Chapter 7 Bankruptcy Laws
How debtors maximize Chapter 7 bankruptcy benefits
Most consumer debtors prefer personal bankruptcy chapter 7 over Chapter 13. Under Chapter 7, debts are discharged without obligation to make further payments. Chapter 13 requires debtors to make full or partial payments on debts for a period of up to 5 years, under court supervision, and the case may be dismissed at anytime during this period for noncompliance. Nevertheless, Chapter 13 does provide a few unique advantages over Chapter 7, and may be more beneficial. The two primary benefits of Chapter 13 over Chapter 7 bankruptcy laws are 1), the right to force secured creditors to accept reduced payments for collateral over an extended pay-out, and 2) the right to "cram down" liability for secured debts to actual collateral value. See difference between chapter 7 and chapter 13 for more information. All debtors, whether filing Chapter 7 bankruptcy or under Chapter 13, report equal difficulty with life after bankruptcy obtaining credit, renting apartments, and qualifying for financial jobs.
All debtors who file chapter 7 bankruptcy must strictly comply with the clerk's procedure. Included within the clerk's initial procedural review, court personnel verify each debtor has filed a complete set of chapter 7 bankruptcy forms. Once a petition is filed, an "automatic stay" prevents creditors from foreclosing or repossessing collateral. This automatic relief is short lived, and upon the grant of approval of a creditor's "motion to lift stay", most creditors will be allowed to proceed with foreclosure so long as a secured debt in Chapter 7 bankruptcy remains in default.
Unsecured debts in Chapter 7 bankruptcy cases
Most unsecured debts are dischargeable in Chapter 7 bankruptcy. These debts include credit card cards, consumer contracts, car notes, and home mortgages. A few debts are non-dischargeable in Chapter 7, and primarily relate to involuntary debts forced upon others (i.e. tort liability for an accident caused by DWI for example) and other violations of state or federal law. The difference between discharge and dischargeability in Chapter 7 bankruptcy has perplexed many debtors, because a naked right to wipe out a debt does not guarantee that the debt will be eliminated. Debtors must follow court rules precisely and sustain the burden of proof in many circumstances to successfully exercise the right to discharge debts.
Secured debts in Chapter 7 bankruptcy preceding
Most secured debts can be wiped out in Chapter 7 bankruptcy. When a debtor chooses to retain collateral, even if a bankruptcy chapter 7 exemptions does not apply, special reaffirmation rules must be followed, and additionally, the court must grant approval. Debtors electing reaffirmation must agree to continue paying the debt and remain liable. This process allows Chapter 7 bankruptcy debtors to retain cars, homes, and appliances whether or not these items are covered by an appropriate exemption.
Priority debts in Chapter 7 bankruptcy liquidations
Taxes owed to the IRS are dischargeable in limited circumstances in Chapter 7 bankruptcy cases. In practice, the IRS is well versed in Federal law and usually proceeds with legal action long before taxes may become dischargeable. Assets may be seized, auctioned and liquidated in Chapter 7 bankruptcy for the payment of priority debts. For more information about this process, see Chapter 7 bankruptcy seizures. Potential seizure may be avoided by electing Chapter 13, because taxes may be included within the plan of reorganization upon a fresh repayment schedule.
Court appearances and hearings
In the simplest cases in which no objections are filed, debtors are rarely required to attend discharge hearings. Usually, theses uncontested matters are conducted administratively, that is, the court grants the discharge and mails a copy of the order to the debtor and the debtor's lawyer. Most often, if the trustee, creditors, or a party in interest asserts an objection, a motion is usually filed before the discharge hearing. See Chapter 7 bankruptcy laws for more information on objections and hearings.