Boston Law Firm
Winchester, Virginia
540-313-1255

Chapter 7 Bankruptcy

Medical debts, credit cards, harassment, phone calls, letters, lawsuits, garnished wages and bank accounts.  Perhaps you've lost your job, your pay has been cut or you have faced unexpected expenses.  If you have more debts than you can pay, bankruptcy can offer you long term relief and a way to start over while allowing you to keep your home, your car and the things you and your family need to go on.

Frequently Asked Questions about Chapter 7 Bankruptcy

Required Document list

Bankruptcy Disclosures


What are the benefits of Chapter 7 Bankruptcy?

  Chapter 7 bankruptcy, also known as a “straight” or "liquidation bankruptcy" has two major benefits.  The first is the automatic stay.  Once you file for bankruptcy, this stay goes into effect and bars any collection actions by your creditors while the bankruptcy is being processed.  While the stay is in effect they are not allowed to contact you in any way, lawsuits are frozen and garnishments are stopped as are foreclosures and repossessions.  The second, and most important, benefit is the bankruptcy discharge.  A successful bankruptcy petition will discharge all eligible debts.  This means that you are no longer legally responsible for payment of those debts and the creditors may never again attempt to collect those debts by any means.  You can have a fresh start, free of crushing debts.

Am I eligible to file for Chapter 7 Bankruptcy?

  There are two tests that you must pass in order to file under Chapter 7.  In the first test, your average income over the past six months must be below the median income for your family size for the state of Virginia.  If it is over the median, you must pass Part II of the test which compares your income to your expenses over the past six months.  If your income has been significantly over your allowable expenses, you probably won't be eligible for Chapter 7 Bankruptcy.  In the second test, your expected income for the near future will be compared to your necessary household expenses.  The purpose of both tests is to show that you lack the financial ability to make even partial payments to your creditors.
   If you are not eligible for Chapter 7, you may still be able to seek bankruptcy relief under Chapter 13.

Will I be able to keep my home and car?

  Generally yes, depending on how much they are worth and how much you owe for them.  If there is a lien, you may have to sign a reaffirmation agreement stating that you will continue to pay the loan despite the bankruptcy.  If the amount you owe is more or the same as the value of the property, you will be able to keep it so long as you agree to continue paying for it and keep making the payments.  If you owe less than it is worth, then you have equity and you may need to use one or more of the asset exemptions available under Virginia law.  If there are not enough exemptions to cover your equity you will either have to offer a settlement to the bankruptcy court or you may lose the property.  If you do not want to lose property under a Chapter 7 Bankruptcy, you may wish to consider a Chapter 13.  Also, if you have more than one mortgage and your first mortgage is higher than the value of your home, you may be able to "strip off" your other mortgages or HELOC under Chapter 13.

  One important thing to consider is if you want to keep property on which you owe substantially more than the value of the property.  It may be in your interest to surrender a piece of property that is deeply under water as the bankruptcy will allow you to discharge all of the deficiency.

How long is the bankruptcy process?

  Once you have submitted all of your required documents and paid the legal and court fees, your bankruptcy petition will be filed and you will be scheduled for a 341 hearing which must be at least 21 days after your filing date.  Discharges are generally ordered 60 days after the 341 hearing.  This time may be extended if any party files an objection or moves for an extension of time.  This is rare but can happen.  The best way to be sure the bankruptcy process goes perfectly is to complete the bankruptcy intake form completely and honestly and to pay close attention during the petition review.  Never hesitate to raise questions or concerns.

What is the 341 hearing?

  The 341 hearing, also known as the meeting of creditors, is a review of your petition that will be held by the Bankruptcy Trustee at the Shenandoah County Building in Woodstock, Virginia.  You will need to attend this meeting.  You will know the date and time of your hearing well in advance.  Your creditors have the right to appear at this meeting and ask questions but this is quite unusual.  They are generally uneventful, last a few minutes and you will have legal representation with you.

What debts are not discharged?

  Child support, spousal support, debts arising from a separation agreement or divorce decree, debts arising from criminal acts, fraud or willful torts, debts incurred under false pretenses or resulting from a DUI, debts owed to your retirement account or debts incurred after your filing date.  Discharge may also be denied if there is willfully false information on your petition or the facts demonstrate abuse of the bankruptcy process.  Usually this means that large voluntary debts incurred shortly before filing may not be discharged.

  Taxes are usually not discharged although income taxes that are over three years old may be dischargeable under certain circumstances.  Student loans issued or insured by the government (very few are not) are not discharged unless you can show “undue hardship” which is extremely difficult. 

  Debts that are not included on your list of creditors might not be discharged so be sure to include all of your creditors.

  If you have any co-signers for your debts, your discharge will not affect their liability.

