And….don’t forget the interest. When you eliminate debt….you also eliminate the obligation to pay interest on that debt….and this is “huge…plus”. You know….from your own experience….how much of your payments goes into just paying interest…and interest….and interest. Not only do you eliminate the debt…..you also eliminate all that interest. So…is that amazing or what?
And….most importantly…this can translate into hundreds of dollars per month in lower payments. Want to see examples? Go to “Real Client/Real Results”.
But…you may say…how can this be? This seems too good to be true.
You know….you’re right. It does seem too good to be true. In life, we learn that….if something seems too good to be true….it generally is….except for Bankruptcy. Bankruptcy is the real deal. As I always say: “Other ads promise….but only Bankruptcy delivers.” If I could get people to keep an open mind about bankruptcy….my phone would ring off the hook with people wanting to know more.
But…why are the Bankruptcy laws this powerful? That answer is…long ago….Congress decided that it was important to give good, honest, hard-working people a way…if need be… to get free from the burden of debt. Why? Because saving good people….like you and me….from getting discouraged and losing hope and from becoming unproductive members of society….all because of crippling amounts of debt….is good for society. But….to achieve this goal …to make it really work….Congress had to give the bankruptcy laws some real teeth….to make the Bankruptcy laws powerful enough to really make a difference.
And that is exactly what Congress did…and that is why bankruptcy….and Chapter 7…. is the real deal.
(2) Eliminate “debt” stress and worry.
Eliminating certain types of unsecured debts is important, but more importantly it helps you achieve an even more important goal. It gets rid of some…and hopefully all…of the stress and worry that comes with having to deal….day in, day out…. with crippling amounts of debt.
I have found that….until people find out how bankruptcy really works…they believe there is nothing they can do to eliminate debt…that they will be in debt for the rest of their lives…that there is no hope….that with so much debt, their families will have to go without…that with so much debt, they will never get ahead…..and that they will never be able to buy anything again. In most cases….very simply….these things are just not true.
What a relief people feel when they come into our office and find out how bankruptcy really works. I cannot describe what a happy surprise this is for many people. For many…it seems like a dream come true. And….it is. It’s the way Congress created the bankruptcy laws.
I have found that people do not file bankruptcy to eliminate debt. They file bankruptcy to eliminate the stress…the stress of dealing with debt…that hopeless feeling of dealing with something that has gotten out of control….something that has taken over their lives and all their waking moments….something that is putting their future on hold.
The look on the faces of many people, when we tell them how much debt and how much stress they can eliminate by filing bankruptcy, is almost comical. They do not know how to react. They are so used to feeling stressed out…so used to worrying and feeling helpless….that they do not know how to feel when they find out…for the first time…. how much debt bankruptcy can really eliminate. When we tell them how much debt bankruptcy can eliminate ….and how easy it is to file bankruptcy….it’s like there is a heavy anvil being lifted from their chests. It doesn’t seem normal to them. We have to keep telling them: “It’s true. Believe it or not. It’s true. Bankruptcy really does this.” For a while, they just go on saying things like “But I thought” this…or “But I thought” that, and we have to keep reassuring them that what we are telling them is absolutely true. Sometimes….we even have to tell them to sit back and take some deep breaths to let the information sink in.
Giving people news that brings this kind of relief…to people who have been struggling with overwhelming debt for months and years….is what it’s all about for lawyers….like me….and why practicing bankruptcy law is both a privilege and a pleasure.
(3) Keep and protect property you want to keep.
For whatever reason, people think that if they file bankruptcy, they will lose everything they have…..however…..nothing could be further from the truth.
Let’s talk about exemptions: Most of our clients keep everything they own…and lose nothing. Why? Because there are these things called “exemptions”. Every State adopts certain State or Federal “exemptions”. Exemptions are basically lists of things a person can keep and still file bankruptcy. In some States, they are higher and broader in reach. In other States, they are smaller and narrower in reach. In Texas, the exemptions are such that….as I mentioned….most of the people who file a Chapter 7 bankruptcy do not lose anything. Their home is protected , their personal property is protected and even their retirement plans are protected. In the occasional case where it looks like a client has too much “stuff” to cover with exemptions, there is always Chapter 13. In Chapter 13, people can keep all their stuff; they just have to pay in some extra money.
Using Texas as an example….there are exemptions to cover lots of things including houses, mobile homes, land, cars, trucks, household goods and furniture, wages, life insurance cash value, personal injury and workers’ compensation claims, tools of trade, retirement plans, IRA’s, 401k and 403b accounts, and the list goes on. Furthermore, Texas provides an unlimited exemption on the equity in your home subject to certain exceptions.
