What Is Chapter 7 Bankruptcy?

The Somerville Bankruptcy Lawyers at Lyons & Associates, P.C. Represent Clients Filing for Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, offers individuals and businesses the chance to discharge most unsecured debts. This process involves selling non-exempt assets to pay creditors, which provides a fresh start for those facing financial difficulties. Filing Chapter 7 has pros and cons; it might be the best choice for you, depending on the circumstances.

What Are the Eligibility Requirements for Chapter 7 Bankruptcy?

To qualify for Chapter 7 bankruptcy, you must pass a means test comparing your income to the median income for your state. Those with income below the state median usually qualify.

Further calculations are necessary for those with income above the median to determine eligibility. These calculations consider allowable expenses and debts, which helps assess if there is sufficient income to repay some debts. If it appears that a debtor can repay part of their debts, they may not qualify for Chapter 7 and might need to explore Chapter 13 bankruptcy instead.

What Debts Can Be Discharged in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy discharges various unsecured debts, such as:

  • Credit card balances
  • Medical bills
  • Personal loans
  • Utility bills

However, certain debts remain non-dischargeable. These include:

Debts incurred through fraudulent activities are also generally not eligible for discharge. Additionally, judgments from lawsuits and some government fines may persist despite bankruptcy, necessitating careful consideration of all financial obligations before filing.

How Does the Chapter 7 Bankruptcy Process Work?

The process begins when a debtor files a bankruptcy petition with the court detailing their financial situation, including assets, liabilities, income, and expenses. This filing triggers an automatic stay, which temporarily halts most creditor actions, such as lawsuits and wage garnishments.

A bankruptcy trustee is then appointed to oversee the case. The trustee reviews the debtor’s documents, manages the liquidation of non-exempt assets, and distributes the proceeds to creditors. The debtor must attend a meeting of creditors, where the trustee and creditors can inquire about the debtor’s financial status and bankruptcy petition.

Following the meeting, the trustee liquidates any non-exempt assets. Exempt assets, such as certain personal property and retirement accounts, are typically protected and not sold. Once the trustee completes their duties, the court issues a discharge order, eliminating the debtor’s obligation to repay eligible debts. This discharge usually occurs within a few months of filing.

What Are the Consequences of Filing for Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy can have several consequences. One significant impact is the effect on the debtor’s credit score. A Chapter 7 bankruptcy remains on the credit report for up to 10 years, which can influence the ability to obtain new credit. Additionally, while many assets are protected, there is a possibility of losing non-exempt property, as state laws dictate which assets are shielded.

Chapter 7 bankruptcy may also affect future financial opportunities, as lenders might view it as a risk factor. Despite these challenges, it provides a legal means for individuals to discharge debts and start anew.

What Should Debtors Do After Filing for Chapter 7 Bankruptcy?

After filing, debtors should focus on rebuilding their financial stability. Developing a budget is essential for managing finances effectively and preventing future debt issues. Regularly reviewing credit reports helps track progress and can help you keep on top of discrepancies and other issues.

Additionally, responsible use of secured credit cards or small loans can aid in rebuilding credit history. Building an emergency fund is also beneficial to avoid relying on credit in case of unexpected expenses. Consistent, responsible financial habits will contribute significantly to restoring your financial health over time. If you need advice, financial counseling can provide valuable insights into managing money and avoiding future financial pitfalls.

What Is the Role of a Bankruptcy Attorney in Chapter 7 Cases?

Although it is possible to file for Chapter 7 bankruptcy without legal representation, working with a lawyer can be advantageous. A bankruptcy attorney can complete the petition correctly, represent you in court, and provide guidance throughout the bankruptcy process. They also offer advice on handling non-exempt assets and addressing any complex issues that may arise.

Their knowledge and skills can help you avoid mistakes that could lead to delays or complications, ensuring a smoother and more efficient bankruptcy experience. Additionally, an attorney can offer insights into protecting your rights and handling any unexpected challenges.

Can I Apply for a Loan After Filing for Chapter 7 Bankruptcy?

Yes, you can apply for a loan after filing for Chapter 7 bankruptcy, but obtaining one may be challenging. The bankruptcy will impact your credit score and remain on your credit report for up to 10 years, which can make lenders cautious. However, some lenders may offer loans with higher interest rates or require additional security.

To improve your chances, focus on rebuilding your credit by managing finances responsibly, paying bills on time, and possibly using secured credit cards. Demonstrating improved financial behavior can enhance your creditworthiness over time.

Will I Be Able to Get a Job After Filing for Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy generally does not directly impact your ability to get a job. Most employers do not consider bankruptcy when making hiring decisions. However, some positions, especially those in the financial sector, may review your credit history as part of the hiring process.

Bankruptcy could be a factor in such cases, but many employers focus more on skills and qualifications. If asked, it is essential to be honest about your financial situation and emphasize your skills, experience, and reliability during the job application process. Rebuilding your credit can also demonstrate improved financial management.

The Somerville Bankruptcy Lawyers at Lyons & Associates, P.C. Represent Clients Filing for Chapter 7 Bankruptcy

If you are considering Chapter 7 bankruptcy, the experienced Somerville bankruptcy lawyers at Lyons & Associates, P.C. can skillfully guide you. For a free consultation, call our Somerville, Morristown, and Freehold, New Jersey, offices at 908-575-9777 or submit our online form. We serve clients in Somerset, Woodbridge, Morristown, Parsippany, Rockaway, Short Hills, Chatham, Randolph, Madison, Morris Plains, and Monmouth County.