Chapter 7 bankruptcy can be an excellent opportunity for many individuals to eliminate certain debts for a fresh start. According to the American Bankruptcy Institute, there were 42,448 Chapter 7 bankruptcy filings in 2011 in Washington D.C., Maryland, and Virginia combined. Getting to this turning point, however, can be difficult. There are many rules and procedures to follow.
Chapter 7 BankruptcyIn a Chapter 7 bankruptcy, a petitioner’s assets, other than certain exemptions, are liquidated and used to pay off creditors. Once those assets run out, the creditors discharge any remaining debt. Certain debts, like tax debts, government debts, child support arrears and student loans, cannot be discharged in bankruptcy.
To qualify for such a bankruptcy, the applicant has to prove to the bankruptcy court that he or she is not abusing the bankruptcy system. If the applicant has an income at or below the annual median income (AMI), he or she is presumed to be qualified; but if income is above AMI, the individual must pass a means test in order to qualify. The means test looks at income minus certain expenses, which provides insight into whether the petitioner can make some debt repayment. Petitioners have to attend credit counseling within 180 of filing for bankruptcy in order to qualify as well.
Within 21 to 40 days of receiving the application, the bankruptcy trustee holds a meeting with creditors where the creditors can ask the applicant questions about his or her finances. After the meeting, the trustee begins selling the applicant’s assets. Usually within 60-90 days after the meeting of creditors, the bankruptcy judge grants an order releasing the petitioner from any remaining obligations.
Chapter 7 discharges all of the petitioner’s eligible debt, while Chapter 13 allows petitioners to repay some debts to creditors. Because Chapter 7 applicants don’t have the means to maintain their mortgage, the bankruptcy code offers no opportunity for them to catch up on mortgage payments. If applicants can reach a separate agreement with their mortgage company, they can continue with the mortgage. Chapter 7 bankruptcy is more harmful to a credit score than Chapter 13 and stays on the credit report for 10 years, as opposed to seven.
Some property is exempt from liquidation in bankruptcy, but the specifics of the exemptions are determined by state law. Maryland and Virginia require petitioners to use state exemptions, while those in Washington, D.C., may use either D.C.’s or federal exemptions, but may not cherry pick which property they exempt from each set of exemptions.
Maryland, Virginia and D.C. each have homestead exemptions, though the specifics of each system vary. Other properties that may be protected in bankruptcy include retirement plans, some vehicles, tools required for work, public benefits and some personal property. Again, the specifics vary from one state to the next. Like Chapter 13 bankruptcy, after the petitioner files, all creditors must stop efforts to collect debts or property.
Our bankruptcy attorneys handle situations within the District of Columbia, Maryland, and Northern Virginia. Our clients originate from a variety of areas including:Washington, DC:
Law Offices Of Ammerman & Goldberg has worked for years to get people in the area a fresh start through Chapter 7 bankruptcy. Contact our office in Washington, DC to set up a consultation with a bankruptcy attorney about your case.