A Word Of Caution: Federal and State exemptions can provide some wonderful and amazing results, but exemption law can be very tricky and complicated. There are many traps for the unwary. A thorough understanding of all available exemptions….including a thorough understanding of all the Court cases interpreting those exemptions…is crucial. Not knowing about exemptions you have available to you may unnecessarily keep you from obtaining bankruptcy relief you deserve. On the other hand…claiming exemptions you do not have a right to may cause you to lose some of your property. Why? Because once you file a Chapter 7 bankruptcy case, you do not have the right to “unfile” it. Solution: Pick an attorney who does nothing but bankruptcy for a living….one who knows the exemptions laws…where you live….inside and out.
Valuing property: A big part of the process of analyzing a potential client’s case…so that a determination can be made as to what property can be protected….is to determine the correct value for the client’s property. This is a fairly complicated….but extremely important…. part of the process. The problem is that…..there are values and then there are other values. That is…an item may have different values depending upon the reason you are trying to value it. For purposes of Chapter 7….it is important to determine what we call the “liquidation” value, as opposed to the listing value, the value to the client, what the client paid for the property, what the client would like the property to be worth, etc..
Filing bankruptcy does NOT mean you get to keep all your property for free. If there is a lien against the property….the creditor holding the lien still needs to be paid. If you own a home, while the equity is protected, you must continue to make payments on the mortgage in order to protect the home.
The same would apply for a car loan. Generally, when you get a car loan, you give the lender a lien against your car title. In most cases, this lien is not affected by filing a bankruptcy under Chapter 7. That is…generally….liens pass through bankruptcy unaffected. Assuming there is an exemption to cover whatever “equity” there is in the car, the client would still have to keep current on the car loan if the client wants to keep the car. If the car loan is not kept current, filing under Chapter 7 will not keep the lender from eventually repossessing the car.
For purposes of Chapter 7, if a client wants to keep a piece of property and there is money owed on that property….the client would have to “catch-up” on the payments owed before filing bankruptcy. Chapter 7 has no rules for catching up on payments due on property that has a lien against it. If the client cannot catch up on these payments, but the client still wants to keep the property….as in the case of the house or car in the examples above…the client would have to consider filing a Chapter 13 case. Chapter 13 does have a rule for catching up on such payments. For more information on Chapter 13, see “Learn About Chapter 13″.
(4) Get out from under debt on property you are willing to say “goodbye” to.
Chapter 7 can help you eliminate debt associated with a certain piece of property that you: (i) Have lost control of, (ii) No longer want, or (iii) Can no longer afford.
Example 1 (Property you have lost control of) : Let’s say you and your spouse own a house and that both of your owe on the mortgage. Then, let’s say you get divorced, and in the divorce, you agree to give your spouse the house, with the idea that your spouse will refinance the mortgage and therefore get your name of the mortgage. But…let’s say the spouse does not refinance. This can be a big problem because you are still liable on the mortgage and if your former spouse does not pay the mortgage, the mortgage company will come after you for the money. By filing bankruptcy, you can remove your name from the mortgage, at least in terms of having to worry about the mortgage lender ever coming after you. This allows you stop worrying about the mortgage and let’s you get on with your life. What a great benefit of bankruptcy.
Example 2 (Property you no longer want): Let’s say you own a mobile home that is worth $15,000, but you owe $25,000 on it. You have tried unsuccessfully to sell it, but the people who want to buy it cannot get approved for the financing to complete the purchase. And say…for example…. you have had to move elsewhere. Unless you can figure out a way to get rid of the mobile home and the debt owed on it, you are stuck. Filing bankruptcy under either Chapter 7 or 13 can help. Here is how it works. As part of your bankruptcy, let’s say you decide to “surrender” (which means give back) the mobile home to the person or company that holds the lien against it….that is…. the person or company to whom you owe $25,000. This person or company would then come get the mobile home and put it up for sale. Outside of bankruptcy….if this happened….once they sell it…they would come back at you to collect any money they did not get from the sale. In our example…if they sold it for $15,000, you would still owe them for the residual $10,000 of the original $25,000. But…. not in bankruptcy ….especially Chapter 7. In Chapter 7….under the law….after you surrender property back to a lender….all that’s left is an “unsecured” claim against you….and unsecured claims are what bankruptcy eliminates best.
Therefore….back to our example….filing Chapter 7 helps you solve a big problem. It gets rid of both the mobile home and the entire debt against it. Is that amazing or what? And this does not apply to just mobile homes.
The same applies with respect to all types of property you want to get rid of.
