Chapter 7 Bankruptcy Laws

Back up a minute and let’s look at some of those Chapter 7 Bankruptcy Laws and how they can work against you rather than for you...

You have probably heard that if you file for Bankruptcy under Chapter 7 the Court will ‘discharge’ all of your bills and you won’t owe your creditors a single dime so that you can start all over again. Wrong! Back up a minute and let’s look at some of those Chapter 7 Bankruptcy Laws and how they can work against you rather than for you if you are not careful. Don’t go rushing blindly into filing Chapter 7 because there may be other options available to you if you take a deep breath and approach the matter from the right perspective.

First of all, you are going to be required under Federal Law to get credit counseling before you file. The code reads as follows:

“…no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111.”

Consequently, since you are going to need credit counseling before you are allowed to file with the Courts it just might be that the organization you choose can give you viable alternatives so that you don’t stand a chance of losing virtually everything you own.

This is where many people go wrong. They falsely assume that they will get to keep their home and their automobile. While the Bankruptcy Code does allow for the debtor to keep certain “exempt” property, if you are behind in payments the creditor can still seize your property. Here’s how that works.

The Court will appoint a Trustee who will gather all your debts and assets. He/she will sell your assets to pay off your debts. Any unsecured debts that cannot be paid once your assets are sold will be, for the most part, discharged. That means that under the Code, creditors can’t come after you for any balance still outstanding. This is what people look at as getting their fresh start. Unfortunately, if you are extremely delinquent in your payments, the mortgage holder for your home or the lien holder for your vehicle can still foreclose and repossess respectively. The Courts will not discharge secured debts. The lien holder is protected under the law and they can seize the property in question in order to secure payment for your debt.

There is another, very important, condition that needs to be met and many consumers usually aren’t aware of this when filing for Bankruptcy. First of all, if you have an income and it exceeds the state median, the Bankruptcy code requires a “means test.” This will determine if you are abusive in filing for Chapter 7, or under any Chapter for that matter. The Code is very specific as to amounts and if you exceed those amounts mandated by law you will be denied based on abuse of the Code.

Since Chapter 7 Bankruptcy Laws are so complex and you are going to be required to get credit counseling first anyway, it stands to reason that you find a certified credit counseling agency in your area before you even consider filing for bankruptcy. If there are other alternatives that better meet your needs, a reputable credit counselor will advise you to pursue those options first. It’s understandable that you are desperate and need to do something quickly, just don’t jump from the frying pan into the fire. You could very easily get burned.