The Basics of Bankruptcy: Part Four: Your Chapter 7 Filing Skip to main content

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The Basics of Bankruptcy: Part Four: Your Chapter 7 Filing

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If you’re like many Americans experiencing tough economic times, you may feel completely overwhelmed by your current financial situation and unsure as to what options exist to alleviate the stress.  At times like these it’s often important to get “back to the basics,” separating fact from fiction in order to make an informed decision a better financial future.

In this series, The Basics of Bankruptcy, we’ll help you start 2011 on solid fiscal footing with straightforward information designed to explain what bankruptcy is, the options at hand and the features common to any bankruptcy filing. In Part One, we introduced common bankruptcy types.  In Parts Two and Three, we discussed characteristics common to all bankruptcies and the typical effects of a bankruptcy discharge.

Now, we’ll discuss specifics about the most popular form of personal bankruptcy: Chapter 7.

Defining Chapter 7
Chapter 7 is otherwise known as a liquidation bankruptcy, whereby a bankruptcy trustee is assigned to your case in order to liquidate (sell) non-exempt property of your bankruptcy estate. The proceeds from this liquidation are then distributed on a pro rata basis to your unsecured creditors. In return, you receive a discharge of all of your unsecured, non-priority debts.  This type of discharge is the primary reason Chapter 7 is so popular: allowing debtors just like you to get rid of credit card debt, medical bills and other unsecured blights on an otherwise healthy budget.

The Costs of Chapter 7
As mentioned, the trade-off of discharging unsecured debt in Chapter 7 is that it means forfeiting assets, subject to certain exemptions. Nevertheless, that last part (“subject to certain exemptions”) allows most Chapter 7 debtors, known as “no-asset” cases, to keep most of what they would otherwise lose. Why? Because in North Carolina (as in other states), there are minimum amounts of property that Chapter 7 debtors get to keep. This includes $5,000 in household goods; $35,000 in equity for your home; and $3500 on your car. Because most Chapter 7 debtors are drowning in debts with few assets to recoup, oftentimes they don’t exceed these minimums and therefore anything they could’ve lost in Chapter 7, they won’t. For example, if your car is valued at $3500 or less at the time of your bankruptcy, it’s yours to keep. Fortunately, there are also bankruptcy options for debtors attempting to hold onto valuable assets (to be discussed in Part Five, “Your Chapter 13 Filing”). In addition to the liquidation aspects, a typical Chapter 7 bankruptcy involves attorney’s fees. Fortunately, a relatively uncomplicated Chapter 7 option is also relatively inexpensive as well as speedy—typically concluding in 95 days.

Debts That Survive a Chapter 7 Bankruptcy
Chapter 7 is a great option for people with unsecured debts: credit cards, payday loans, medical debt, etc. Debts that are not discharged in Chapter 7 include: secured debt; student loans (unless deemed a “substantial hardship”); certain taxes; debts arising from divorce or separation agreements; domestic support obligations like child support or alimony; and debts arising from willful or malicious injury to a person or property.

Who Can Help With Your Chapter 7 Bankruptcy
As a result of the nuances and intricacies of bankruptcy law, it is essential to begin the bankruptcy process with an experienced bankruptcy attorney that knows the ins and outs of the bankruptcy process and can assist you throughout your case. If you live in North Carolina, contact the Law Offices of John T. Orcutt TODAY for a totally FREE debt consultation. Just call toll free to 1-888-234-4181, or make your appointment online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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