Example 3 (Property you can no longer afford): Let’s say you own a home, but you can no longer afford to make the mortgage payment. What do you do? By filing bankruptcy, and by agreeing to give up the home, you can get out from under the mortgage payment. In this case, the house would get foreclosed on. Outside bankruptcy….the problem is….the house would get foreclosed on…and then the mortgage lender would sue you for whatever money it did not get out of the house. By filing bankruptcy under Chapter 7….if you decide to give up a house….you are discharged from the whole debt. What this means is that the mortgage lender cannot come after you. The mortgage lender can sell the house and that’s it. If the mortgage lender does not get enough out of the sale of the house to pay the full mortgage debt….by filing Chapter 7…. the mortgage lender is forever barred from coming after you for the unpaid part.
(5) Stopping Lawsuits and Creditor Harassment.
One of the most powerful things about bankruptcy is the “automatic stay”. The words “automatic stay” don’t sound very powerful but…believe me….this thing called the “automatic stay” is very powerful. Here is what happens.
Immediately….when you file bankruptcy….you get bankruptcy protection. The protection comes in the form of a Court Order, which the Court immediately sends out to all creditors, demanding that they leave you alone. This Order has a name. It is called the “automatic stay”.
If a creditor does NOT comply with this order….the Bankruptcy Court has the power to punish the creditor severely. Most creditors know this and takes steps to immediately comply with the Order. More specifically….the creditor must stop all collection calls….at home and at work….stop writing collection letters, stop all lawsuits and take whatever steps are necessary to “call off the dogs”, as in the case of “repo” men and foreclosing attorneys….and to stop all garnishments for at least taxes and student loans. Thereafter…and for the duration of the Chapter 7 case…..if the creditor feels it has the right to do something, the creditor must make a formal application to the Court. By having to make a formal application to the Court, the Court can take steps to provide you the protection you need and deserve.
At the end of your Chapter 7 case, the automatic stay expires, but in most cases, it does not matter. Why? Because….with respect to all the debts that get “discharged” (which means permanently “eliminated”), it is immediately replaced with a “permanent” order to protect you. This order also has a name. It is called the “discharge injunction”.
At the end of your Chapter 7, creditors with “non-dischargeable” debts…..like alimony, child support, student loans, and certain taxes can take up where they left off. The good news is that….hopefully….if you eliminated enough other debt in your bankruptcy case…..you will now have more income and be in a better position to deal with these residual “non-dischargeable” debts.
(6) Freeing up income for your family.
The whole idea of eliminating debt is so that you do not have to pay on that debt anymore. This relieves stress and that’s great, but it also does something else. It frees up your income to take care of other more important things….like your normal monthly living expenses. And, this means that….hopefully….if you have an income….you are in a better position to take care of your family. Most of our clients saving hundreds of dollars per month….and that big.
And, being in a better position to take care of your family can get your life started again.
Not filing bankruptcy can mean you get “stuck in neutral” or worse, “stuck in reverse”. Filing bankruptcy….and eliminating some of the burden of debt….generally means you and your family can….once again…. start moving forward. You and your family get a “second chance” at a fresh start…..one of the amazing things that filing bankruptcy can do for you and your family.
(7) Putting you in a position to earn more money and save.
For most people with mounting bills, it usually becomes a situation of “Borrow from Peter to Pay Paul” just to stay current. For most people….not filing bankruptcy means…..the more you earn, the closer you get to breaking even each month. But…forget about “saving for a rainy day”. The worst comes when you do not earn enough and you cannot borrow any more money from “Peter”. At that point…you are in big trouble.
Filing bankruptcy solves a lot of these problems. The idea is this. Hopefully…by filing bankruptcy…you can eliminate enough debt so that you can live on what you earn. This is the first step. The second step is to earn more money….but in a more “debt free” situation where you do not have to use it just to stay current. If you eliminate enough debt in bankruptcy to really make a difference….then, and thereafter….if you are careful….you should be able to start saving money…especially as you get wage increases or promotions in your job.
(8) Filing bankruptcy can help you rebuild your credit.
Filing bankruptcy is the first step. This eliminates debt. Saving money is the second step. These are two important steps that need to be taken in order to rebuild your credit. Without doubt….if you are at the point where you need to file bankruptcy…..your credit is already messed up, maxed out and….likely…dead. If so….the first step in rebuilding credit is to eliminate some debt. To do this….nothing….absolutely nothing…..works better or faster than bankruptcy….and the fastest way to eliminate debt in bankruptcy is Chapter 7. With Chapter 7…..you file it….and it is done and over with in 3 or 4 months. All of a sudden, you have less debt.
