Bankruptcy does have an immediate impact on your credit score. However, for many their access to credit is improved because the derogatory marks are removed.
Chapter 7 is a type of bankruptcy useable by consumers AND businesses. It is the type of bankruptcy that people think of when they hear the word “bankruptcy”. It is also the most common chapter filed nationally each year. When someone files for chapter 7 bankruptcy, they automatically receive a federal order preventing, known as a stay, any collection action against the person who filed (“the debtor”). This can stop foreclosure, repossession, law suits, garnishments, and all sorts of stressful situations. Definitionally, Chapter 7 is a liquidation. This means that assets, things the debtor owns, are sold to pay back their debts. Generally speaking, debts are not often repaid in a Chapter 7. This is for a number of reasons:
First, many of the most common and important assets are protected from liquidation. Household goods, retirement accounts, pets, cars, jewelry, and many other items all have exemptions under state and federal law protecting them from liquidation. Some states have better exemptions than others, and exemptions are rarely unlimited – meaning that if your stuff is worth more than the exemption, it can still be sold! Aside from exemptions, the main reason debts aren’t often repaid through a liquidation is limitations on who CAN file for a Chapter 7. You must meet rigid income and expense guidelines to qualify for Chapter 7. Most people who have sufficient assets to pay off their debts wouldn’t want to file Chapter 7, and if they do they aren’t likely to qualify for it. Another reason is who SHOULD file for Chapter 7. If someone has assets that are subject to liquidation, they usually don’t want to file Chapter 7 and lose them. There are other chapters of bankruptcy (like Chapter 11 and 13) that are better suited for people with more assets. Those chapters better protect assets and can prevent a liquidation.
A Chapter 7 case is initiated by filing a voluntary petition with the appropriate bankruptcy court. Other pleadings are required as the process continues, and failure to timely file them can result in the case being kicked out. During the case, a mandatory meeting of creditors is held within a few weeks of the case being filed. Despite the name, “meeting of creditors”, creditors rarely attend. Generally, the only parties at the meeting are the court appointed trustee, the debtor, and the debtor’s lawyer. After the meeting of creditors, some additional efforts may be required to keep some major assets, like a house or cars. Finally, a debtor education course is required – it takes about an hour and a half to complete and is done online or over the phone. The whole process usually takes about 4-6 months to reach discharge.
A Chapter 7 discharge is a federal court order preventing collection activity by any party who is owed a dischargeable obligation by the debtor. In English, that means the creditors can’t try to collect on debts discharged by the bankruptcy. Goodbye to harassing phone calls, letters, lawsuits, and garnishments. Hello good night’s sleep!
You will not necessarily lose your house and car when filing Chapter 7. Often, you are able to keep them, but it's important to have an attorney review before filing.
If during the consultation, it is determined bankruptcy is the best course of action, an agreement to retain council is completed. Once council is retained, you collect and submit statements of accounts and assets to our online portal and complete a credit counciling course. We then file a petition along with documents to the courts. Then there is a meeting of creditors held by a court trustee to review and discuss the case. All parties are required to attend. Please note, our service is all inclusive, meaning there are no additional fees or charges you will incur for filing.
Most debts are dischargeable. Credit cards, loans, medical debt, even mortgages and car loans are all dischargeable. Most people don’t want to discharge a mortgage or a car loan though, because then they would lose the corresponding home or vehicle.
Debts that are generally non-dischargeable are most student loans, taxes filed in the last 4 years, child support and alimony, restitution from a crime, and debts incurred due to fraud. While these aren’t able to be resolved in Chapter 7, they are all able to be resolved in Chapter 13 – depending on the situation.
Cases are filed in Federal Bankruptcy Court in the district where you have resided or maintained a principal place of business for 6 months. A transfer to another district is possible if it is deemed in the interest of justice or for convenience of parties.
There is alot of misinformation about bankruptcy online, but a good resource to learn more about the process is www.uscourts.gov
This site is maintained by the Administrative Office of the U.S. Courts on behalf of the federal Judiciary.