For most of us, being in debt to some extent is a part of life. Indeed, whether we have a mortgage, car payments, a student loan, a struggling small business — and the list goes on — owing money is often the norm, rather than the exception.
However, there may be times where debt ceases to be manageable and tolerable, and turns into a crisis that is emotionally overwhelming and financially unsustainable. While this is obviously an unwanted and welcome scenario, there may indeed be some light at the end of the dark debt tunnel. And the fastest, safest and smartest route to get there could be by filing for Chapter 7 bankruptcy.
About Chapter 7 Bankruptcy
Also known as “liquidation bankruptcy”, Chapter 7 bankruptcy is the most common type of bankruptcy filing in the country. With this option, debtors can petition the court to have 100 percent of their non-exempt assets liquidated by a designated and certified Bankruptcy Trustee. The funds from this sale are then used to pay creditors an amount that has been previously agreed upon.
One of the most important aspects of filing for Chapter 7 bankruptcy is that all financial records and information submitted to the court must be complete, accurate and organized. If there is even a minor discrepancy between court records and a debtor’s financial information (e.g. credit card statements, bank statements, loan documents, tax filings, payroll stubs, etc.), then the filing will be delayed, and there will be additional legal and administrative costs.
In addition, anyone who wishes to apply for Chapter 7 bankruptcy must past what is called a “means test”. This is done to verify whether a debtor truly needs to file for bankruptcy, or if they may in fact have sufficient financial assets to pay all or some of their debts. The means test concept was enacted by the US Congress in 2005, and some critics believe it was introduced to limit the number of filings rather than as a means of actually helping more debtors get paid.
If the application is approved, then a meeting of creditors is called during which they pose questions to the debtor (who will most likely be accompanied in the meeting by their bankruptcy attorney). If a creditor does not feel that certain issues have been interpreted properly, or they are unsatisfied with the process and believe it is being mishandled, they can seek to have it escalated to the court. Once again, this highlights the importance of making sure that all financial records are complete and organized. Objections and disagreements at this stage of the filing process can be stressful, and lead to additional legal and administrative costs.
Provided that the filing moves forward, debtors are entitled to what is called an “automatic stay”. This means that creditors must immediately stop contacting them through any means (phone, mail, email, etc.) in an attempt to recover debt.
Debtors may also file for a discharge, which if approved would prevent any creditor from collecting any debt that was incurred prior to the Chapter 7 bankruptcy filing. A debtor who takes issue with this may file an objection with the court, provided that they do so in the appropriate manner and within a specified timeframe.
Not All Debts Cleared
It is also very important to keep in mind that not all debts can be discharged. For example, certain taxes owed and child or spousal support obligations will not be wiped off the books.
Risk to Co-Debtors
Another important thing to keep in mind is that co-debtors who do not file for chapter 7 bankruptcy, are still liable for their share of any debts owed. This is why well-meaning relatives and friends who co-sign car leases, loans and so on must be clearly aware of their legal obligations in the event that the person they attempted to help is obligated to file for bankruptcy.
To learn more about Chapter 7 bankruptcy, and assess whether this may be the right option for you, be sure to consult with an industry expert such as the Law Offices of Charles Huber. A professional will be able to help you navigate the complex bankruptcy filing landscape, regain control of your financial affairs, and get essential peace of mind so you can move forward with your life.
**Author: C. Weber
I am an entrepreneur with 10 plus years of experience in a variety of industries including finance, marketing and online technology. As an expert in advanced SEO, paid advertising, and inbound marketing I am passionate about sharing my knowledge with others and helping small businesses reach their full potential.