Assuming everything else in your life holds together….you keep your job….you do not get divorced….there are not a lot of emergencies….and you get the raises and promotions you deserve (a job where you now bring less and less stress to work each day because debts are no longer stressing you out)….then….for the first time in a long time….you can start saving some money. Saving money gives you the necessary down payment for buying new things…and on and on you go rebuilding credit.
In addition….having eliminated certain debt by filing bankruptcy…..your debt to income ratio looks better. Over time….you have money in the bank from saving money on income no longer sucked away by your “now-gone” bills. And then….gradually and naturally….you start attracting the attention of more and more lenders willing to give you more credit. And why not? You are now in a position to handle more credit. At this point….life is starting to look good again and you are well on your way to rebuilding your credit….in no small part because you made a smart decision to file bankruptcy.
Furthermore, when you file a bankruptcy, the creditors cannot report any late payments or delinquencies on your credit in connection with the debts that you listed on your bankruptcy. Since the creditors are precluded from reporting these delinquencies after the filing of a bankruptcy case, you start rebuilding your credit immediately after filing the bankruptcy. This is a huge benefit of bankruptcy. There is no other process that can stop these creditors from continuing to destroy your credit.
10) Hire an experienced bankruptcy attorney.
In terms of benefit…paying a bankruptcy attorney may be the best bang you ever get for your buck. Always hire an experienced bankruptcy attorney. The expense is worth it. Believe me…I’ve had to clean up messes caused by inexperienced attorneys…and even bigger messes caused by people deluded into thinking that filing bankruptcy is simple and who try to file on their own….without an attorney. Yes…you can file your own bankruptcy case…just like you can save the cost of a surgeon and cut a bullet out of your own arm…but would you? There is a reason for the phrase: “penny wise…but pound foolish”. Do not take chances with your family and your future. Hire an experienced bankruptcy attorney. You will be glad you did. Anyone who advises you otherwise is either lying to you…or…ignorant as to just how tricky and complex the bankruptcy laws are.
The experienced bankruptcy attorney is just that….experienced….and you get the benefit of all that experience…. to help you decide whether to file bankruptcy or not….to guide you in analyzing the pros and cons of Chapter 7 versus Chapter 13….to avoid mistakes that less experienced attorneys often make….to help you apply exemptions to protect your property….to answer questions that only an experienced attorney knows how to answer….to make the experience more understandable…to efficiently guide you and your case through the process…to deal with anything unexpected that may come up…and to explain….from experience…..what you can expect from life after bankruptcy. A good, experienced bankruptcy attorney can also… optionally… provide you extra services like: (1) lien avoidance and vehicle redemption…which save you even more money…and (2) defense of adversary proceedings in case some creditor wrongly accuses you of fraud or some other wrongdoing.
And….all this is in addition to the fact that the experienced attorney knows how to achieve the best results…in terms of eliminating the most debt possible.
And…all this is in addition to the fact that the cost of hiring an experienced attorney is generally minimal when compared to the amount of debt (and future interest) from which you can get relief from. Many times, the money saved in just one month….on debts you no longer have to pay…. is enough to pay the entire attorney fee.
In addition to the cost of the attorney…there is the bankruptcy filing fee. The filing fee for Chapter 7 is $299. The attorney collects this from you…and then simply forwards it to the Court.
The bankruptcy laws are extensive and complicated. As a consequence, most good bankruptcy attorneys do nothing but bankruptcy. It is a full-time job to keep up on the bankruptcy laws, exemptions laws, and procedures….while at the same time serving all the other needs of our clients. I mention this because….although all of the information mentioned before is true, in many….if not most…. circumstances….(1) Results will vary depending on your goals, assets, debts, income and expenses, and (2) Because it was necessary to oversimplify the information and the conclusions in order to make important points. The simple truth is that you cannot become an experienced bankruptcy attorney or learn enough to become knowledgeable enough to file your own bankruptcy case by simply reading the material on this or any other website. Anyone that would have you believe otherwise is simply lying to you for their personal gain….or fooling themselves. The information on this website is simply meant to introduce you to important concepts about bankruptcy and to let you know the truth: That bankruptcy does NOT work the way you think or the way you have always been told. The best advice I can give you is to set up a consultation with the most experienced bankruptcy attorney you can find. Most of the time…except…perhaps…. for people who own and run large…or fairly large….businesses…you can do so for FREE. My office…for instance….offers a totally FREE initial consultation….. so you can learn about all your rights and all your options….bankruptcy and otherwise…and so that you can get fast answers to all your questions about debt and how to deal with it.
11) How fast can I get relief?
We cannot speak for other attorneys….but our answer is
this. In most cases…we work as fast as you pay us and provide us
with the documents and other information necessary to prepare the
schedules required to file your case. Your case can be filed in as
little as a week….and even quicker in an emergency.