The US Constitution gives power to the federal government to establish uniform bankruptcy protection laws which apply equally to people in all states. These laws have changed over the years but they still exist as a powerful tool to help people gain protection when overwhelmed with debt.
There are several forms of bankruptcy and are identified by the chapters in which they appear in the bankruptcy code.
Chapter 7 - also known as liquidation bankruptcy - allows you to clear many of your debts. Since new laws were passed in 2005, qualification for chapter 7 bankruptcy has become more difficult. The filing process is also more complex that previously, making legal help almost indispensible for anyone seeking bankruptcy protection.
Fees for legal representation have increased with many attorneys and law firms specializing in bankruptcy cases. Some of your property may be sold to help pay the debt during the process of a chapter 7 bankruptcy filing.
What's on This Page
Types of Debt Covered
Other Types of Bankruptcy
Chapter 7 Bankruptcy Means Test
What if You Don’t Qualify for Chapter 7?
How Does Bankruptcy Protect Me from Creditors?
What’s an Automatic Stay?
What Happens to Your Property, House and Belongings in Bankruptcy?
Protecting Yourself from Debt Collectors
Illegal Debt Collection Tactics
Filing Process for Chapter 7
Questions Asked During the Creditors Meeting
Should I Use a Lawyer to File Chapter 7?
The types of debt discharged with chapter 7 bankruptcy protection include the most common forms of personal debt.
- Credit card
- Medical bills
- Unsecured loans
- Secured loans
Debts not covered by bankruptcy protection include:
- Back child support and alimony
- Loans to a pension plan
- Student loans and
- Recent back taxes
- Debts relating to personal injuries and criminal judgments are also not covered in bankruptcy protection.
At the end of the bankruptcy process most, and sometimes all, of your debt will be canceled.
In addition to chapter 7, there are other types of bankruptcies which deal with different types of situations. In case you’re wondering, the chapter of the bankruptcy refers to the chapter in the bankruptcy code where the laws are defined.
Here’s a quick overview of the other types of bankruptcies.
Chapter 13 bankruptcy
This is also known as a reorganization bankruptcy. When filing for chapter 13 bankruptcy, you submit a five year plan to the trustee to pay off all, or a portion of, your debts. During the payback period, you’re protected from collection attempts, wage garnishing, frozen accounts and other attempts to collect on the debts. At the end of the successful completion of the plan, any remaining debts are cleared.
Chapter 13 bankruptcy is the second most common form of bankruptcy protection. If you do not qualify for chapter 7 bankruptcy—usually due to failing the means test—chapter 13 is your next best option for bankruptcy protection.
Chapters 9, 11, 12 and 15 bankruptcy
Chapters 9, 11, 12 and 15 bankruptcy are less common as they deal with more specific groups of people.
Chapter 11 Bankruptcy - Business / Corporate Bankruptcy.
Chapter 11 is the type of bankruptcy mentioned in the news most often. Chapter 11 bankruptcies are high-profile bankruptcies used mainly by corporations, limited liability companies and partnerships to reorganize their financial affairs. Individuals may file for bankruptcy under Chapter 11 but it is rare. Chapter 11 bankruptcy is a time consuming and expensive chapter, therefore it is only appropriate for individuals whose circumstances make Chapter 7 or Chapter 13 inapplicable or inappropriate. Less than one percent of all bankruptcy filings are Chapter 11s.
Chapter 9 Bankruptcy - Municipal Entities And Railroad Companies.
Chapter 9 bankruptcy is the chapter that railroad companies and municipal entities - cities, counties, school districts, and gas and highway authorities - use when they file bankruptcy. Individuals cannot use Chapter 9.
Chapter 12 Bankruptcy - Family Farming Operations.
Chapter 12 is used by family farmers. An individual that does not own agricultural property cannot use Chapter 12.
Chapter 15 Bankruptcy - Foreign Debtors.
Chapter 15 is the chapter used by United States courts to administer assets of companies who have filed for bankruptcy protection in foreign jurisdictions.
One of the most significant developments in the new bankruptcy laws is the ―means test. To qualify for chapter 7, your income—averaged over the past six months—must fall below that of the median income for your state.
If you are even a dollar over this amount you will not qualify for chapter 7 bankruptcy protection and instead will be required to file for chapter 13 protection.
During the meeting of the creditors, the trustee will most likely spend the most time and attention on looking over your financials to ensure that you qualify for the means test.
The primary reason for not qualifying for chapter 7 is due to the means test. The method for calculating your average income can seem a bit odd and unfair given your circumstances.
