(Note: the following answers to frequently asked questions about Chapter 7 bankruptcy provide generalized comment on Bankruptcy law and procedure in Colorado and may not apply in all fact situations. They are not a substitute for consultation with an experienced bankruptcy attorney.)
1. What is a Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy, described as “Liquidation”, allows you to have the court “discharge” or cancel most of your debts in order to obtain a fresh start. State exemptions protect some or all of your property. If you file your case with substantial non-exempt property, the trustee can sell (“liquidate”) this property and spread the money amongst your creditors according to certain priorities. An experienced bankruptcy lawyer can advise you how best to take advantage of your property exemptions to maximize the benefit of the Chapter 7.
2. Am I allowed to file Chapter 7 Bankruptcy?
Before the new law came into effect, it was generally up to you as to whether you wish to file a Chapter 7. You do not need to be insolvent (Debts exceeding Assets). A case could be filed to allow the court to sell your non-exempt assets to pay your creditors while stopping all of the legal actions against you.
However, in a Chapter 7, you will file a budget that shows your monthly income and outgo. If it appears that after discharging your debts, you have substantial excess income left at the end of every month, you will be required to file a Chapter 13 repayment plan.
3. What kinds of debts are discharged in Chapter 7?
Generally, most unsecured debts are discharged such as:
– Credit cards and store charges.
– Medical bills, including hospital and doctor fees. (contrary to rumor, there is no separate category called “medical bankruptcy”)
– Rent, telephone and utility charges that are in arrears.
– Bank, credit union, finance company & signature loans.
– Veterans’ assistance loans.
– Attorney and court fees.
– Overdrafts on bank accounts.
– Mail order, record or book club bills.
– Storage and rental fees.
– Most debts owed due to a car accident.
– Most business debts.
– Obligations as a co-signer
– Deficiency balances on repossessions
4. What kinds of debts are not discharged in Chapter 7?
Generally, the following types of debts are not dischargeable:
• Domestic Support (Child support and maintenance) type payments.
• Other Dissolution of Marriage obligations.
• Auto collision injury damages if incurred while legally intoxicated.
• Recent taxes (approximately last 3 years) and loans used to pay such tax. Tax Dischargeability analysis is difficult, and the only way to correctly determine if taxes are dischargeable in your case is to obtain an official “literal” tax transcript (record of account) from the taxing agency and have it analyzed by a bankruptcy attorney or tax professional with experience in this area. This transcript can be obtained from the Internal Revenue Service at www.IRS.gov/Individuals/Get-Transcript or by calling 1-800-908-9946.
– Fines, Restitution, and Penalties.
– Student loans, unless you can prove extreme, undue hardship.
– Willfully caused injuries.
– Fraudulently obtained credit or property.
– Pension Plan Loans.
– Post-bankruptcy Condo Dues until Condo disposed of.
– Debt for last-minute cash advances and luxury purchases.
5. Will I have to repay the bills if I earn a lot of money after I file?
No. If you are allowed to file a Chapter 7, the court cannot order you to pay bills out of future income, wages, commissions or profits that you may receive.
6. What happens to secured loans such as a car financed by a finance company, bank or other creditors?
You will be able to keep the car or other property as long as you continue to make the monthly payments on time and sign a reaffirmation agreement, or you redeem the item by paying its value to the creditor.
7. Are there any time limits on debts that I want to have discharged?
It does not matter if a debt is very old. Very recent debts are another story. There is a presumption that you knew you were going to file bankruptcy upon debt incurred with a single creditor on luxury item purchases over $500 within 90 days or cash advances of more than $750 within 70 days of filing. In such instances, the creditor could successfully contest the discharge of that part of your debt.
8. How soon after I filed a prior bankruptcy can I file new Chapter 7 bankruptcy?
Eight (8) years from the date you filed a prior Chapter 7 bankruptcy. If you received a discharge in a completed Chapter 13, you will have to wait 6 years to file a new Chapter 7.These dates are from initial filing date to second filing date
9. What are the advantages of Chapter 7 over 13?
Generally, it is quicker and less expensive than a Chapter 13. You would discharge most of your debts, and be able to start again without a difficult budget. As the discharge occurs within about five months, you begin building your new credit history sooner. Generally, if we are able to solve your pressing problems, directly or indirectly using a Chapter 7, it leads to a quicker “fresh start” of your financial life.
For further information regarding the bankruptcy process, click on any of the links on this page. Or contact us to arrange a free consultation with an experienced attorney, without cost or obligation on your part.
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