Chapter 7 Bankruptcy

Eliminate your debt and get a fresh start.

Chapter 7 bankruptcy lets you eliminate debts and start fresh without having to pay your bills back. Many people filing Chapter 7 need help with medical bills, credit cards, and lawsuits, but Chapter 7 can help with so much more.

How does Chapter 7 bankruptcy work?

Chapter 7 bankruptcy is a set of federal laws created to protect and help people in debt. Chapter 7 "eliminates" debt, meaning you don't pay back what you owe for many types of debts.

When you file, your creditors must immediately stop contacting you and collecting against you. Frozen bank accounts must be released; and wage garnishments and deductions stop immediately for qualified debts.

Bankruptcy laws like Chapter 7 have origins in the U.S. Constitution (Article I, Section VII, Clause IV, Bankruptcy) , and the concept of releasing debts owed by others is written in the Old Testament (Deuteronomy Chapter 15).

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What types of debt does Chapter 7 eliminate?

Chapter 7 eliminates debts like:

  • credit cards
  • medical bills
  • payday loans
  • old utility bills
  • debts owed from repossessed vehicles
  • personal loans
  • old unpaid taxes you owe to the IRS

Generally, Chapter 7 eliminates most debts that are not secured by property, or a government body involved.

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Can Chapter 7 help with garnishments, frozen accounts, and collection lawsuits?

Absolutely, yes it can. Having a lawsuit, garnighment, or frozen account is one of the top reasons why people file bankurptcy. If you have been sued for a debt, or had an account or asset frozen by a creditor, filing Chapter 7 bankruptcy will stop the lawsuit, garnishment, or frozen account.

When your case gets filed, all collections must immediately cease. That means the lawsuit stops, the garnishment stops and the frozen accounts get released right away.

There are certain types of garnishments or wage assignments that cannot be stopped by Chapter 7, like domestic support obligations. Domestic support can not be discharged in Chapter 7, so any wage deductions or garnishments for DSO will stay in effect. There are other types of debts that filing Chapter 7 will not stop, so make sure to consult with a lawyer if you have any questions.

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Will I lose my house or car if I file Chapter 7?

You do not have to lose your house or car if you file Chapter 7. If you are current on payments, and do not have too much equity in the house or car, then you can keep it and keep paying on it.

Even if you have equity in a house or car, you may be able to keep it. When you file Chapter 7, you get exemptions to protect assets like houses or cars, up to a certain amount of equity. How much you get to protect varies based on the property you are protecting, and the state you are filing in. Always consult a lawyer about your situation, and be truthful when asked about your property and assets.

If you no longer wish to keep a house or car when you file Chapter 7, you may surender the property back to the creditor with no fear of liability for the debt. A good lawyer will give you instructions on what to do with the property and how to properly surrender it back to the creditor.

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When do I get debt relief?

Debt relief starts immediately after you file your case. All collection actions must cease. Frozen accounts get released, and wage garnishments and deductions stop with the next check for qualified debts.

When you file Chapter 7, the Court issues an Automatic Stay, which is a legal document forcing your creditors to cease all collection action against you. You may show the Autmatic Stay to any creditor who calls or contacts you to collect a debt. Creditors who violate the protective order of the Automatic Stay are subject to fines payable to you.

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What do I "lose" in Chapter 7?

Generally speaking, you do not lose anything that you do not want to. When you prepare to file, your lawyer will ask you many questions about what assets and personal property you own. They will apply exemptions to your assets and property to exclude them from seizure from a bankruptcy trustee.

It is important to fully disclose your assets, property, and anything that has "equity", meaning it could be sold for cash. Even though most of the time it can be protected, it is impotant to disclose to your lawyer so they can make the best assessment of your case.

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What types of debt can Chapter 7 not eliminate?

There are several types of debts that are protected from discharge in Chapter 7:

  • student loans
  • domestic support and divorce proceeding debts
  • debts resulting from criminal violations
  • tax debt for unfiled taxes, taxes that were not filed on time, or were filed on-time but are not old enough to qualify

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What happens to student loans in Chapter 7?

In nearly all cases, student loans are not discharged in Chapter 7 bankruptcy. There are procedures to attempt to discharge student loans, however, they are extremely complcated and involve going to trial with a judge hearing evidence and testimony to determin whether you could ever pay back any significant amount of the loan balance.

People who suffer serious disabilities that will never allow them to go back to work are the more likely to have a judge allow the discharge of student loan debt. However, this is still extremely rare and only happens in extraordinary circumstances. Expect to keep your student loans after filing Chapter 7.

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Can I file Chapter 7 again if I already filed?

You can file Chapter 7 once every eight years. You can also file Chapter 7 before or after filing Chapter 13 bankruptcy; the waiting period varies and is determined by local rules and the details of the first filing.

If you filed before and need to file again, do not hesitate to contact a lawyer about your options. More often than not, there is a solution available within the law.

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When should I consider using a lawyer to file Chapter 7?

Over 90% of all Chapter 7 bankruptcies involve a debtor hiring a lawyer. You should always consult a lawyer first, even if you are considering filing without one. That's why we offer free lawyer consultations, even if you do not choose to be represented by a lawyer.

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