This 2022 guide about filing for bankruptcy Chapter 7 will give you all the keys to know if Chapter 7 is the best option for you.
Our bankruptcy lawyers in New York city have a combined experience of more than 30 years. They will guide you through the entire process to make the best decision. Feel free to call us today for a personalized consultation.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is known as the liquidation bankruptcy because the court liquidates (sells) your assets to pay off creditors and lenders.
- As soon as the court liquidates your assets and pays your creditors and lenders, it discharges any remaining balance.
- Asset liquidation sounds scary, but the reality is that the court will not sell everything you own.
- Personal property, clothing, your home, retirement savings, and others are exempt.
- With this type of bankruptcy, you can complete the process quickly and can start your financial life anew.
Note: Chapter 7 is one of the different types of bankruptcies. You may want to check our blog post “Filing for bankruptcy Chapter 13” for other personal bankruptcy options. For other business type related bankruptcies you can check “What is Chapter 11 bankruptcy”, “Subchapter V of Chapter 11” or contact our New York business lawyers and small business attorney in NYC.
Filing for Chapter 7 Bankruptcy Step by Step
The reality is that most Chapter 7 bankruptcy applicants never face any asset liquidation. They will be able to enjoy a clean and fresh start while keeping their possessions. This would be a general process:
- Complete Pre-Bankruptcy Credit Counseling: This will come first and you will do it within 180 days of the date you want to file for bankruptcy.
- With the certification received, you can now proceed to the submission. If you have not done so before, it is time to contact our lawyers. To proceed with the process, you must have the following:
- Certificate of completion of credit counseling.
- Expense and income calendar, that is, what you spend versus what you earn.
- List of assets and liabilities, that is, what you earn versus what you owe.
- A schedule of contracts pending execution and unexpired leases. That is, any contracts you have that have not been completed.
- Statement of financial affairs. A report of liens, lawsuits, outstanding leases, property liens and foreclosures.
- Once your case has been filed you will be assigned a trustee and given a court hearing within 45 days.
- The court must receive all documents within two weeks of your case being filed.
- You will perform a bankruptcy means test to verify that you are eligible for Chapter 7. In the meantime, the trustee issues an automatic stay. The latter causes the following:
- Stops any current foreclosure proceedings.
- Freezes pending civil lawsuits such as collectibles.
- Prevents collections on any of your debts.
- At this point, creditors can object to the discharge if they can prove that you have committed some type of fraud.
- As soon as the trustee reviews the objections, they will issue their report.
Note: The forms for your bankruptcy petition can be found on the US Courts website. You can fill them out yourself but a slight mistake can ruin your entire application.
It is highly recommended to hire the services of Chapter 7 Bankruptcy experts who will do all of this hard work for you.
How long does Chapter 7 bankruptcy take?
- Being organized, a person can file most bankruptcy forms within a week.
- 1-2 months after filing you meet with the trustee who is overseeing your case. It is known as a 341 meeting.
- If everything is correct, in 2 or 3 months after your meeting with the trustee you will receive a letter informing you of the discharge.
In short, from the start of Chapter 7 bankruptcy until the discharge of your debt it takes between 3 to 6 months.
How much does filing for bankruptcy Chapter 7 cost?
The bankruptcy court filing fee is $ 338.
If you earn less than 150% of the federal poverty line and are filing pro se, you may qualify for an exemption.
You can also pay this fee in installments if the court agrees and upon your request.
The best time for filing bankruptcy Chapter 7
Here are some signs that indicate that you are a good candidate to file for Chapter 7 bankruptcy:
- Your credit score is already low, that is, below 600.
- You have more than $ 10,000 of forgivable debt.
- It is impossible for you to make ends meet by keeping up with your payments.
- You do not own luxurious property.
- You worry about being sued for your debt or having your wages garnished. Read our blog: Will bankruptcy stop wage garnishment?
- There is no clear path to pay off your debt over the next 5 years.
- You pass the means test by earning below the median income for your state.
If these assumptions apply to you, it may be the best time to consider filing for bankruptcy Chapter 7. Feel free to contact our experts in Chapter 7 bankruptcy law.
With over 30 years of history, the expert lawyers at Ortiz & Ortiz helped hundreds of people in your same situation.
You may need to wait before filing your application
In some cases, waiting some time before filing for Chapter 7 bankruptcy can help.
- You transferred or returned property to a family member or friend in the last year: In this case it will be better to wait as you must show these activities on your bankruptcy documentation. Also, your trustee will ask you about them.
- You rely on credit cards to make ends meet or made large purchases in the last 6 months. Here you should wait to file and pay your most recent charges first.
- If you owe money to the landlord and you do not plan to move: In this case, try to catch up on your rent payments before applying. The same happens usually with car loans to keep your vehicle.
- If you are suing or plan to sue someone: It will be best to postpone filing for Chapter 7 bankruptcy until you get an outcome on the case. In personal injury cases, it is common for people to delay filing while waiting for a settlement.
