Chapter 7 Bankruptcy
Chapter 7 type bankruptcy has many names. It is sometimes referred to as “straight bankruptcy,” this is the type most people think of when they think of bankruptcy. It is the most common type of bankruptcy.
It is designed to help people get a fresh start, to start over, to give individual consumers and families a chance for a new beginning financially. The beautiful thing about chapter 7 is that it wipes out your “unsecured” debts, that is, it wipes out your obligation to pay certain types of debts, like credit cards and medical bills. Filing a Chapter 7 immediately stops all collection activities against you. It stops all creditors from bothering you, or suing you.
Certain types of debts are not wiped out however. Student loans, some taxes, parking tickets, will survive a Chapter 7 bankruptcy.
Another name for Chapter 7 is Liquidation. That is because when you file Chapter 7, the Court-appointed Trustee temporarily owns all of your property. And, if you own too much property, the Trustee can liquidate or sell the property to raise money for your creditors. However, if you are properly represented by an experienced attorney, you can in most cases keep all of your property. This does vary with the facts of each case, but an experienced bankruptcy lawyer can protect your property using one of the chapters of the bankruptcy laws.
We use Chapter 7 bankruptcy when we have a client with a great deal of unsecured debts, like credit card debts and medical bills, and when they don’t earn too much money or own too much property. If an individual earns more than a certain amount, as set out in certain census bureau statistics, the Court may require that they file a Chapter 13 type bankruptcy (a repayment plan) rather than a Chapter 7 because the Court and Congress feel that they can afford to pay back their creditors at least a percentage.
Or, if they own a great deal of property, like a home with a great deal of equity, the Court, and Congress, and even the State of Illinois Legislature feel that you should pay back a certain percentage of your debts. That percentage will depend upon what you earn, the size of your family and the amount of nonexempt property that you own, among other factors.
As you can see, this is complicated and I urge you to only go to experienced bankruptcy lawyers who regularly practice in the U.S. Bankruptcy Courts to seek counsel for your current financial situation.
To determine which type of bankruptcy is most appropriate for you requires an involved investigation into your financial affairs, including your income (now and over the last several years), the members of your household and the property you own now and have owned over the last 10 years. The new bankruptcy laws have made this even more complicated so I urge you to only seek counsel from attorneys concentrating in the practice of bankruptcy law.
Any bankruptcy filing will stop creditor harassment and stop collection activities, but you must be sure you are filing under the correct chapter and that all your options have been explained to you.