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Chapter 7 Bankruptcy Can Make Your Life Easier, and Here’s Why

by | Jul 19, 2022 | Consumer Bankruptcy, Industry News, Updike, Tracy L.

If you find yourself drowning in debt and overdue bill notices without the financial ability to find your way out, filing for Chapter 7 bankruptcy may potentially alleviate your burden and make your life easier.

What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is available to individuals, including married couples, and businesses. Chapter 7 is defined as a liquidation bankruptcy, but the vast majority of cases do not find any property liquidated as long as your equity is below certain limits. If you do not have any assets that can be sold, then your creditors would not receive anything for the debt you owe to them. Under this option, most of your unsecured debts, such as credit cards, personal loans, medical bills, payday loans, deficiencies on repossessed vehicles and some past-due utility bills will be dissolved and you will not have to repay those creditors. Debts like child or spousal support, student loans and fines generally cannot be included.  Similarly, if you have secured debts, like a home or car loan, you must continue to pay them if you want to keep the security.  You cannot keep the asset but discharge the secured debt.

Am I Eligible for Chapter 7 Bankruptcy?

This type of bankruptcy does have income requirements and not everyone will qualify. To qualify for a Chapter 7 bankruptcy in Pennsylvania, you must first pass the Means Test. This is a calculation that compares your household’s gross total income to the Pennsylvania median income. The means test is a two-part test, so it is possible to not qualify in the first section and still pass the second section, which looks at allowable expenses, and be able to file under Chapter 7. If you exceed the income guidelines for a Chapter 7, you must use another option, which is generally Chapter 13 for individuals or Chapter 11 for businesses. The Means Test is a form that must be filed along with all the other bankruptcy paperwork.

How Does Chapter 7 Work?

Chapter 7 is typically one of the least expensive options to get yourself out of debt and get a fresh financial start. One of the benefits to filing Chapter 7 is that your debt should clear much faster as it usually only takes three to four months to discharge the bankruptcy. One disadvantage of filing a Chapter 7 bankruptcy is that it will remain on your credit for up to 10 years and can lower your credit score, making it harder for you to buy a home or purchase a car without having a higher-than-normal interest rate.

How Does an Automatic Stays Make Your Life Easier?

One of the most stressful aspects of having financial troubles is receiving calls and collection letters from creditors. Once you file for bankruptcy, an automatic stay takes place and creditors are required to cease ALL communications and attempts to collect the debt. This protects you by allowing you to proceed with your bankruptcy without enduring additional financial stress and pressure.

What’s the Main Role of a Chapter 7 Bankruptcy Trustee?

Once you file under Chapter 7, a Bankruptcy Trustee is assigned to your case by the United States Trustee’s Office within your Bankruptcy District. These trustees are typically called Panel Trustees and are usually attorneys with many years of bankruptcy experience. Overall, the Trustee’s primary role is to manage your bankruptcy estate once they are assigned. For example, the Trustee is responsible for selling any of your non-exempt property, if applicable, to use the proceeds to pay creditors. They will assess all your assets and finances to determine if Chapter 7 is best for your financial situation. The Trustee will close the case once all filing qualifications are met and recommend a discharge.

What is a Chapter 7 Discharge?

At the end of your bankruptcy proceeding, a discharge is granted. The discharge typically takes place approximately 90-100 days from the filing of your case, depending on how busy the trustees are. This means that the debt you incurred before filing your Petition is wiped out and you are given a fresh start.

When to Contact a Bankruptcy Attorney?

Bankruptcies can be challenging to navigate and require the proper documents and forms to be filed within a certain period. If you fail to file the appropriate forms within the required deadline, your case may be dismissed. It does not become a simple matter of re-filing; once you file and are dismissed, you limit protections in a subsequent bankruptcy. Working with an experienced bankruptcy attorney eases the anxiety of ensuring that you file all the proper documents within the time allotment and do not jeopardize your bankruptcy discharge.

Tracy Updike, bankruptcy lawyer at Mette, Evans & Woodside, has extensive knowledge of the bankruptcy laws and can help you make the right decision for your financial situation and goals for the future. Contact Tracy today for a free consultation (717) 896-1317.