Chapter 7 Bankruptcy

What is a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy is the type of bankruptcy in which one may be able to completely wipe out the Debtor(s) dischargeable debt (not all debt is dischargeable). However, even though a debt may be dischargeable, you may want to keep paying the debt. Usually the debts that you may want to continue to pay are secured debts, when you wish to keep the property that is security for the debt. Examples of secured debts you may want to continue to pay after filing a Chapter 7 bankruptcy would be on houses with mortgages and cars that are financed.

In order to keep that property after filing a Chapter 7 bankruptcy, you may need to reaffirm (a new obligation to pay) the debt. The problem with this is that if you create a new obligation to pay the debt and, if you later default on the debt, you could end up owing a lot of money with no Chapter 7 bankruptcy available since another Chapter 7 bankruptcy can not be filed for 8 years from the time you filed this Chapter 7 bankruptcy.

An alternative to filing a Chapter 7 bankruptcy is filing a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is the type of bankruptcy in which one pays off creditors, usually at a reduced amount, often as low as 10% on unsecured debts (i.e. credit cards, medical bills), over a period of 36 to 60 months. Thus, on $30,000.00 in credit card debt, you would only need to pay $3,000.00 or on average $50 per month in a 60 month plan. This firm recommends filing a Chapter 13 bankruptcy if at all possible.

Why you may want to file with Arthur Ray Law Offices.

As a bankruptcy attorney in Memphis, Tennessee, I have been filing bankruptcies for well over 35 years. My location is convenient to the residents of all of the counties that need to file a bankruptcy in Memphis, Tennessee. Those counties are Fayette, Tipton, Lauderdale and Shelby County. You can park your car only a few steps from our front door, which is on the first floor. We use the latest technology to keep you informed about your case and court dates. You can text us anytime you may have a question and and get a quick response. You can also email and call us. We strive for and feel confident that we do a great job for our clients.

Role of Chapter 7 bankruptcy trustee versus Chapter 13 bankruptcy trustee.

Once your bankruptcy is filed, a trustee is appointed for your case. One of the duties of the Chapter 7 trustee is to try and find any non-exempt property, get that property, sell that property, and use the proceeds to pay off your creditors (to the extent possible). Under Tennessee law some of your property is exempt from execution (taking) by your creditors. You have a $10,000.00 exemption in your personal property and at least a $5,000.00 exemption in the equity in your house. Whereas, in a Chapter 13 bankruptcy in which you are making some payments to your creditors (although likely very small), the Chapter 13 trustee is more concerned with making sure that the money goes in to your case to make payments to your creditors according to your Chapter 13 bankruptcy plan, as opposed to going after your property. Usually, you can keep all your property in a Chapter 13 bankruptcy.

Important questions on your bankruptcy petition that may be of interest to a Chapter 7 bankruptcy trustee.

The Chapter 7 bankruptcy trustee examines these questions to see if they can possibly go after any assets you have, may have, or have had in the past. Generally, these questions are not looked at as closely in a Chapter 13 bankruptcy.

1. Within 1 year before filing bankruptcy, did you make payments on a debt that you owed anyone who was an insider? Examples of insiders include relatives, friends or other similar persons. This question can also apply to payments for domestic support obligations, such as child support and alimony.
2. Within 1 year before filing bankruptcy, did you make any payments or transfer any property towards a debt that benefited an insider? This includes payments on debts guaranteed or co-signed by an insider.
3. Within 1 year before filing bankruptcy, did you have any of your property repossessed, foreclosed, garnished, attached, seized, or levied?
4. Within 90 days before filing bankruptcy, did any creditor (including a bank or financial institution) set off any amounts from your accounts or refuse to make a payment because you owed a debt?
5. Within 2 years before filing bankruptcy, was any of your property in the possession of an assignee for the benefit of creditors, a court-appointed receiver, a custodian, or another official?
6. Within 2 years before filing bankruptcy, did you give any gifts or contributions with a total value of more than $600.00 per person?
7. Within 2 years before filing bankruptcy, did you give any gifts or contributions with a total value of more than $600.00 to any charity?
8. Within 1 year before filing bankruptcy or since you filed your bankruptcy, did you lose anything because of theft, fire, other disaster, or gambling?
9. Within 2 years before filing bankruptcy, did you sell, trade, or otherwise transfer any property to anyone, other than property transferred in the ordinary course of your business or financial affairs?
10. Within 10 years before filing bankruptcy, did you transfer any property to a self-settled trust or similar device of which you are a beneficiary?
11. Within 1 year before filing bankruptcy, have you stored property in a storage unit or place other than your home?
12. Do you have in your possession or control any property that someone else owns? This includes any property you borrowed from, are storing for, or hold in trust for someone else.

How does my attorney get paid?

Our attorney’s fee for filing a Chapter 7 bankruptcy is due in full before we file your bankruptcy. Together with the bankruptcy filing fee, the amount you will pay for a Chapter 7 bankruptcy is usually well over $1,000.00. In a Chapter 13 bankruptcy, there is usually no attorney’s fee charged up front before filing the Chapter 13 bankruptcy. Also, the bankruptcy filing fee is usually included in your Chapter 13 bankruptcy plan.

Will I lose my house filing a Chapter 7 bankruptcy?

If you have equity in your house over and above what is exempt in your Chapter 7 bankruptcy, the Chapter 7 trustee may sell your house and use the proceeds (after paying off the mortgage, selling and closing expenses, liens etc.) to pay off your creditors (to the extent possible). If you are worried about losing your house, you may want to file a Chapter 13 bankruptcy. In addition, you may not be able to keep your house after filing a Chapter 7 bankruptcy if you are behind on your mortgage payments and can not reach an agreement with the mortgage company.

Will I lose my car if I file a Chapter 7 bankruptcy?

If you are behind on your car payments when you file a Chapter 7 bankruptcy, you may not be able to work out an agreement with the finance company, title loan company, or leasing company to keep your car. Also, if the car is paid for and not exempt, the Chapter 7 trustee may take the car and sell it to pay off your creditors (to the extent possible). If you are worried about losing your car, you may want to file a Chapter 13 bankruptcy.

Will I lose my retirement if I file a Chapter 7 bankruptcy?

If your retirement is in a qualified plan, the retirement should be exempt in bankruptcy and you should be able to keep it. If you are in doubt about your retirement income being exempt, we recommend you file a Chapter 13 bankruptcy.

Can I leave off creditors which I do not want to put on my bankruptcy?

No, it is necessary to list all creditors in a bankruptcy.

Can my federal income tax debt be discharged?

Sometimes, but usually your federal income tax is not dischargeable. Generally, if you owe federal income tax debt, it is best to file a Chapter 13 bankruptcy.

Of course, the above is only a simplification of the factors that go into choosing whether a Chapter 7 bankruptcy or a Chapter 13 bankruptcy is the best option for you and/or your spouse. Do not act on anything you read on this site without hiring an attorney. This is why we offer, for free, to prepare a bankruptcy petition for you to see what works best in your personal financial situation. We provide representation for individuals who live in Lauderdale, Tipton, Fayette and Shelby County, Tennessee, who qualify to file bankruptcy in the Bankruptcy Court for the Western District of Tennessee located in Memphis, Tennessee.

^*For those who qualify under federal law.