Do I Need a Bankruptcy Attorney for a Simple Chapter 7?

Bankruptcy can be a complex, difficult issue.  However, filing Chapter 7 Bankruptcy is the simplest, quickest and most straightforward form of bankruptcy.  Some refer to it as "liquidation" or "straight bankruptcy."  Individuals, married couples and even corporations can file for Chapter 7.  In a nut shell, a court appointed trustee sells all your nonexempt property to use as payments to your creditors.  Otherwise you are free to keep any exempt property; unsecured debt which cannot be paid for from your liquidated assets is discharged at the end of the process. The following are parts of the process which should help you decide if you need a bankruptcy attorney Chapter 7.

Exempt Property

Exempt property refers to the property which the court will not use to pay off your debts.  In determining what is exempt and what is not, the states follow different guidelines.  In some states you can choose between the state's exemptions or the federal government's exemptions; in other states you are allowed to use only the state exemptions.  You will need to check with your state to know which exemptions you are qualified to take.  This would be an example of where a bankruptcy lawyer would be able to best protect your rights during a bankruptcy attorney Chapter 7.

The following items are generally exempt up to a certain amount:

• Real estate, particularly your residence
• Trade/professional tools and books
• Life Insurance
• Prescription and Health assets
• Social Security income, disability, unemployment and illness benefits as well as veteran's benefits
• Any proceeds from a judgment

In most situations, Chapter 7 Bankruptcy cases are considered "no-asset," meaning that the debtor has no assets beyond those which are exempted. When filing a petition for bankruptcy the debtor will declare that his case is either "asset" or "no-asset."  It is up to the court appointed trustee to change this designation.

Eligibility for Chapter 7

The new bankruptcy laws - passed in 2005 - require you to undergo a "means test" which verifies if you qualify for Chapter 7 bankruptcy or Chapter 13.  The means test calculates your income and your expenses in comparison to the standards set in your state using IRS rules and guidelines.

If, for example, you earn less than what your state has calculated as the median income for a family your size, you will qualify to file for Chapter 7 bankruptcy.  If, however, using your income from the previous six months, the court determines that you make more than the median income, and can also pay at least $6,000 ($100 a month) over the next five years, then you will not qualify for Chapter 7, but must file for Chapter 13 Bankruptcy instead.

You are never released from paying back taxes, or overdue child support. 

Filing for Chapter 7 

You begin bankruptcy proceedings by filing a petition with the court in which you reside.  You must also file schedules and Statement of Financial Affairs.  This is not overly difficult; however, the assistance of a bankruptcy attorney would prevent you from making any mistakes.  You will be required to provide the following items:

• A list of all your creditors
• The amount and type of each creditor's claim
• The amount and frequency that your receive income
• A complete list of all your property and assets
• A list of all your monthly living expenses

Fortunately, when you file for bankruptcy your creditors and prevented from suing your or making any other attempts at collecting on your debts because of what is called the "automatic stay."  The stay allows you to keep your property and prevents others from filing suit until the bankruptcy has been fully discharged.

If you do have any non-exempt property, the trustee will be able to sell it in order to pay administration fees and any remaining creditors who still have active and approved claims against you.  Any wages you earn after filing for bankruptcy will be yours to keep and the creditors you had prior to filing will no longer have a legal claim to it. 

341 Hearing

Some twenty to forty days following the time you file your bankruptcy petition, the trustee will call the "first meeting of creditors," which is also referred to as a "341" meeting. This is a meeting the debtor must attend where the trustee will ask him, under oath, questions regarding property and debts. 

Creditor s are given 60 days following this meeting to make their case to the bankruptcy court that their account should be repaid and not discharged (basically forgiving the debtor of the debt).

"Reaffirmation" of debts is an option at this point. This is an agreement you make with the creditor that you will pay the debt that remains on certain property, even if it is being discharged, but with the promise that you will be able to retain the property.  This is sometimes used in order to keep an automobile from being sold.

As the law are now written, you need to declare that you are dedicated to continuing payments on your car loan within 45 days following the 341 meeting.  You used to be able to simply continue making car payments, but not any more; now you must reaffirm the loan.  Should you default on the your loan after reaffirming it, your car will be repossessed and you will be liable for deficiency in payments.

Reaffirming Debts

Reaffirming debts is a process in which you may want to employ the services of an attorney.  The process necessitates that you disclose the following:

• both your income and your expenses revealing to the court that you have sufficient income to pay the reaffirmed debt
• that you were informed as to the amount of the debt you wish to reaffirm
• the manner in which the debt was calculated
• that you understand that the debt will not be discharged

The court must approve the reaffirmation agreement.  An attorney would be able to assist in this process, particularly if the court disapproves and a hearing must be held.

An attorney will be able to certify that they advised you regarding the legal consequences involved in the agreement, that you were given all the necessary information and entered into the agreement under your own free will, and also, that the reaffirmation doesn't create a hardship on either you and/or your family.

Discharge

As long as the creditors have not filed any motions in an attempt to be repaid within 60 days following the 341 meeting, all the debts that you had prior to filing for Chapter 7 bankruptcy will be officially discharged (canceled).

Speak with a Bankruptcy Attorney

It is always in your best interest to counsel with a bankruptcy attorney.  These professionals not only help in regards to filing, and completing paperwork correctly, they are trained to protect your rights when involved in any legal action.