This blog post is the second installment in our two part blog post covering common chapter 7 bankruptcy questions. If you are drowning in debt and considering bankruptcy as a means to eliminate much of your unsecured debt, we recommend you review Part I of this blog post. While we’ve tried to address most of the common chapter 7 questions, the best way to get all your questions answered is to give us a call.
Debt Not Forgiven in Chapter 7:
A common chapter 7 question is about unsecured debt. Most unsecured obligations are forgiven in Chapter 7. There are certain debts that are not discharged and this is based on public policy considerations. While some of these obligations can be forgiven under very narrow circumstances, others are never forgiven. Debts that aren’t forgiven include:
Certain tax liabilities
Student loans both government and private without undo-hardship
Family court obligations like alimony and child support
Fines and penalties assessed by courts
Financial obligations related to DUI personal injury lawsuits
Debts Forgiven in Chapter 7:
Any unsecured debts that are not priority unsecured debts are forgiven in bankruptcy. Common types of unsecured debts that are eliminated include:
Credit card balances
Unpaid utility expenses
Retail store charge accounts
Unsecured loans and lines of credit
Other non-priority unsecured debts
Civil court judgments like those arising out of personal injury lawsuits
Automatic Stay Stops Collection:
Common chapter 7 questions always include halting debt collection. The automatic stay is an injunction that prevents creditors from enforcing debts once a bankruptcy is filed. The automatic stay is designed to temporarily halt debt enforcement so that a debtor has time to proceed through the bankruptcy process. This means that once you file your Chapter 7 Bankruptcy most collection efforts stop. This includes lawsuits and other debt enforcement actions like garnishments. If a creditor violates the automatic stay, the creditor is be subject to substantial penalties.
Chapter 7 Bankruptcy Exemptions:
Most Chapter 7 cases are referred to as no asset Chapter 7 bankruptcy cases. This is because the debtors don’t have assets that can be used to satisfy creditor claims. However, this may require effective pre-bankruptcy planning making sure that all of your assets are exempt and not subject to liquidation. Whats an exempt asset is a common chapter 7 question and the answer is very important to our clients. If you own a house or a car its an exempt asset. So is most of your personal property. For answers to other common chapter 7 questions regarding exemptions we can help.
The Effect of Filing Chapter 7:
The effect of a bankruptcy discharge us that most if not all of your unsecured debt is forgiven. This includes any credit card, medical bills, repossessions and foreclosures. The chapter 7 will forgive this and more while allowing you to keep exempt assets like your car, house, personal property and more.
Will Chapter 7 Permanently Destroy my Credit?
Most people fear that a bankruptcy harms their credit beyond repair. They often think that it stays on your credit record without giving you the chance to rebuild your credit. This isn’t true. Once you file you’re in a better position to build your credit then you’ve been in for years. Because you filed a chapter 7 you no longer have the high debt to income ratio you had before you filed. Also all the bad debt has been eliminated giving you money for potential purchases. Credit score after bankruptcy is a common chapter 7 question and the answer is that you can rebuild your credit after you file.