Chapter 7 Bankruptcy Laws 

Filing for bankruptcy under the Chapter 7 bankruptcy laws has perhaps one major advantage over other basic types of bankruptcy, and one major disadvantage as compared to other types of bankruptcy cases.

Perhaps the major attraction of the Chapter 7 bankruptcy laws is that it allows the filer to restart their life debt free and with a "clean slate". However, the downside is that Chapter 7 results in the liquidation of personal property and valuables, including the family home, as opposed to Chapter 13, where no assets have to be sold.

A chapter 7 bankruptcy case stays on one's credit record for ten years, as opposed to Chapter 13's seven.

Once a bankruptcy under the Chapter 7 bankruptcy  laws has been filed, the individual filing then has the  protection of the court by means of an "order of relief" also called "automatic stay". This means that all creditors are prevented from hounding the individual which is important, particularly if a foreclosure notice has been served.

It is important to bear in mind that not all debt can be legally discharged. For example, alimony payments, tax payments and liens on mortgages to name three, cannot be discharged. In this case a Chapter 13 filing may be more appropriate, one difference being is that Chapter 13 works out a repayment schedule.

The process to file under the Chapter 7 bankruptcy laws is as follows:

1. List all details of your property and values. Note down your income details, payment frequency and amount. List your creditors and the amounts owed. This is called a statement of financial affairs.

2. Complete required bankruptcy forms and file them at your nearest federal court.

3. The "automatic stay" is then issued which then prohibits even a phone call by your creditors demanding payment.

4. Approximately one month later the court will notify you of the "341" meeting that it is compulsory for you to attend. This gives the creditors the chance to check that you are unable to meet your debts to them, and are not merely trying to avoid payment. Once satisfied, the discharge will be approved.

5. This is where a Trustee is appointed to oversee the liquidation of the debtor's nonexempt assets ,which are duly sold. If the proceeds from the sale of the debtor's nonexempt property result in a shortfall, the resulting outstanding debt is written off.

6. After approximately 2 – 3 months the discharge is granted by the court and a discharge notice issued.

7. On receiving the bankruptcy discharge notice, all personal liability for any undischarged debt is removed, and no further action can be taken by creditors against the individual or their exempted property.

Individuals are granted a discharge under Chapter 7 bankruptcy laws in 99% of cases.

However, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 bought in some changes to bankruptcy law. Perhaps the most significant of which is the bankruptcy Means Test. Since the act, when one files a chapter 7 case, the bankruptcy code requires proof that the debtor genuinely cannot afford to repay their debts.

There are a number of steps.

Firstly, the applicant's average current monthly income over the six months prior to filing a petition is calculated. From this are deducted certain allowed expenses to arrive at the applicant's "net disposable income".

Secondly, this figure is then compared to the median income for families in your state of the same size. If the applicant's income is greater than the median income, the means test is failed, and the debtor has then to go through complicated calculations to see if they qualify. These calculations are to determine whether, after the deduction of certain allowable expenses, sufficient income is left over to make any sort of repayments towards the debtor's unsecured debts. The biggest challenge here is that definitions and monetary amounts concerning "allowable expenses" vary from state to state, so the employment of a bankruptcy lawyer is very important.

If the bankruptcy court decides that the debtor does have sufficient income to make repayments subject to some rescheduling of that debt, then chapter 7 bankruptcy will be denied and a chapter 13 bankruptcy filing enforced. A chapter 13 bankruptcy is essentially a 3-5 year repayment plan.

However, if a bankruptcy petition under chapter 7 is granted, the whole bankruptcy process can be over and the bankruptcy discharged in as little as four months.

Grounds for denying a bankruptcy discharge are:

1 Failure to produce proper financial records

2 Failure to explain any loss of assets

3 The individual committed a bankruptcy crime

4 The individual broke a bankruptcy court order

5 The individual concealed, destroyed or transferred any property that belonged to their estate.

In the case of 5, above, should the circumstances detailed be found out after a discharge, the discharge may be revoked.

Finally, in some cases, certain property, although pledged, for example a cherished classic automobile, may be kept under the chapter 7 bankruptcy laws if the debt is "reaffirmed". This is an agreement between the individual and the creditor, agreeing that the property may be kept as long as repayments are maintained. This must be in writing, filed with the court and done so before the granting a discharge.

Alternatives to Chapter 7 are Chapter 11 bankruptcy and Chapter 13 bankruptcy.

Chapter 11 is useful if you are in business and wish to avoid liquidation, while under chapter 13, you are allowed to retain your personal property. Indeed, you may be forced into Chapter 13 if it is found that you have the financial means to effect a workable Chapter 13 financial repayment plan.

Find a list of approved credit counselors here.

  http://searchjustice.usdoj.gov/search?q=credit+counsellors&btnG=Search&q=site%3Awww.justice.gov%2Fust&sort=date%3AD%3AL%3Ad1&output=xml_no_dtd&ie=iso-8859-1&oe=UTF-8&client=default_frontend&proxystylesheet=default_frontend&site=default_collection

Keep in mind that bankruptcy should be an absolute last resort, as the consequences of bankruptcy have far reaching and sometimes problematic effects, not least of which are obtaining credit and credit cards after bankruptcy.