Bankruptcy
Chapter 7
Chapter 7 bankruptcy is designed for clients with a certain level of income, and in order to be approved, you have to pass a “means test” which will examine your income, as compared to the average income in California. If you pass the “means test,” you will qualify for Chapter 7 bankruptcy. After you have successfully gone through Chapter 7 bankruptcy, the following debts will be completely discharged:
- Credit Card Bills
- Medical Bills
- Business Debt
- Unsecured Loans
All debts which are completely discharged will never have to be repaid. However, all non-exempt property is used to pay back your creditors. An experienced attorney can help you identify your exempt and non-exempt property and help you understand whether or not you may qualify for Chapter 7 bankruptcy.
Common Question Regarding Chapter 7 Bankruptcy
FAQ’S FOR BANKRUPTCY
Will I have to give up all my assets?
No. The Bankruptcy Code provides that a debtor filing for bankruptcy can keep certain assets for a “fresh start” by exempting property from the bankruptcy estate. The vast majority of bankruptcy cases are “no asset” cases, in which the debtors have claimed an exemption in everything they own. When this is done, there are no assets from which to pay creditors.
Will I lose my house if I file bankruptcy?
Not necessarily. If there is no equity in the house (today’s value, minus costs of a sale, minus payoff balances on all liens) the trustee in a Chapter 7 will allow you to keep the house as long as you pay the mortgages. A bankruptcy does not relieve the property of the liability for voluntary liens, like mortgages or deeds of trust, nor for tax liens. So, the lender retains the right to foreclose if you don’t pay. If there is equity determine whether the exemptions available to you equal or exceed the equity in the property. If the equity is all exempt, you can keep the house, so long as you pay the mortgages. If the exemption is not sufficient to protect the equity, consider Chapter 13.
What debts can be discharged in bankruptcy?
Certain debts are dischargeable, whereas certain debts are not. Not dischargeable in Chapter 7 are: Recent taxes; family support; debts to spouse arising from divorce; student loans; drunk driving judgments; criminal fines or restitution; or debts incurred by fraud or intentional wrongdoing. Everything else is dischargeable: loans; credit card debts; judgments; medical bills; and old income taxes. Remember, liens and mortgages survive the bankruptcy: the debtor personally has no further liability for the debt, but the lien (a charge on the asset that is the collateral) survives as an interest in the asset. In appropriate circumstances, liens can be avoided because they impair an exemption or because the lien doesn’t really attach to any value in the collateral.