Bankruptcy — Chapter 7

Bankruptcy under Chapter 7 is the legal acknowledgement that you are unable to pay your debts. It is also known as a liquidation bankruptcy. Generally speaking, you make no repayment to your creditors except as may be arranged by the court through sale of your assets and distribution of the proceeds. Once assets are sold and the proceeds distributed to creditors, any remaining unpaid debt is discharged.

Are any of my assets exempt from liquidation?

You are not required to sell an asset unless the profit from the sale would be greater than the exemption allowed for that asset. Under the Federal bankruptcy exemptions, you would be allowed to keep your home if the profit from its sale would be less than $15,000, or $30,000 for joint owners. You may keep a vehicle if your profit from its sale does not exceed $2,400. Moreover, you may keep about $8,000 worth of personal possessions, jewelry of less than $1,000 in aggregate value, and tools of a trade less than $1,500 in value. You also retain your rights to your future wages and/or payments received under public assistance programs and pensions. There are also State exemptions available which may be more generous than the Federal exemptions.

Will I be required to sell assets if the profits from their sale would be greater than the exemptions allowed?

The court might find there would be negligible proceeds remaining for distribution to creditors after the sale, and may decide it is of no real value to force you to sell the assets. Consult a reputable bankruptcy attorney about what to expect in your situation.

Must I discharge all of my debts?

Federal law requires a bankruptcy debtor to include all of his or her creditors on his or her bankruptcy petition even though other arrangements may be made with them. Generally speaking, you will not go bankrupt against secured creditors so long as you are allowed to retain the asset that secures the loan and can make normal payment to those creditors. You may be able to keep some unsecured credit by reaffirming to the creditor that you will continue to pay the debt even if it is discharged through bankruptcy.

May I discharge taxes or student loans?

Generally speaking, if the personal income taxes are three or more years old and returns were filed, and the federally-subsidized student loans have been in repayment status for more than seven years, you will receive a discharge of these obligations at the time your bankruptcy is finalized.

What is the process involved in going bankrupt?

You (or your lawyer) file papers listing your assets and your creditors with the bankruptcy court. You must also disclose if you have income in excess of your cost of living. The bankruptcy court notifies the creditors of your intention to go bankrupt. At this point, collection activity generally ceases. A trustee is appointed to liquidate assets if such proves to be required. You must attend a hearing at which your petition is finalized.

Is bankruptcy advertised in the newspaper?

Bankruptcy is not published I the newspaper unless publication is required due to foreclosure and/or sales at auction. Bankruptcy is, however, a matter of public record and will appear on your credit report.

What will be the effect of bankruptcy on my credit rating?

Notice of bankruptcy will remain on your credit report for ten (10) years. A notation of bankruptcy is the most negative information you can have on your credit record, and reestablishing credit may be difficult. In order to regain credit, you will have to work at it; you may find that you need to put up collateral and/or provide a credit-worthy cosigner in order to get started again. However, two factors may assist you in your attempt to regain credit after filing bankruptcy. First, since you have reduced your debt-to-income ratio, a new creditor may feel more likely to be repaid now that you are not obligated to repay your former creditors. Second, since you can file Chapter 7 only once every six years, a new creditor may feel more willing to take a chance on you knowing you have no immediate way to discharge your obligation.

Bankruptcy may, however, affect more than your credit rating. There are some industries where bankruptcy is looked upon as a negative factor by those making decisions about hiring, promoting or retaining you. Bankruptcy may affect your ability to obtain an apartment if the landlord checks your credit record as part of a rental or lease application.

The above information should be understood to be a general discussion of the subject matter and DOES NOT constitute a legal opinion about the situation. For further information please consult a qualified attorney.

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