- If you expect your financial situation to get worse: Keep in mind that you can only file for Chapter 7 bankruptcy once in an 8-year period. You don’t want to do it if you know that the result will be increasing your debt.
What can Chapter 7 do?
- Stop debt collection harassment.
- Suspend the lien on a vehicle or other property. In some cases even force the creditor to return the property even after the repossession.
- Suspend a foreclosure to allow you to catch up on your payments.
- Avoid or reestablish the termination of your public services due to non-payment of previous bills.
- Eliminate the legal obligation to pay all or most of your debts, that is, the discharge of debts.
- Reinstate your driver’s license if you have been suspended for failing to pay court-ordered damages after an accident. Unless it involves a DUI case.
What can’t a Chapter 7 achieve?
- Protect you from bad checks and other criminal charges. You cannot waive fees, compensation, penalties, or criminal penalties.
- Absolve property taxes, past-due alimony, most student loan debt, or recent IRS debt.
- In most cases, you will not be able to eliminate a consignee’s obligation on your loan.
- Eliminate creditor rights to unsecured property such as home mortgages and vehicle loans.
Note: Chapter 7 can absolve the debt but not the creditor’s legal claim or lien. After bankruptcy, your vehicle may be repossessed and your home may remain in foreclosure if you don’t make payments.
What debts can be erased with Chapter 7 and which ones cannot?
Let’s take a general look at what common debts a Chapter 7 bankruptcy can erase. These are known as “dischargeable” debts:
- Medical bills. You may find additional information in our article: Does bankruptcy clear medical debt?
- Loans for vehicles.
- Credit card debt.
- Payday and personal loans.
- Utility bills.
- Debts for failures in credit cards and debt collection agencies.
Chapter 7 bankruptcy cannot erase the following most common debts, known as “nondischargeable”:
- Most student loans.
- Alimony and child support.
- Tax debts and other penalties or debts that you owe to the government.
Advantages and disadvantages of filing for bankruptcy Chapter 7
Bankruptcy is not something you should do without thinking first. There are pros and cons to consider carefully as we will see below.
Advantages of filing for Chapter 7
- It will only take 3 to 6 months from the moment you file to the discharge.
- Most state exemptions will allow you enough to exclude most of your properties from bankruptcy.
- After filing for Chapter 7 bankruptcy, you will be able to keep wages and property that you buy after filing.
- You may opt for new lines of credit within 1 to 3 years of filing for bankruptcy. Of course, at a higher interest rate.
- There are lenders who specialize in post-bankruptcy home buying and loans.
- You can file only one Chapter 7 application every 8 years, but you can choose to get a Chapter 13 plan before you have the right to apply for Chapter 7 again.
- Bankruptcy prevents your lenders from taking aggressive steps to collect your debts.
- Bankruptcy relieves many of your financial obligations, but only an order from the family court can void your child support and alimony obligations.
- The 8-year bar does not apply if you obtained a good faith Chapter 13 discharge after paying at least 70% of your unsecured debts.
- Chapter 7 does not require you to have debt of any specific amount to request redress. Even if your case is converted to Chapter 13, you can still improve your situation by obtaining more favorable terms.
Disadvantages of filing for Chapter 7
- Bankruptcy can stay on your credit report for up to 10 years.
- You will lose all your credit cards.
- You will lose property you own that is not exempt from sale by the trustee. That is, you can lose luxury possessions.
- Bankruptcy will make it very difficult to get a mortgage if you don’t already have one.
- If you face a worse situation in the future, you will not be able to file for Chapter 7 bankruptcy for 6 years from the date you first filed for bankruptcy.
- It will not eliminate your student loan debt or exempt you from paying child support or alimony.
- You can’t file for Chapter 7 bankruptcy if your previous Chapter 7 or 13 case was dismissed within 180 days. This applies if you violated a court order or requested dismissal when a creditor requested relief from automatic stay.
- Even after the bankruptcy procedure is completed, you may still be required to pay off some debts like a mortgage lien.
- If you have a certain amount of disposable income and apply for Chapter 7 relief, the court may turn it into a Chapter 13 case. This will change your goal to get rid of debt between 3 and 6 months to having to pay it off in payment plan that’s either 3 or 5 years..
What Happens After Bankruptcy and How Does It Affect Your Credit Report?
On our website you can read an entire blog post about the consequences of bankruptcy. The following are just a few indicators you may experience once your bankruptcy process is completed.
- Many people will see their credit score improve if they were below the 600 range.
- Individuals, in general, are relieved to see that their dischargeable debts no longer exist.
- Bankruptcy makes you reflect on your financial situation and you will feel a fresh start.
- Bankruptcy stays on your credit report for 10 years. However, by improving your score, you can get approved for a mortgage in a few years.
Frequently Asked Questions Related to Chapter 7 Bankruptcy
Here are some of the most frequently asked questions we get at the office. For your own personalized consultation, call us today and tell us about your case.