What assets am I allowed to keep?

  Virginia exemptions allow you keep a number of specific assets including: a burial plot, wearing apparel to $1000, family portraits and heirlooms to $5000 total, household furnishings to $5000, Motor vehicle to $6000, one firearm to $3000, Personal injury causes of action, Personal injury recoveries, Pets, Wedding and engagement rings, Tools of the trade to $10,000 and ERISA qualified retirement accounts.  These exemptions are per person so a married couple would be allowed two vehicle exemptions, etc.

  In addition to the specific exemptions you have a wild card exemption called a homestead deed which can be used to exempt any assets up to $5000 per petitioner plus $500 for each dependent with an additional $5000 if you are over 65 or a veteran with at least 40% disability.  Note that this is a lifetime limit and that any amount claimed on a prior homestead deed will be subtracted from future homestead deeds.

  Also, if you and your spouse own your home as “tenants by the entirety” and only one of you is filing, you may be able to keep the property even if you have substantial equity. 

What is the requirement for credit counseling?

  You are required to provide certification that you have received credit counseling by an approved agency at least 24 hours but not longer than six months prior to filing for bankruptcy.  You are also required to take a financial management course after you file.  You will be given a list of approved counselors from which to choose.  These courses may be done online or over the phone.

Do I have to list all of my creditors?

  Yes.  You will be certifying under oath that you have listed all creditors, assets and income on your bankruptcy petition.  You will need to list everyone to whom you owe any amount of money, including family members.  Further, if you don't list a creditor, the debt may not be discharged.  You will also want to include collection agencies in order to gain the full protection of the automatic stay.  If you need help remembering all of your creditors, you may obtain a copy of you your credit report at no cost at:  https://www.annualcreditreport.com/cra/index.jsp   Remember that the credit report may not be complete or accurate.

 

DOCUMENTS NECESSARY TO COMPLETE AND FILE YOUR BANKRUPTCY PETITION:

1.  Your completed bankruptcy intake form.

2.  Tax returns or transcripts for the last two years.

3.  Two months of consecutive statements for any sources of income including pay statements, annuity statements and unemployment benefit statements.  If you collect social security, I will need a copy of your annual benefit statement showing your monthly benefit amount.  If you are self-employed, I will need statement detailing all of your business income and expenses over the past six months.

4.  Credit counseling certificate(s).



The following may be needed, depending upon the circumstances of your case:



5.  Copies of all lawsuits or other legal actions pending or filed in the last year and all current GARNISHMENTS and/or WARRANTS IN DEBT.

6.  If you live with your spouse and they are not filing, their income and expenses

7.  A copy of any homestead deed filed in Virginia.  If you have previously filed for bankruptcy, you probably filed a homestead deed.  Ask the Clerk of Court for the jurisdiction where you were living at the time if you filed a homestead deed If you are unsure.  

8.  A statement of the cash value of any life insurance policies you have.

9.  A financial statement including current assets and liabilities plus income and expenses over the past six months for any non-public business in which you hold an interest.

Other documents may be needed.

DISCLOSURES REQUIRED UNDER 11 U.S.C. §§ 527 AND 342

Notice Mandated by 11 U.S.C. §§342(b)(1) and 527(a)(1)

PURPOSE, BENEFITS AND COSTS OF BANKRUPTCY

Bankruptcy is a federal court proceeding that provides relief to people and businesses that are having financial difficulty. The relief comes in the form of an "automatic stay" which generally stops most collection proceedings and harassment from creditors. The cost of filing a bankruptcy consists of a filing fee which varies depending on the type of case you are filing (see below) and if you choose to hire a lawyer to represent you, the lawyer will likely charge you a fee for the representation. Additionally, there may be costs to obtain necessary information and documentation required by the bankruptcy code, bankruptcy rules and local rules.

The discussion here is meant only as a brief overview and no one should base their decision as to whether to file or not to file bankruptcy solely on this information. Bankruptcy is complex and a number of factors and considerations must be taken into account in making a determination to file or not. Anyone considering bankruptcy is encouraged to seek the advice and assistance of experienced counsel who practices bankruptcy law. 

What Bankruptcy Can and Can't Do

Bankruptcy may be able to help financially distressed people to:

  1. Discharge (eliminate) liability for most or all of their debts and a get a fresh start. When the debt is discharged, the debtor no longer has any legal obligation to pay it.
  2. Stop foreclosure proceedings! The automatic stay in bankruptcy can freeze a foreclosure proceeding and provide an opportunity to catch up on missed payments.
  3. Prevent repossession of a car or other property! The automatic stay can prevent a finance company from exercising its repossession rights, or might even be able to force a creditor to return a vehicle that has already been repossessed.
  4. Prevent utility shut-offs! The automatic stay in bankruptcy can prevent a utility company from terminating service because of non-payment and can even force the company to reconnect service that has already been terminated.
  5. Stop wage garnishments and creditor harassment! The automatic stay in bankruptcy can suspend wage deduction proceedings and other types of debt collection efforts.
  6. Lower monthly payments! The automatic stay in bankruptcy can alter your contractual relationships with your creditors by lowering or eliminating interest and can allow payments to creditors for less than the outstanding balance.
  7. Can provide an opportunity for debtors to challenge then claims of certain creditors who might be seeking to collect more than they are entitled.

