Chapter 7 Bankruptcy Information-What You Should Know

You have the weight of the world on your shoulders, you're embarrassed and it seems like your world is going to come crashing down around you. Will your friends and family disown you? How will you show your face? Will my place of work find out?

Bankruptcy is the answer, and it is not one you have to be ashamed about. Look around you...some of the biggest celebs and businesses are filing for bankruptcy. This isn't about you...it's about the security of you, your family and their economic future. You are just going to right the ship and move on. You will survive this!

So should you file? Well..if you have come this far...looking for things on the internet...you probalby should file.

Your choices are Bankruptcy 7 and Bankruptcy 13. There is no choice. If you can...do chapter 7. Why? Because it'll take you 5 years to clear chapter 13 in most cases...and being in chapter 13 is like being under lock and key. Chapter 7...you file, get discharged (how long? Discussed later) and you are done.

CAN I QUALIFY FOR CHAPTER 7?

Don't know. But you can get started on finding out. Go to one of the links of business ads listed on this page to get started or do an Internet search of "Means Test". You need to take a means test to see if you qualify. This test is not the end all...but it's a good starting point.

MEANS TEST:

A means test will take down all your information regarding debt, assets and income and run the formula to decide if you qualify for Chapter 7. Here is an example of the results from a hypothetical means test (Arizona)...where the person didn't qualify because they made too much money...but in the end did qualify because of debt to income ratio.

The means test and chapter 7 in general takes a look at your income and expenses over the past 6 months. The bankruptcy law determines your income by looking at your household income during the six full calendar months before your bankruptcy filing.

RESULTS:

• Based on the information you have entered so far, your monthly income of $6,500 is above the median for for 2-person households in Arizona ($4,802), but you pass the means test because, its formula says that your expenses will leave you with no disposable income over the next five years.

Summary of your data:

• Your average monthly income is $6,500 and, so far, you have expense deductions totaling $8,038 per month. That would leave you with $-1,538 at the end of each month to pay into a hypothetical, five-year Chapter 13 bankruptcy plan, which would pay your unsecured creditors $-92,300 over the next five years, or -132 cents for each dollar of the $70,000 you owe them.

You obviously aren't going to pay them a negative amount so this means you can't do chapter 13... you go into Chapter 7.

FINDING A LAWYER:

Whatever you do, do not base your decision to hire an attorney on fee. If this "cheap" lawyer said (in my example above), "you are over median = no chap 7", the reason he does that is the $775 is a "teaser" fee to get you in the door. Then he says, oh, after reviewing your numbers you are chapter 13 (and what he won't tell you is now he can bill your chapter 13 probably $3,000+ of attorneys fee). Now, you may still be a chapter 13 (it is true, MOST debtors that are over the median will be chapter 13's), but you should probably pay the extra money to get a "real" attorney in which you can be confident about the advice.

Make sure you check out a couple lawyers at the least. I saw six before finding a great one. Most if not all have free first consultation meetings. BTW go prepared with your questions in hand!

Second, make sure the lawyers you meet with specialize in Bankruptcy! I saw one lawyer where bankruptcy was a part of what they do...bad idea. You want someone that deals with this on a day to day basis!

Costs...Chapter 7 will run you $1,500 to $2,500 (twice that for Chapter 13) and yes...you must pay up front.

But once you pay...all the collection phone calls will stop! The lawyer will start working for you.

BANKING:

Our bankruptcy attorney had us stop all automatic deposits into our bank account about two months before filing. The paycheck is now cashed, and bills are paid via money order or cash. We were instructed that in AZ anything in the bank account above $300 at the time the bankruptcy is filed the trustee will demand to be turned over.

It will not matter that it was meant to pay for the mortgage or the power bill. If the balance is above $300 no matter what's it's intended to pay it will belong to the trustee. She had us stop using automatic deposits early so that all checks will have cleared and we can control the balance to ensure that we are not over the limit at filing. We were also instructed to keep meticulous records of where the money is spent which we have done.

For the record...if you walk in and pull your money out down to $300 the day before you file, you will be fine. Just don't keep a huge amount in there prior too and of course make sure your outstanding checks have all cleared.

CREDITORS & BILLS:

Once you decide to file...even before you talk to a lawyer. Stop making payments on everything except utilities, and the things you feel you have to have to live normally. Nobody will come and take your house for almost a year if that, your car etc are/is safe for now. But credit cards...stop paying!

CREDIT CARDS:

It's a safe bet you filing for BK because of some credit card debt. So you know you will be filing bankruptcy in the near future, Our Attorney told us to Stop Paying our CCs immediately! You cannot have any large balance transfers within the past 90 days, no large purchases ($600+) and no cash advances before you can file. IF purchases were under $100 & needed to live on don't sweat it.

We had some credit card purchases that were made for things such as a very nice ($900) grill. I did so because I had a job and no thought of bankruptcy. But it was still necessary for me to wait three months to file bankruptcy once I lost my income.

You can continue to use credit cards up to the day you file if you are using them for necessities, i.e. groceries, gas in your car. Once you start missing payments expect balances to be lowered and cards cancelled. But remember, you are just throwing away much needed money if you make payments to any cards. Another example is that I had a $3,500 balance transfer from one CC to another (better interest rate) and our attorney told us to pay 3 months of minimum payments & try to add $20 - $50 to min. payment each month. You cannot have the perception that you are doing fraud. Just keep it honest with you purchases and you won't have any issues.

