Chapter 7 Bankruptcy

One of the main benefits of bankruptcy is that filing your initial papers for personal bankruptcy will trigger an “automatic stay.” This is a very powerful tool because it stops all collection activity in its track--from collectors, creditors and in some cases, even government officials. Filing bankruptcy is not a consumer’s best course of action where their only concern is creditor harassment. (You would be amazed to know that many people file bankruptcy solely because they are being harassed by creditors!). It is a wise idea to consult a bankruptcy attorney if you are considering filing bankruptcy.

The basic goals of bankruptcy
  • Eliminates the legal obligation to pay most if not all of your debts. This is known as a “discharge of debts” and is designed to give you a fresh start. For those on the verge of losing their home to a scheduled trustee’s sale, designed to stop foreclosure of your home or mobile home and allow you an opportunity to catch up on missed mortgage payments.
  • Prevents repossession of your car or other property.
  • Stops wage garnishment, debt collection harassment, bank levies and other similar creditor actions to collect on a debt.
  • Restores or prevent termination of your utility service.
  • Allows the consumer to challenge the claims of creditors who have committed fraud or who have tried to collect more than the debtor really owe.

For the average consumer and small business owner, there are essentially two types of bankruptcy—Chapter 7 and Chapter 13. (While there are others, such as Chapter 11 and 12, they will not be discussed here because Ms. Garrett does not provide legal services in connection with these types of petitions.)

First of all, if you have filed bankruptcy in the past, before October 2005, you are in for a surprise. The laws have significantly changed. Many attorneys would agree that it is now much harder for the average debtor to file bankruptcy—new forms, new procedures, new safeguards (for the creditor), etc.

Most people can still file Chapter 7 bankruptcy and wipe out their debts. It is a little harder now because there are more procedural requirements under the new law, but most people can still qualify for bankruptcy if they are swamped with high interest credit card debt.

Most Popular Types of Bankruptcy

Chapter 7 Bankruptcy: This is the most popular bankruptcy because the goal of Chapter 7 is to have the bankruptcy court completely discharge (cancel) all your consumer debts to get a “fresh start.” For most individuals who have no assets (or their assets are “exempt” from collections from creditors), this is the most popular bankruptcy. Post-2005 presented the arrival of the Means Test This test is mandatory and a threshold test to determine if you are attempting to abuse the Chapter 7 legal system. If you have numerous “non-exempt” assets, significant equity in your home, are behind in your mortgage payments (and want to keep your house), or hope to wipe out your child support, IRS taxes, or student loans, then Chapter 7 might not be the right choice for you.

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