Perhaps the major attraction of the Chapter 7 bankruptcy laws is that it allows the filer to restart their life debt free and with a “clean slate”. However, the downside is that Chapter 7 results in the liquidation of personal property and valuables, including the family home, as opposed to Chapter 13, where no assets have to be sold.

A Chapter 7 bankruptcy stays on one’s credit record for ten years, as opposed to Chapter 13’s seven.

An “order of relief” and “automatic stay” is issued by the court when a chapter 7 case is filed, this does not apply to chapter 13 filings.

“Automatic stay” and an “order of relief” provide the individual with protection from their creditors as they are then no longer legally allowed to pursue the individual for any payment.

Outstanding student loans and government tax are just two examples of debts that cannot be written off under any type of bankruptcy, and have to be repaid regardless.

Given that a chapter 13 bankruptcy results in a repayment plan so that all debts are subsequently repaid, this is useful if a major contributor to the bankruptcy application is debt that cannot be discharged under the chapter 7 bankruptcy laws.

These are the steps to a chapter 7 bankruptcy application:

1. The court will require income details, together with a list of personal possessions and their market value, and a list of debts and creditors.
2. The nearest Federal court is where completed bankruptcy forms should be taken.
3. The individual is then protected from their creditors by means of an “order of stay”, which prohibits any creditor from contacting the individual concerned.
4. Approximately one month later the court will notify the individual of the “341″ meeting that it is compulsory for you to attend. This gives the creditors the chance to check that you are unable to meet your debts to them, and are not merely trying to avoid payment. Once satisfied, the discharge will be approved.
5. This is where a Trustee is appointed to oversee the liquidation of the individual’s non exempt assets, which are duly sold.
6. Discharge notice is then served some 30 days later,
7. Once the discharge notice is served, no further action may be taken by creditors to recover any debt, and any liability on behalf of the individual is removed.

99% of chapter 7 cases result in a discharge.

Grounds for denying a discharge under chapter 7 bankruptcy laws are:

1. The individual did not provide accurate accounts.
2. The individual tried to hide personal assets from the court.
3. The individual was attempting criminal bankruptcy.
4. An order of the bankruptcy court was broken.
5. If any property has been removed, hidden or transferred that belonged to the individual’s estate.

In the case of 5, above, should the circumstances detailed be found out after a discharge, the discharge may be revoked.

However, it is possible to retain certain types of property, perhaps a classic car for example, under “reaffirmation”.

This simply means that a written agreement is made and filed with the court, in which the seller and debtor agree that the item may be kept as long as repayment s are maintained.

Alternatives to Chapter 7 are Chapter 11 and Chapter 13.

Chapter 11 is mainly for businesses and chapter 13 does not include the sale of personal property.

Should an individual be found to have the financial means to repay debts, chapter 13 bankruptcy may be imposed.

Filing for personal bankruptcy should be a decision of the last resort, something you do only after you exhausted all of your other options. Those options include negotiating with your creditors, completing debt counseling and restructuring your debt. Still, after doing what you can on your part, you may have no choice: file for bankruptcy and reap the consequences of having your credit trashed.

Personal bankruptcy will stay on your credit record for ten years. You may be able to buy another home, a car or receive other credit well before that time, but there is a certain stigma associated with bankruptcy you need to be aware of.
Bankruptcy Code

In 2005, the US Bankruptcy Code was as per the Bankruptcy Abuse Prevention and Consumer Protection Act, an amendment to the code credited with tightening bankruptcy filing rules. Prior to that time it was easier for consumers to file for personal bankruptcy and walk away from their debt. The act requires consumers to receive counseling and take other measures before a judge rules on their case.

Of utmost importance is having legal representation as you work on your bankruptcy filing. Your attorney should be well versed in bankruptcy law, have handled many cases in the past (get references) and is able to answer your questions and outline a course of action for you. The National Association of Consumer Bankruptcy Attorneys at nacba.org is one place to visit to search for personal bankruptcy attorneys in your area.
Which Chapter?

When meeting with your attorney, you’ll discuss two options: Chapter 7 bankruptcy, which liquidates your assets or Chapter 13 bankruptcy, which is a repayment plan. Your attorney will help you with a means test which will determine if you can go the Chapter 7 route or whether you’ll have to file under Chapter 13.

Find out from your attorney how much he charges for his service. Some will want a flat fee while others may charge by the hour or based on your outstanding debt. Your attorney will advise you on how to handle creditors and when you’ll meet with them per bankruptcy code requirements and discuss every step to be taken including when your debts are discharged.

Keep in mind that not all debts are removed when filing bankruptcy including certain tax payments and student loan debt.

I often have clients ask if they can save their home from foreclosure with bankruptcy. Sometimes, through bankruptcy filing, the answer is yes. However, I think that the better question is “should I save my home from foreclosure”.

Here are some factors to consider when deciding whether you should keep or surrender your home:

-Can you really afford the mortgage payments? Your mortgage payments should total about 25 to 30% of your income.

-Is your interest rate scheduled to adjust? It may be that you can afford your payments now but maybe not once your payments adjust.

-Do you have negative equity in your home? If you owe $300,000.00, but your home is only worth $150,000 now, you have negative equity. You are essentially renting your home as you are not building equity, and it may be a good idea to let the home go.

-Is this where you want to live for the indefinite future? If not, perhaps you should use your financial problems to reevaluate where you want to live. Take advantage of the fresh start that can be offered by bankruptcy.

A too-big house payment can, at the very least, leave you with too little money for other goals: retirement, vacations, college funds for the kids. Bankruptcy might help you save your home, but it can also give you a fresh start if you your mortgage payments are just too large.

I have seen many clients who have fallen victim to unscrupulous debt settlement companies. One couple that I met had diligently paid a debt settlement company for over a year. The company had promised to consolidate their $80,000.00 debt into smaller monthly payments. They were in shock when they discovered that they were being sued by several creditors and that the debt settlement company had made off with their money. I filed a personal bankruptcy to them to get them out of the horrible predicament that the debt settlement company had left them in.

If you are looking to settle your debt, feel confident knowing that I will provide you outstanding service to achieve the best outcome.

As we discussed their financial goals and ability to pay their debts, I explained to them that the house payments that they had been struggling to make were nothing more than rent. It would be years and years before they even got to the breakeven point on their mortgage.

The couple had been struggling for years to keep their home. They had tried negotiating, refinancing, writing hardship letters, but all this was to no avail. They were emotionally exhausted. They explained to me that their debt problems had caused them tremendous stress, sleepless nights and caused them to have to forego obtaining extra educational assistance for their child. My recommendation was that they file a Chapter 7 bankruptcy and surrender the home.

My clients left relieved, like a weight had been lifted from their shoulders. They understood that they couldn’t go on like this and were glad that bankruptcy laws could give them a fresh start.

Keep in mind that the value of your property is in the equity (fair market value less what you owe on it in mortgages and other liens). If you have no equity and you can’t afford the monthly payments, you need to take a hard look at just why you are trying to keep these properties. Think with your head and not your heart. Focus on your quality of life.

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. If they can make the decision to walk away from their mortgages when times are tough, you shouldn’t feel guilty about doing the same.

Ultimately, the fresh start offered by bankruptcy will allow you to get control over both your financial and emotional health.

This means that people in Chapter 7 bankruptcy will be entitled to keep more equity in their homes and personal property after declaring bankruptcy. Don’t assume you will lose your home or car in bankruptcy, as they will likely be fully protected by the increased exemptions.