What is the means test?
Anyone who files for a personal Chapter 7 bankruptcy must pass this test. The test is a formula-based tool that assesses whether you qualify for Chapter 7 bankruptcy or instead, for Chapter 13.
What assets are exempt from Chapter 7?
The exemptions vary from state to state although there are also federal exemptions. These exemptions allow you to keep certain assets to avoid being in a poor personal situation after the discharge.
Federal law prohibits liquidation of the following possessions:
- Jewelry totaling up to $ 1,600.
- Clothing, personal and household items: Up to $ 600 per item and up to $ 12,625 in total.
- Pets and crops if you have them.
- Motor vehicle up to $ 3,775 in total value.
- Up to $ 1,283,025 in Roth IRA and IRA retirement accounts.
- All retirement accounts that are tax-exempt including 401 (k) and 403 (b) plans. Also defined benefit pension plans.
- Work equipment and work tools up to a value of $ 2,375.
- Medical equipment and health aid.
- Unused home or real estate exemption up to $ 23,675 in equity.
- Compensation money such as recovery for personal injury, payment for lost profits, or wrongful death.
- Any type of federal benefit you receive such as Social Security, Veterans, or Unemployment benefits.
Note: In case of being married, all the listed values are duplicated. You may be interested in reading our article “Does filing for bankruptcy affect your spouse” to find out the effect of bankruptcy on your spouse.
Are your assets secure? Our expert New York asset protection attorney can guide you. Call us today for a private consultation.
Chapter 7 vs. Chapter 13 bankruptcy
The main difference between Chapter 7 bankruptcy and Chapter 13 is that Chapter 13 does not erase the debt right away. The debtor proposes a payment plan based on their ability to pay off certain debts. The plan lasts 3 or 5 years.
Note: We will not go into the specific differences in this article as we have written one where you can read everything related to Bankruptcy Chapter 7 vs 13.
What Alternatives are there to Bankruptcy Chapter 7?
There are alternatives to bankruptcy that can help you start over. Choosing the right method for you requires an analysis of your financial situation and the types of debt you face.
We can also help you in these cases. Feel free to contact our experienced New York finance attorneys today.
Repayment plan: Entering a debt management plan with an agency is an option. Unlike the debt settlement that we will see next, this plan involves paying off your debt over time. That is, in a more feasible way. As a general rule, only unsecured debt can be included in this plan.
Debt settlement: In this case you can negotiate directly with your creditors by contacting them to discuss the problem. Perhaps you can negotiate an affordable payment plan or renegotiate the full amount. As a general rule, it is usually paid in a lump sum.
Sell a valuable property: So that you can pay creditors: Be careful with this option as the money received may not be enough to settle all your debts. There is even a chance that you may need to file for bankruptcy.
Debt Consolidation: With this option you can get a debt consolidation loan to deal with your debts. This way you will only have to make a monthly payment to the new creditor. These loans usually have lower interest rates than what you are currently paying.
Note: You might be interested in checking out our article “Debt consolidation vs bankruptcy“.
Filing for Chapter 7 bankruptcy
If you get into financial trouble once more, you can file for Chapter 7 bankruptcy again. You can file it as often as you want but you will not be eligible for another round until a certain time has passed:
From your date of first filing:
- If you first filed for Chapter 13 and now you want to do it for Chapter 7, the gap is 6 years. However, if you paid all or at least 70% of your unsecured debt, you may be able to apply earlier.
- If you filed Chapter 7 and want to file again, you must wait 8 years.
- It will be 4 if you filed for Chapter 7 first and now you want to file for Chapter 13.
Does filing for bankruptcy ruin your reputation and life?
No and even less if it also frees you from debts. Although you can run away from creditors for a while, it turns out to be very stressful in the end. Bankruptcy will allow you to start over and stop running away.
The goal of bankruptcy is to give a second chance to people who made a financial mistake and with that goal in mind, you should approach it.
Note: Do you have an Estate Plan? Are your assets secure? Is your family protected? Call our New York estate planning attorney today.
Do you need a Chapter 7 bankruptcy lawyer?
It is not required by law and you can do it yourself. However, even on the website of the US courts it is stated that it is extremely difficult to do it successfully.
The truth is, you will have many more options with an experienced Chapter 7 bankruptcy lawyer by your side. A small administrative error can get your case dismissed.
In bankruptcy matters, it is always important to have experts such as those from the Ortiz & Ortiz law firm.
Best New York Bankruptcy Lawyers for Chapter 7
Our New York experts have a long track record of success helping individuals and businesses in financial difficulties. We can help you know how to file for bankruptcy in New York.
It is important to have experts who know the laws of New York to guide you to restore your economy in the shortest time possible. The goal is to reduce your debt and improve your creditors’ prosecution situation.
Feel free to contact us through our phone or contact page. You can also book your confidential consultation online. This does not commit you to anything and can be the first big step in your financial recovery.