Bankruptcy, however, may not be the cure-all for every financial problem. There are limitations. For instance, a debtor usually can not:

  1. Eliminate certain liens of secured creditors. Although it is possible to force secured creditors to take payments over time and although it is possible to modify the terms of payments in some cases, a debtor usually can not keep the collateral unless the debtor continues to pay the debt.
  2. Discharge types of debts identified in the bankruptcy code. The most common exceptions to discharge are domestic support orders (child support, maintenance, or alimony), most student loans, criminal fines, and most taxes.
  3. Discharge debts incurred after the bankruptcy is filed. Bankruptcy only helps with debts already existing at the time of filing; it doesn't provide relief for future debts.
  4. Protect co-signors. If someone co-signed for you, the co-signor is usually going to be liable to pay the creditor whatever part of the loan you don't pay or that isn't paid through a bankruptcy case. 

The Four Types of Bankruptcy Available to Individual Consumer Debtors

The Bankruptcy Code is divided into four chapters. The most commonly used chapters by consumer debtors are chapter 7, known as a "fresh start" or "straight" bankruptcy and chapter 13 which is a voluntary court approved, court supervised affordable repayment plan.

The main benefit of filing for bankruptcy under all chapters is the automatic stay. The automatic stay is a court order that automatically applies once a bankruptcy case is filed (with rare exceptions that apply to some repetitive case filings). The automatic stay stops most lawsuits, repossessions, foreclosures, garnishments, utility shut-offs, and debt collection harassment. It offers debtors relief and enables debtors and a case trustee to review the facts and develop an appropriate solution to the debt problems.

Chapter 7: Liquidation (court filing fee (not including attorney fees or costs = $335)

  1. Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to a "means test" designed to determine whether the case should be permitted to proceed under chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, creditors have the right to file a motion requesting the court dismiss your case as an abuse under §707(b) of the United States Bankruptcy Code. It is up to the court to decide whether the case should be dismissed.
  2. Under chapter 7, you may claim certain property exempt under applicable law. Some states force debtors in the state to only claim property exempt pursuant to state law, while other states allow debtors to choose to claim property exempt under either state or federal law. A trustee can take possession and sell any non-exempt property and use the sale proceeds to pay your creditors.
  3. The purpose of filing a chapter 7 case is to obtain a discharge of the debts existing as of the date you file a case. However, not all debts are dischargeable. If you have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny you a discharge and, if it does, the purpose for which you filed the bankruptcy petition will be defeated.
  4. Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may be responsible to pay for most taxes and student loans; debts incurred to pay no dischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your paperwork; and debts for death or personal injury caused by operation of a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful or malicious injury, the bankruptcy court may determine that the debt is not discharged.

Chapter 13: Repayment of All or Part of the Debts of an Individual with Regular Income (court filing fee, not including attorney fees or costs = $281).

  1. Chapter 13 is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. You are only eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.
  2. Under chapter 13, you must file with the court a plan to repay your creditors all or part of the money you owe them from your future earnings. The period allowed by the court to repay your debts may be three or five years, depending upon your income and other factors. The court must approve your plan of repayment before it can take effect.
  3. After completing the payments under your plan, your debts are generally discharged except for domestic support obligations; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts which are not properly listed in your bankruptcy papers; certain debts for acts that caused death or personal injury; and certain long term secured obligations (like mortgages).

Chapter 11: Reorganization (court filing fee, not including attorney fees or costs = $1,039)

Chapter 11 is designed for the reorganization of a business but is also available to individual consumer debtors. Its provisions are quite complicated and any decision by an individual to file a chapter 11 petition should be reviewed by an attorney. Further information about chapter 11 cases, since chapter 11 usually does not pertain to individuals with primarily consumer debts can be found at the following website: www.uscourts.gov/bankruptcycourts.html . Or, you can obtain information about chapter 11 by obtaining a copy of the brochure published in June, 2000 and titled "A Bankruptcy Basics" prepared by the Administrative Office of the United States Courts.

