Chapter 7 bankruptcy, often referred to as “straight bankruptcy” or a “liquidation bankruptcy,” is a faster process than a chapter 13 bankruptcy. Depending on a person’s income, chapter 13 bankruptcy typically lasts between 3 to 5 years. A typical chapter 7 case is open and shut within 3-5 months. Within such a short time frame, chapter 7 transforms a person’s financial affairs from a financial Armageddon to a clean slate. Below you will find a basic overview of a typical chapter 7 and how a Chapter 7 bankruptcy can help if you are in financial distress.
1. Stop creditor collection lawsuits and phone calls. By filing a chapter 7 bankruptcy petition a person will receive the protection of the automatic stay (“Stay”). The Stay automatically prevents creditors from starting or continuing with collection efforts after a bankruptcy petition has been filed. In other words, your creditors are prohibited from contacting you or attempting to collect debts owed. For example, if there is a foreclosure sale scheduled at some time in the future – let’s say tomorrow – the filing of your bankruptcy petition prior to that sale – let’s say the day before – will stop the foreclosure sale. The Stay also stops any collection phone calls and garnishments must end immediately.
2. Eliminate unsecured debt. Filing a case under chapter 7 discharges all high-interest credit card debt and medical bills. In other words, after a person receives bankruptcy discharge, their credit report from the three major credit reporting agencies will show zero balances for all of your credit card accounts and medical bills. While many think that filing for chapter 7 will not look great on a credit score but discharge does improve your debt to income ratio. Many lenders see the discharge of credit card balances as a sign that consumers are ready to take on new credit. For more information see my blog post: Obtain credit or making a purchase after filing for bankruptcy.
3. A fresh start. The opportunity to start a new life free of debts is very powerful. It gives to the honest but unfortunate debtor a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). If you’re considering filing for bankruptcy, schedule a consultation with a local attorney.
4. Save your cars. Chapter 7 bankruptcy can help with vehicles that are worth less than what a person owes. Debtors have the option of redeeming cars for the current fair market value of the automobile. This option may be found within the bankruptcy code 11 U.S.C. § 722 redemptions. For example, if Miguel owns a 2005 BMW 328i valued at $6,000 but encumbered by a loan of $13,000, Chris has the option of paying $6,000 to redeem the car from the lender. In this scenario, the loan is extinguished and Chris will own the car outright by paying $6,000. If the Chapter 7 debtor doesn’t want to surrender the vehicle, they have the option of surrendering with no obligation under the loan
5. Help with real estate. A Chapter 7 bankruptcy gives debtors that own property the right to surrender their real estate with no continuing obligation to the bank (situation may vary with properties that have homeowners associations or maintenance fees). When you surrender a home in bankruptcy, your bank cannot come after you for a deficiency judgment. However, it is important to note, by surrendering the property in bankruptcy, the lender will still need to foreclose on the property. Many homeowners are confused to receive HOA bills after they surrendered a home. They don’t realize that it takes a foreclosure sale to take the title out of their name. Until the home has been foreclosed on, the borrower is still the legal owner. A debtor may be liable for post-petition HOA fees while their names are still on the title. To discuss these issues a person should speak to a qualified bankruptcy attorney who can help guide them through this process.
Take advantage of our free initial consultation and sit down with Kristy Qiu, Esq., a Fort Lauderdale Bankruptcy Lawyer who will personally evaluate your options. When you need to protect your home, health, and future in the face of serious financial turmoil, put our professionals on your side in bankruptcy court.
To discuss your concerns regarding foreclosure, debt liquidation, or debt repayment plans, contact our offices. Call us at (954) 282-8296 to arrange an initial consultation and find out what we can do for you.