FAQs: Chapter 7 Bankruptcy

How Is Chapter 7 Bankruptcy Different From Chapter 13?

Chapter 7 bankruptcy is typically for people who have few or no assets. If you qualify, all your unsecured loans, such as credit card debt, can be discharged. Chapter 13 bankruptcy is more suitable for individuals who have a steady income but cannot afford their monthly payments. In this type of bankruptcy, your debts are restructured over a longer period of time so you can afford the monthly payment. If you have significant equity in your home and are facing foreclosure, Chapter 13 can stop the foreclosure actions.

Am I Eligible To File For Chapter 7 Bankruptcy?

To qualify for a Chapter 7 discharge, you must pass one or both parts of the "means test." The first part involves your annual income and average monthly income during the previous six months, which must not exceed the IRS-specified value for your household size. If you do not pass this part, you may qualify by passing the second part based on your disposable income, which must be below specified values after subtracting exempt expenses, such as mortgage or rent, food and transportation.

Will I Lose My Assets?

A certain amount of your assets is protected under the law. In Maryland, $11,000 worth of assets and $1,000 worth of household goods can be kept. Additionally, roughly $23,000 of your home equity is exempt. If your assets exceed the allowable exempt amount, you or the bankruptcy trustee must liquidate these items. There are other exemptions for life insurance, tools of the trade, personal injury and worker compensation claims and other specific exemptions. Otherwise, you may consider a Chapter 13 bankruptcy.

Can I Stop Creditors From Bothering Me?

Once you have hired a Maryland bankruptcy attorney, you may notify any creditor that contacts you that you have retained counsel. Once creditors have been instructed that you have hired an attorney, they will no longer contact you. Once a bankruptcy has been filed on your behalf by an attorney an automatic stay imposed by the court prevents creditors from contacting you. Tell the creditors your attorney's name and phone number, but you do not have to answer any further questions.

Can All Debts Be Discharged?

Not all debts can be discharged with a Chapter 7 bankruptcy. These include taxes that an employer is required to withhold from employees and pay to the government, child support, alimony payments and income tax bills due within the last three years. Student loans are rarely discharged, but if you can prove that you have long-term health problems that prevent you from being able to work, a discharge may be possible. Past-due taxes can be discharged but only if they were due at least three years before your bankruptcy filing date.

Additionally, creditors have the right to object to the discharge of certain unsecured debts, such as large purchases or cash advances made within 90 days of filing. And any cash advance of $750 or more taken within 70 days before filing is also considered nondischargeable.

When Do I Have To Stop Using My Credit Cards?

Once you have a reasonable expectation that you are going to file bankruptcy, you should stop using your credit cards. Generally speaking, you should not use your credit cards 90 days before you file, especially for luxury items. Debts considered to be luxury goods and that amount to more than $500 are nondischargeable.

How Long Does It Take Before I Get My Credit Back?

A Chapter 7 bankruptcy typically stays on your credit report for 10 years. However, there are many ways to repair your credit, and it's not uncommon to have a reasonable degree of credit within two years of filing. Your attorney can educate you about how to accomplish this.

Do I Have To Go Through Credit Counseling Before I File?

You must receive credit counseling from an agency approved by the U.S Trustee Program within the 180-day period before you file your bankruptcy. Once you complete the counseling, the agency gives you a certificate of completion that your lawyer must file no later than 15 days after your bankruptcy filing date.

Additionally, you (and your spouse, if you file jointly) must take a personal financial management course from an agency approved by the court before you receive your final discharge. The prebankruptcy and predischarge courses can be taken online.

We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.