Chapter 12: Family Farmer or Fisherman (court filing fee, not including attorney fees or costs = $239)

Chapter 12 is designed to permit family farmers and fishermen to repay their debts over a period of time from future earnings and is similar to chapter 13. The eligibility requirements, however, are restrictive, limiting its use to those whose income arises primarily from a family-owned farm or commercial fishing operation. Chapter 12, therefore, is usually not available to consumers whose debts are primarily consumer debts. The brochure and website mentioned above also provides more detailed information regarding chapter 12.

SERVICES AVAILABLE FROM CREDIT COUNSELING AGENCIES

With limited exceptions, §109(h) of the Bankruptcy Code requires that all individual debtors who file for bankruptcy relief on or after October 17, 2005, receive a briefing that outlines the available opportunities for credit counseling and provides assistance in performing a budget analysis. The briefing must be given within 180 days before the bankruptcy filing. The briefing may be provided individually or in a group (including briefings conducted by telephone or over the Internet) and must be provided by a nonprofit budget and credit counseling agency approved by the United States Trustee or bankruptcy administrator. The clerk of the bankruptcy court has a list that you may consult of the approved budget and credit counseling agencies in your jurisdiction.

BANKRUPTCY CRIMES AND AVAILABILITY OF BANKRUPTCY PAPERS TO LAW ENFORCEMENT OFFICIALS

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to a fine, imprisonment, or both. All information supplied by a debtor in connection with a bankruptcy case is subject to examination by the Attorney General acting through the Office of the United States Trustee, the Office of the United States Attorney, and other components and employees of the Department of Justice.

WARNING:

11 U.S.C. §521(a)(1) of the Bankruptcy Code requires that you promptly file detailed information regarding your creditors, assets, liabilities, income, expenses and general financial condition. Your bankruptcy case may be dismissed if this information is not filed with the court within the time deadlines set by the Bankruptcy Code, the Bankruptcy Rules, and the local rules of the court.

Notice Mandated by 11 U.S.C. § 342(b)(2)

FRAUD & CONCEALMENT PROHIBITED

It is important that you understand the following:

  1. Some or all of the information you provide in connection with your bankruptcy case will be filed with the United States Bankruptcy Court in the appropriate jurisdiction on forms or documents that you will be required to sign and declare as true under penalty of perjury.
  2. A person who knowingly and fraudulently conceals assets or makes false oaths or statements under penalty of perjury in connection with a bankruptcy case shall be subject to fine, imprisonment, or both.
  3. All information you provide in connection with your bankruptcy case is subject to examination and audit by the Attorney General of the United States.

Notice Mandated by 11 U.S.C. § 527(a)(2)

MANDATORY DISCLOSURE TO CONSUMERS WHO ARE CONTEMPLATING FILING FOR BANKRUPTCY

PLEASE TAKE NOTICE THAT:

  1. All information that you are required to provide with the filing of your case and thereafter, while your case is pending, must be COMPLETE, ACCURATE, and TRUTHFUL.
  2. You must disclose ALL of your assets and liabilities! Further, you must identify the replacement value of each asset (as defined in the Bankruptcy Code, §506) must be stated in documents where requested after reasonable inquiry to establish the value. For most property used and acquired for personal, family, or household purposes, replacement value means the amount retail merchant would charge for "used" property similar to what you own considering the age and condition of the property. Replacement cost does NOT mean the amount you would have to pay a retail merchant for a "new" item. For many cases involving used clothing, furniture, computers, etc… replacement cost may be "yard sale" value, or what the used item might sell for on eBay. With regard to antiques, jewelry or collectables, replacement value might be the retail value. For motor vehicles, replacement value would be the third party purchase value. For real estate, replacement value would be what the property would sell for at current market value. For cash and bank accounts it is the actual amount on deposit. For stocks and bonds, it is their market value as of the date your case is filed and the value is the cash value of what the stock could sell for in the market, or the amount a bond could be redeemed for at the time of filing.
  3. Before you file a case, you are subject to a "means test." The "means test" is a statutory test designed to determine whether or not you qualify to file a case under chapter 7 of the bankruptcy code, and if not, how much you need to pay to your unsecured creditors in a chapter 13 case. You must therefore state, after reasonable inquiry, your current monthly income, the amount of all expenses as specified in §707(b)(2), and, in a case under chapter 13 of this title, disposable income(determined in accordance with §707(b)(2), are required to be stated after reasonable inquiry.
  4. Any information you provide during the case may be audited pursuant to Title 11 of the United States Code and failure to provide information may result in dismissal of the case or other sanction, including criminal sanctions!

Notice Mandated by 11 U.S.C. § 527(b)

IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER

If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.

The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.

Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a 'trustee' and by creditors.

If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.

If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge. If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find out what should be done from someone familiar with that type of relief.

Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.


Information on this page and website is for informational purposes only and should not be considered legal advice.


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