For example, if you made $5,000 a month for three months, lost your job and filed bankruptcy three months later, your income would average to $2,500 a month even though your current reality is no income at all.
In other situations, you may still hold a job, and your income simply exceeds the threshold for chapter 7 qualification. In this case, you can convert your filing to a chapter 13 bankruptcy.
Bankruptcy is intended to help people burdened with debt to obtain a ―fresh start. When you file bankruptcy, the courts immediately issue something called an ―Automatic stay. With this court-ordered protection, you get a break from the phone calls, the letters, law suits and attempts to repossess property and freeze accounts.
The automatic stay is a very powerful feature of the bankruptcy process. It stops collections attempts cold. This court order automatically goes into effect as soon as you file and prevents them from making any attempts to collect during your case.
Once bankruptcy is filed, all collections attempts must be directed through the courts and collections agents are barred from contacting you directly. Of course, not all creditors will automatically hear about your filing when it happens so it is possible that you will still receive a call or two after filing, but once you inform them of your bankruptcy case information they should not make any further attempts to contact you.
While an automatic stay does protect you from lawsuits and collections processes associated with your debts, it doesn’t ensure that all elements of the status quo remain the same. For example, if your utilities can still be shut off if you fail to pay even though the collections attempts by the utilities companies are prevented by the bankruptcy filing.
When you file chapter 7 bankruptcy, almost everything you own is subject to the authority of the bankruptcy court. Your property is known as your bankruptcy estate and may be sold by the trustee of the court to pay off some of your debts.
- Real estate
- Sporting goods
The trustee receives a commission on property sold so he or she will obviously be very interested in the accuracy and completeness of your estate disclosure.
Some property may be exempted from sale—in order words, you get to keep it. This is managed through a series of exemptions allowed by the state. Figuring out what is exempt can be a challenge and is something that an attorney can help you with.
Here’s a summary of some of the exemptions you may be able to claim in order to keep some of your property during bankruptcy.
- Equity in your home (must file a homestead declaration before filing for bankruptcy)
- $5,000 in Cash plus $500 per dependant
- Life insurance proceeds
- Personal Property
- Burial Plot
- Clothing up to $1,000
- Family keepsakes up to $5,000 total
- Household furnishings up to $5,000 total
- Motor vehicle up to $2,000
- Wedding and engagement rings
- Trade tools
- Uniforms, arms and equipment for the military
There is also a ―wildcard exemption which allows you to declare expect property which may not be directly covered by the other personal property exemption categories.
Creditors and collection agencies may not discover the bankruptcy filing as soon as it is filed. Once the creditor is informed of the bankruptcy filing and provided with the basic information about the case, it must take no further action.
If you’re contacted by a creditor, after you have filed for bankruptcy, provide them with the following information:
- The chapter filed
- The date filed
- The district where filed
- The case number
- Your bankruptcy attorney
In rare circumstances, a creditor may receive bankruptcy court authority to proceed with its collection efforts. If such a court order is obtained, you will be informed of it by the courts.
Creditors holding nondischargeable obligations, such as taxing entities, student loan lenders and guarantors, and ex-spouses entitled to past or future child support or alimony, must also cease their collection efforts against assets of the bankruptcy estate, at least until the date of discharge, which in most Chapter 7 bankruptcy cases is approximately four months after the bankruptcy petition is filed.
If creditors continue to call after the filing of the petition, inform your attorney.
Laws have been established to limit the practices and tactics of debt collectors, but it is still easy to find news reports of abusive debt collection practices. Indictments are still being regularly issued against collections agencies for flouting these laws. Recordings of voice mail messages have been handed over to the press and to the courts of debt collectors threatening violence, using profanity and even making false threats of incarceration over debt.
You have rights.
If you are experiencing any of these abusive—and illegal tactics—from any collection agency, you should report it immediately.
According to the FTC, the following tactics are off limits for debt collectors.
Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, they may not:
- Use threats of violence or harm;
- Publish a list of names of people who refuse to pay their debts (but they can give this information to the credit reporting companies);
- Use obscene or profane language; or
- Repeatedly use the phone to annoy someone.
Debt collectors may not lie when they are trying to collect a debt. For example, they may not:
- Falsely claim that they are attorneys or government representatives;
- Falsely claim that you have committed a crime;
- Falsely represent that they operate or work for a credit reporting company;
- Misrepresent the amount you owe;
- Indicate that papers they send you are legal forms if they aren’t; or
- Indicate that papers they send to you aren’t legal forms if they are.
