Chapter 7 Bankruptcy Lawyer in Memphis
Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows individuals or couples to discharge their debts. You petition the court and say that you are so hopelessly in debt that there is no way that you will ever be able to repay. The court either accepts your petition or they deny it based on a number of factors. For most individuals, Chapter 7 bankruptcy is the preferred kind of bankruptcy. It allows you to discharge the majority of your debts and start from scratch. Here, we’ll go over the finer points of Chapter 7 bankruptcy including what debts it discharges, how it works, and how you qualify.
At The Sweeney Law Firm P.C., our Memphis Chapter 7 Bankruptcy Lawyers help those who are hopelessly in debt get a fresh start. Call us today to discuss your individual situation and the best court of action to take.
Chapter 7 Bankruptcy Eligibility Requirements
Anyone person or business can file for a Chapter 7 bankruptcy so long as they meet specific eligibility requirements. The first is that they have no filed any bankruptcy within the past seven years.
Generally speaking, any individual who makes less than the mean income in their state can file for Chapter 7. The median household income in Tennessee is $48,547. For those filing jointly, the median family income is $60,659. Both of those numbers were accurate as of 2016. Other factors might include your family size. This will be considered when comparing your annual income against the state median.
If your income exceeds the state median, you will be forced to take the means test. Give our Chapter 7 bankruptcy attorney a call to discuss your options.
The Means Test for Chapter 7 Bankruptcy
The means test considers your monthly income against your expenses. The more disposable income you have or the greater the difference between your expenses and your income, the less likely it will be that you pass the means test. In certain instances, a judge can deny a petition for Chapter 7 even if you pass the means test.
If a trustee determines that you have unnecessary expenses or the difference between your income and expenses allows you to pay back at least some of your debt, they will recommend that you file for Chapter 13 instead of Chapter 7 bankruptcy.
If you petition for Chapter 7 is denied there is no appeal.
How Chapter 7 Bankruptcy Works
Before you file for bankruptcy, you will have to take a credit counseling course. Then, the documents for the bankruptcy will be filed with the federal court. The court will likely issue an automatic stay, which is a legal order stopping or delaying all legal actions against you by your creditors. Your creditors will have to deal with issues at the Meeting of Creditors or via your attorney.
There are certain pros to Chapter 7 but there are caveats to keep in mind as well. Chapter 7 will clear the debts from your record, but the bankruptcy trustee takes over control of your finances. They will look at any recent transactions and they will attempt to liquidate any valuable assets you have in order to pay off your creditors.
Some assets can be protected, however. Your home, your vehicle, and any tools that you use in carrying out the duties of your employment can be protected from liquidation. In addition, any retirement accounts you have can be protected. Lastly, there is a “wildcard” exemption for personal property, including cash for $10,000. Understand, however, that assets may on be protected in part based on how large your family is.
Generally speaking, the trustee does not find much property worth liquidating and the debts are merely discharged without recompense. However, the trustee also gets a cut of any property they can find to discharge, so they are highly motivated to the task.
Is Chapter 7 Bankruptcy Right for Me?
Whether or not Chapter 7 is the best chapter for you will largely depend on your circumstances. It can be helpful to ask the following questions:
- Are you judgment proof? Meaning, are creditors not legally allowed to take your property or income even if you do not file Chapter 7?
- Will Chapter 7 discharge enough of your debts so as to be worthwhile?
- Do you have property that you want to keep?
Are You Judgment Proof?
Before trying to collect from you, creditors will try to determine whether you have valuable assets.
You are judgment proof if you:
- Don’t have a steady stream of income or own property aside from basic household items and a car,
- Have income that comes from Social Security and your property is exempt.
You aren’t judgment proof if you do have valuable assets, and you can expect creditors to take swift action trying to collect on your debts.
Will Chapter 7 Discharge Enough of Your Debts?
What Debts Can Chapter 7 Bankruptcy Discharge?
Chapter 7 can discharge any debt that was accrued prior to the petition date. You are still responsible for those that post-date the petition. Common types of debts that can be discharged by Chapter 7 include:
- Unsecured credit card debt,
- Collection agency accounts,
- Medical bills,
- Personal loans,
- Past due amounts on utility bills,
- Business debts,
- Money owed under lease agreements,
- Past tax penalties or unpaid taxes.
What Debts Can Chapter 7 Bankruptcy Not Discharge?
There are certain types of debt that you are still on the hook for paying regardless of whether or not your petition for Chapter 7 is granted. Those include:
- Alimony or child support payments,
- Debt to pay off a nondischargeable tax debt,
- Court fees,
- Homeowners Association fees,
- Fines or restitution owed for breaking the law,
- Certain kinds of tax debt,
- DUI related restitution to an injured party.
Some of these types of debts can be managed in Chapter 13 but not Chapter 7.
In addition, student loan and income tax debts cannot be discharged unless you prove to the court that there is a legitimate hardship and you should be exempted. The bankruptcy judge may also declare some debts to be nondischargeable if a creditor objects to the discharge in court. These may include debts that were incurred by fraud, willful injury to another, theft, or embezzlement.
If your goal is to eliminate the debts listed above, then Chapter 7 may not be right for you. It’s best to speak to a bankruptcy attorney to determine how to best move forward with your case.
How Much of Your Property Will You Have to Give Up?
Exempt property (meaning property you can keep) typically includes:
- vehicles (up to a certain value)
- necessary clothing
- necessary household goods and appliances
- jewelry (up to a certain value)
- life insurance (up to a certain value)
- public benefits
Non-exempt property (meaning property your creditors can take) typically includes:
- vacation homes
- second vehicle
- family heirlooms
- stocks, bonds, and investments
- expensive musical instruments
In order to determine whether or not Chapter 7 is a good option, you will have to assess how your property falls under state exemptions. Your attorney can help you weigh your options depending on what property you would like to keep and what you are okay with giving up.
What Happens After a Chapter 7 Discharge?
Once you get your discharge, your Chapter 7 bankruptcy will be on your credit report for 10 years. However, you will likely be able to obtain car loans, home loans, and more before the end of that period. Every lender has different requirements for people who have a bankruptcy in their past.