If you are facing out-of-control debt, it is wise to immediately seek the counsel of an experienced bankruptcy lawyer.
Whether it is trouble stemming from job loss, divorce, medical emergency or something else, personal bankruptcy provides a legal and acceptable method to get out of debt and get a fresh start.
Folks often want to learn more about their options through bankruptcy. They have typically heard about Chapter 7 and Chapter 13, but are not sure about the difference between the two. Through a detailed, personalized consultation, we will examine your finances and determine your best option.
You don’t need to continue drowning in debt. We can throw you a life preserver!
What is Chapter 7 Bankruptcy?
- Chapter 7 is a debt elimination program
- It usually takes around 90 days to complete the process from filing to debt discharge
- There is no debt repayment plan
- Some assets might need to be liquidated, but there are extensive exemptions
- To qualify for Chapter 7, you will need to take a means test
In a Chapter 7 bankruptcy, you can “exempt,” or keep, a certain amount of property, such as an inexpensive car, your household furnishings and other belongings. The bankruptcy trustee, the person who facilitates your bankruptcy, will sell your nonexempt property — the property you can’t keep — and use the proceeds to pay your creditors.
But not everyone qualifies for a Chapter 7 bankruptcy.
Do I Qualify to File for Chapter 7 Bankruptcy?
Determining whether you’re eligible requires that you pass something known as the “means test.”
Under the means test, if your average gross income for the six months prior to filing is less than the Minnesota median income, you automatically qualify.
If your income exceeds the median, you might still be eligible because the second step of the test allows you to deduct certain expenses, such as income taxes, health care premiums, and childcare costs, from your gross income.
We will immediately review your income to determine if you are eligible.
Can I Keep My Property?
Yes, at least some of it. The amount you can keep, or “exempt,” depends on exemption laws.
Minnesota is one of the few states that allow debtors to choose between state and federal bankruptcy exemptions. We will examine both sets of exemptions and select the exemption plan that best protects your assets.
But to give you some idea of what you can keep, Minnesota allows you to protect essential household goods, such as kitchenware, furniture, bedding, an inexpensive car, and some jewelry. Other types of exempt property include:
- Your residence, up to $390,000 worth of equity
- Retirement funds, such as 401k accounts
- Social Security, veteran’s benefits and disability benefits
- Insurance benefits
While many people can keep all of their possessions, your nonexempt property becomes part of the bankruptcy estate and is sold for the benefit of your creditors. Many people end up keeping all of their possessions because they do not own any nonexempt items.
But those who own a mix of exempt and nonexempt items will find that the latter will become part of their “bankruptcy estate,” which the trustee will sell for the benefit of their creditors.
Common types of nonexempt property include:
- Homes with more equity than can be exempted
- Timeshares and rental property
- Boats, recreational vehicles, and motorcycles
- Artwork and collectibles
- Non-retirement investment accounts, and
- Stock or other ownership interests in a business, LLC, or corporation.
What Debts Are Discharged?
Chapter 7 bankruptcy wipes out, or “discharges,” almost all unsecured, nonpriority debts, including credit card debt, medical bills, personal loans, many lawsuit judgments, income taxes more than three years old (though it’s rare), and past-due utility bills. Not all debts are wiped out, however.
For example, the following are not dischargeable:
- Secured debt (a mortgage or car payment)
- Priority unsecured debt (most income taxes, delinquent family support payments, and penalties and fines owed to the government)
- Student loans
The Chapter 7 Bankruptcy Process
The bankruptcy process begins when you file a petition that discloses information about income and property, debts and prior transactions. If you intend to retain a lawyer like myself, take paycheck stubs and tax returns with you to your attorney meeting. The documents will help me qualify you for Chapter 7 treatment and identify potential issues.
Creditor Calls Stop
As soon as you file, the court automatically issues an order called a “stay.” Once the automatic stay is in place, your creditors cannot contact you or attempt to collect from you.
Those harassing calls come to a halt.
Trustee Questions You at the ‘341’ Meeting
About one month after you file, you’ll go to the 341 Meeting of Creditors, which is the one court appearance you’re required to attend. Seven days beforehand, you must give the trustee a large group of documents, called the “541 documents.” Specifically, you’ll provide:
- Tax returns
- Paycheck stubs
- Car titles
- Mortgage statements
- Banking, investment, and retirement statements
- Profit and loss statements (if you own a business), and
- Your marital settlement agreement (if you are divorcing or recently divorced).
At the 341 meeting, you’ll prove your identity by presenting a picture I.D. card and your Social Security card. The trustee will ask you a standard series of questions, including whether everything in your bankruptcy petition is true and correct; whether you need to make any changes; whether anyone owes you money; and any other questions raised by your petition answers.
Creditors can attend, but rarely show up, and most meetings last less than five minutes.
When Do I Get the Discharge?
The court will mail your discharge notice 60 days after your 341 meeting.
If your case is a “no asset” case—meaning your creditors get nothing—you’ll receive a dismissal shortly thereafter.
By comparison, asset cases remain open until all assets are distributed, which can take several months or more, depending on the complexity of the case.
For example, the trustee might have to wait for a buyer to purchase a hard-to-sell piece of property, or for your attorney to settle a bad faith lawsuit against your insurance company.
Chapter 7 Bankruptcy might be the right choice for you to get a fresh start
Offices of Becky A. Moshier
St. Paul, Minnesota