YOUR HOUSE:

Before I go on...understand that if you have a second on your house, you cannot include that in your bankruptcy 7. You will be stuck paying it! The only way you can strip the second is to file chapter 13. Unless your second (or HELOC) is huge, it's not worth filing chapter 13.

As for your house...you need to decide if you are going to keep your house or let it go. You need to have that serious talk that gets you beyond the sentimental feeling of "having to keep your home". In our case we kept our home because we were able to do a modification, saving $900 a month. If we could not modify...there is no way we could keep it...and we REALLY wanted to keep it...for yes... sentimental reasons.

If you don't keep your house (or even if you do) and you stop paying on it, two things will happen. You will be able to keep at least 6 months of house payments to help get you that fresh start and yes...pay for your attorney.

Second, as stupid as it sounds...you have to be a couple months behind on payments before they will seriously talk to you about a mortgage modification.

LISTING ITEMS:

In bankruptcy assets fall into 2 categories.

1. Exempt
2. Non-Exempt

Exemptions protect the "value" of the asset from being used to pay back your creditors. Since every-one's first question is about their car or their house, lets talk about the car. If your state has a $5,000 Automobile exemption (we have $5,000 each because we are married) and your car is only worth $5,000, your car is exempt for BK purposes. You get to keep it. BTW, if it's value is $7,000...you owe the $2,000 or you will have to sell your car.

Non exempt assets:.

1. Before you file bankruptcy, you can sell the asset and spend the money. But it has to be for fair market value, and you can only spend the money within the confines of every day life, like living expenses. You cannot take a cruise! Why fair market value? If you have a $10,000 car and you sell to someone for $1,000, that someone better not be a friend or relative because that is fraud.
2. When you file Chapter 7 you lose the asset, or you can buy it back from the trustee. Again...if you have a $7,000 car, you owe the trustee $2,000. Obviously it makes little sense to buy things back, so if there is an attachment for sentimental reasons, get over it. Otherwise you are paying twice for that item.
3. File Chapter 13 and you can retain the assets you want to keep.

When you fill out the schedules with your attorney, you will have to list personal items you own but nothing too specific. Group like items and value them accordingly. You will not be required to list each item you own, but list things like furniture, clothing, artwork, electronics, etc.

Make sure to list garage sale prices for the values of those items because depreciation will make them worth less than you think. Keep in mind going forward that you will be given allowances for certain items. For instance in Arizona, you will have an $8,000 allowance for all the things in your house. If your attorney never asked the value of those assets, I would make a list and do it anyway, just in case. The Trustee could ask for it at the 341 meeting. (more later on 341)

TIMING:

A lot or most have timing such as the following.

• You might file (through your lawyer) in December.
• You will then go to a 341 (Trustee meeting) in January, early February. BTW the Trustee meeting is really the only meeting besides your lawyer meeting you will have to attend and it really is no big deal. (more later)
• Then you might be done, "DISCHARGED" in 60 days or a little more after your 341 meeting.

Once you have met with your lawyer you will start the process of shaping your Bankruptcy so that you are ready for the 341 meeting. Don't let this meeting freak you out. It is a formality as you walk into a room with other people in the same boat you are and unless you have a complicated filing (you might own couple of businesses or houses) you should be in and out.

You should take a year's worth of bank statements with you - just to be safe. You definitely don't want to hold up/delay or reschedule the 341 hearing. Although you will probably be told to just bring 3-months worth.

They have pretty standard questions though are not limited to them...here is what they will most likely be asking you.

• Did you sign the petition, schedules, statements, and related documents you filed with the court?
• Did you read them before you signed them?
• Are you personally familiar with the information contained in them?
• To the best of your knowledge, is this information true and correct?
• Are there any errors or omissions to bring to my or the courts attention at this time?
• Are all of your assets identified in the schedules?Have you listed all your creditors in the schedules?
• Have you ever filed BK before?
• What is the address of your current employer?
• Is this tax return that you supplied and that i am now handing back to you a true copy of the most recent tax returns you filed?
• Do you have any domestic support obligations?
• Have you read the BK information sheet provided by the US trustee?
• Are there and creditors present who wish to question the debtor? (none)

Thank you and have a nice day!

A typical story of a 341 Meeting:

"Well my meeting was at 10.30 and i got there and 10 cause i always like to be early. I sat down and was listening to the people ahead of me and the trustee was in a very good mood joking around with everyone. My lawyer showed up and we waited and then my name was called, i went up and sat down and the trustee asked every question my lawyer said he would to a T!!!! It took about 2 mins and that was it, he asked if any creditors were present (none) and said ok have a nice day!"

For the most part...it's gooooooood! All the weight is off your shoulders and you can start living your life again hopefully learning from this experience. You do not want to end up in this situation again!

As for your credit...that ship has sailed...it's shot. But so are a lot Americans. If there is a "good" time to file, it's now.

Most people will have their debts wiped out in Chapter 7 bankruptcy with little or no
long-term bad effects. Bankruptcy will stay with you for 7 years, but within six months to a year, most people can get a car loan at or near the same interest rate as anyone
else.

There are even regulations that allow you to qualify for FHA HUD VA loans at prime interest rates within 2-3 years after filing. There are many tricks to improve your credit...do some quick Google's and you will easily find them. I'd recommend getting a secured credit card. That's using your money, charging against it and paying yourself back...for the most part.

Good luck and stay positive!

DISCLAIMER:  Just to let you know, I am not a lawyer and will not offer legal advice.  This is just an informational article that will help you answer some questions that you need help with.