Posts Tagged ‘chapter 7’

Debt Settlement and Chapter 7 Bankruptcy

Debtors often think in terms of filing for bankruptcy and avail the constitutional benefit offered by discharging Chapter 7. However, through debt elimination facilities, it is possible to reduce the net payable interest amount to be redeemed to the lender, and across the U.S., many borrowers have successfully availed debt elimination programs to eliminate credit card debt. The recent economic slowdown has resulted into an increase in debts and debtors, but on the other hand, the market has opened up with numerous debt elimination plans, and delinquents can eliminate debt by availing a reliable and trustworthy debt elimination program. Banks and companies offer several facilities to the debtors, and some of the “value added services” are absolutely free. The article proceeds to clarify the myth surrounding the Chapter 7 statute. People think filing for bankruptcy is the preferred resolution, when normal methods fail the debtor. This is not true. There are alternative solutions available. Besides bankruptcy can leave a scar across your credit ratings and financial history for as long as seven years. Going ahead in continuation with the first part, the article explains some of issues associated with the statute.

Executing Chapter 7
The process of filing for “bankruptcy” or engaging Chapter 7 starts with the filing of an official petition, followed by schedules and Statement of Financial Affairs within the bankruptcy court. While filling up the Bankruptcy Forms, the debtor needs to provide a list of all creditors and the total amount due, in addition to the nature and type of debt claim. Additional information such as the source, amount, and the frequency of income availed by the debtor, a list of all possessed property, including a detailed list of monthly living expenses is to be provided for evaluation purposes. After filing for bankruptcy, the creditors are legally prevented from trying to collect, or recover outstanding dues by a condition known as an “automatic stay.” The “stay” is enforced to preserve the debtor’s property, and to prevent the creditors from filing litigations for debt recovery.

According to Chapter 7 directives, after the initial hearing, the creditor needs to show the bankruptcy judge that there is reasonable and justifiable “cause” to be “allowed” to continue with the collection or recovery activities. If the security offered by the debtor is not “exempt”, a trustee takes official control of the assets. Subsequently the trustee auctions or sells the property and pays the expenses of the administration of the bankruptcy statute, and redeems the remaining money to creditors in accordance to their claims and priority. Any wages the debtor earns after filing for bankruptcy remain with the debtor, and the debtors are legally prevented to recover further dues.

341 Meeting
Usually after 20 days of filing for Chapter 13, and before 40 days, the trustee holds the “first meeting of creditors”, which is also known as a “341″ meeting. The debtor has to remain present for the meeting. The trustee hold the right to ask questions related to the property as well as debts, and the debtor has to answer the queries “under oath”. Creditors too have the right to question the debtor on those subjects, but rarely do. The only responsibilities the debtor has after the 341 meeting is to cooperate with the trustee appointed to oversee the statute by providing any requested or required information. Subsequent to the 341 meeting, the creditors have 60 days period to convince the bankruptcy court the debtor should not be allowed to relinquish the debts. Creditors also hold the right to approach the debtor for “reaffirmation” of debts. Reaffirmation is an agreement between the debtor and the creditor indicating that the debtor will be liable to repay the debt, and in return keep the property, as well as assets such as automobile, trailers, house etc. As per the old bankruptcy law, the debtor could make the payments in accordance to the inflow and availability of cash. After redemption, the title of the security offered would be transferred back to the original owner – the debtor.

If the debtor becomes delinquent after the discharge, the creditor could officially “repossess” the security. As per the new law, the debtor has to reaffirm the loan within 45 days after the “341 meeting”, and after that, if the creditor were to become delinquent or default on the payments, the debtor is held responsible for the security “repossession deficiency”. The debtor has to redeem the security within 45 days of the meeting, indicating that the debtor has to pay the entire balance due within that time. Generally, most debtors do not have enough funds, so this option is rarely used. Unsecured creditors can offer deals for new or additional credit based on “reaffirming” the existing balance on basis of credit card or other credit facility.

Discharge of Chapter 7
If the creditors do not file a suit to stop the debtor from abandoning the repayments within 60 days of the 341 meeting, the court orders the “discharge” of all “dischargeable” debts associated with and stated on the date the litigation was filed.

What kinds of debts are discharged in Chapter 7?
Individuals planning to file for bankruptcy often assume that certain assets will be “discharged”, while some will not be. The following list can help you in deciding which of your assets can be discharged if you avail Chapter 7:

  1. Dischargeable assets
  • Personal loans and debt
  • Credit cards
  • Repossession deficiencies factors
  • Auto accident claims and accidental insurance
  • Judgments and decrees
  • Business and professional debts
  • Leases and rents
  • Guaranties
  • Negligence claims
  • Possibly dischargeable

  • Property settlements or division of debts occurring due to divorce
  • Willful, malicious, or intentional injuries to others
  • Embezzlement
  • Debts incurred by fraudulent or dishonest ways and means
  • Debts arising due to a breach of fiduciary duty
  • Not dischargeable

  • Recent taxes
  • Trust fund taxes and income
  • Child or family support funds
  • Criminal fine or restitution payments
  • Auto accident claims involving intoxication and drug abuse
  • Debts not scheduled or planned
  • Penalties payable to the government other than tax penalties and IRS dues
  • Student loans and funds
  • Debts listed in prior bankruptcy litigations and decrees where the debtor was denied a discharge

Please refer to the first part titled “Debt settlement and Chapter 7 – Part 1″ for prior continuity, and topics related to debt settlement and Chapter 7 statue.

This concluding part of the article on Chapter 7 encourages debtors to think in terms of Debt Settlement options, rather than risk bankruptcy procedures, and end up with long-term “engagements” with the judiciary and lenders. It is always advisable to deal with a particular issue in its infancy stage, and think in terms of permanent eradication of the problem by taking the required steps, and putting in the required efforts. Once the problem grows, it is guaranteed to become “unmanageable” over passage of time, and become next to impossible to solve it. In case of financial debts and issues, if a reliable, tried, proven, and effective solution is available, the question is why not avail it? The final choice is the prerogative of the debtor – what he or she thinks, and decides eventually.

Author: Matthew Majors
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