Debt collectors also are prohibited from saying that:
- You will be arrested if you don’t pay your debt;
- They’ll seize, garnish, attach, or sell your property or wages unless they are permitted by law to take the action and intend to do so; or
- Legal action will be taken against you, if doing so would be illegal or if they don’t intend to take the action.
Debt collectors may not:
- Give false credit information about you to anyone, including a credit reporting company;
- Send you anything that looks like an official document from a court or government agency if it isn’t; or
- Use a false company name.
Debt collectors may not engage in unfair practices when they try to collect a debt. For example, they may not:
- Try to collect any interest, fee, or other charge on top of the amount you owe unless the contract that created your debt – or your state law – allows the charge;
- Deposit a post-dated check early;
- Take or threaten to take your property unless it can be done legally; or
- Contact you by postcard.
If you feel that a debt collector is harassing you or breaking a law with one of the tactics mentioned above, report the matter to the FTC or to the local state Attorney General.
Keep a log of the time and date for every call received and the name reported by the collection agent. The names you are given from collections agents are often not their real name. However, such information may be used for an investigation to find the person(s) responsible.
Mandatory credit counseling education
Before you can file for chapter 7 bankruptcy, you must receive credit counseling education. In the state of Virginia, you must receive the certificate of completion for this education a full 24 hours before filing. The fee for your certificate is usually around $25. We recommend Abacus Credit Counseling for your mandatory credit counseling education. We are not affiliated with them in any way. You can find them online at abacuscc.org and take your class online.
When you complete the program—which shouldn’t take more than a couple of hours—you will be able to request the completion certificate and have a copy sent to your email address.
This is probably the most excruciating part of the process. Collect information on the debts you owe, your income and expenses, your estate and your most recent tax returns. The filing fee for chapter 7 bankruptcy is $306. It is possible to pay this fee installments (form 3a) or have it waived (form 3b) with the courts by filing the appropriate request. In either case you will then be required to appear before the bankruptcy judge to justify your request.
Meeting of the Creditors
Also known as the 341 Meeting, this is a meeting with the trustee to go over your filing. At this meeting, the trustee is looking for accuracy and full disclosure. It is also possible for your creditors to appear at this meeting, though it’s rare that they will be there.
Because of the new laws passed in 2005, the assumption is that you’re committing fraud and the meeting is for you to prove you’re not. This is unfortunate because studies have shown that the incidence of fraud inbankruptcy is very rare. However, because of this be sure to candidly provide your bankruptcy with any information requested to ensure that your bankruptcy won’t be denied on the grounds of failing to disclose material information.
At the end of the bankruptcy process, your debts will be cleared. Creditors are barred from attempting to collect on discharged debts or to report the debts to the credit agencies.
Here’s a list of some of the questions the trustee may ask during the creditors meeting. Go through this list and be prepared to answer all of them.
- Your name and current address
- Your picture ID and social security card
- Have you read the information sheet provided by the trustee?
- Did you read and sign all of the documents you filed with the court?
- Are you personally familiar with the information in the filing?
- Is all of the information in your filing true and correct?
- Are there any errors which should be brought to the court’s attention?
- Are all of your assets listed?
- Are all of your creditors listed?
- Have you previously filed bankruptcy?
- Do you own any property?
- Have you given away any property in the past year?
- Does anyone hold any property belonging to you?
- Does anyone owe you money?
- Have you made any large payments—over $600—to anyone in the past year?
- Do you own a vehicle?
- Do you own any cash value life insurance policies?
- Do you anticipate acquiring any property, cash or assets?
Since the passage of new bankruptcy laws in 2005, the process for filing bankruptcy—and especially the navigation of the required forms—has become very complex. For this reason alone, you should consider hiring an experienced attorney to help you with your case.
To quote Albin Renauer, co-author of How to File for Chapter 7 Bankruptcy, ―The "Bankruptcy Reform and Consumer Protection Act of 2005" (BAPCPA) is a bad law. Some lawyers and law professors have taken to calling it the "Bankruptcy Abuse Reform Fiasco" (BARF). It's based on false assumptions about why people get into financial trouble and imposes additional rules and paperwork on people already overwhelmed by bad luck and unpayable debt.
If you want to go it alone, the forms are available on the web. The state of Virginia has placed them online as PDF files which can be filled out through your computer. You can find the entire list of forms here http://www.vaeb.uscourts.gov/scripts/formsqry.exe
We recommend a qualified attorney to help you with your case, and not just because we earn a fee by providing the service. The issues leading to bankruptcy are very stressful for anyone. With the complexity of the new laws it’s simply too easy to get lost in the emotion and make a mistake.
That’s what legal representation is for.