Is a Chapter 7 Bankruptcy Right For You?

With the holidays having just passed, many Americans are now feeling that buyer’s remorse that comes with the excess spending of the holidays. If you feel that you can no longer keep your head above the financial waters you may consider filing for Chapter 7 Bankruptcy.

In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. Generally, Chapter 7 bankruptcy discharges your debts in exchange for your giving up property, except for "exempt" property, which the law allows you to keep. Non-exempt property is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, filing for Chapter 7 probably will not be the right choice for you. That is because Chapter 7 does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. It is highly advisable to consult with an experienced bankruptcy lawyer, such as the attorneys at the Gehi & Associates, before filing.

In Chapter 7, most debts are dischargeable including medical bills, loans, credit card purchases and cash advances, and many judgments. However, there are exceptions. An individual contemplating Chapter 7 must know what is dischargeable and what is not; otherwise valuable assets can be lost. Generally, certain debts cannot be discharged. These include taxes (in many cases), alimony, child support, student loans, criminal fines, debts related to drunk driving, debts not listed in the bankruptcy petition, and certain debts incurred within 60 days of filing the petition.

Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 bankruptcy. However, they may be dischargeable if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents.

In order to qualify for a hardship discharge, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.

The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts have applied different standards, but they often apply a three-part test to determine eligibility: (1) income: if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents; (2) duration: the financial circumstances that satisfy the income test in part (1) will continue for a significant portion of the repayment period; and (3) good faith: the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy.

A major concern weighing on the minds of people thinking of filing for bankruptcy is the thought of losing the family home. Although that is possible in some cases, loss of the family home need not always result from a bankruptcy filing.

If the debtor in a Chapter 7 bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt. Whether a debtor who is not behind on mortgage payments will lose his or her house depends on how much equity the debtor has in the property and the amount of the state homestead exemption. If the amount of debt owed on the home is less than the home's market value, the debtor could lose the house unless the homestead exemption entitles the debtor to most of the equity.

Even though the bankruptcy information may remain on your credit report for up ten years possibly, it does not mean you cannot get a credit card or any type of credit. Most people are able to resume normal credit activity again after receiving their discharge. The interest rates offered may not be the most favorable; however, you can begin to re-establish your credit immediately, as long as you stay current on your payments.

New Yorkers who find themselves in this predicament have most certainly received their fair share of phone calls and demand letters from their creditors. The attorneys at the law firm of N.M. Gehi understand what you are going through. We have the experience and knowledge to give you the peace of mind that you deserve.

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