Common Questions About Chapter 7 Bankruptcy

Maybe you lost your job and have an increasing credit card balance, or your medical bills are getting out of hand. Whatever the reason, you may be able to seek relief through Chapter 7 bankruptcy. Chapter 7 is considered “straight bankruptcy.” It allows debtors to liquidate their assets and pay off as much debt as possible.

Deciding to file for bankruptcy is a major decision that comes with many questions. Maybe you are unsure of how the process works or if you are even eligible. For your convenience, Littlefield Law Firm has answered some of the most common questions about Chapter 7 bankruptcy. These answers are not intended to be legal advice. Your best option is to consult with an attorney if you plan to file for Chapter 7 bankruptcy.

Bankruptcy Attorney in Dallas County

Filing for bankruptcy is a difficult task that should not be done without the guidance of an attorney. Linda Littlefield has been helping consumers and small businesses with bankruptcy for nearly 25 years. She can guide you through the complicated process and help decide if Chapter 7 is right for you.   

Call (972) 812-0900 to request a free consultation. Littlefield Law Firm assist clients with bankruptcy in areas throughout Dallas County, Collin County, Kaufman County and Rockwall County.

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What is Chapter 7 Bankruptcy?

Job loss, divorce, illness and foreclosure – just about everyone will experience one of these at some point in their life, and some might even endure several at once. If you have ever been in such a situation, or are right now, you know how quickly bills and debt can pile up. 

Bankruptcy allows consumers and businesses to be relieved from large amounts of debt while still being fair to creditors. Chapter 7 bankruptcy allows a debtor to be cleared from certain debts such as medical bills, loans and credit card balances. In exchange, a debtor agrees for the bankruptcy trustee, the individual in charge of overseeing the case, to sell certain property. Not all property will have to be liquidated. A debtor can keep everything needed to continue working and maintain a home. This can include household furnishing, small amounts of equity in vehicles and clothing. 

There are many benefits to filing for Chapter 7 bankruptcy. Some of the benefits include:

  • You will receive a fresh financial start
  • You can keep future income
  • No limits on the amount of debt that can be relieved
  • No payment plans like Chapter 13
  • The discharge of debt is quick
  • You may not have to see the bankruptcy judge

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What Debts are Not Relieved by Chapter 7?

Chapter 7 only allows relief for certain debts, mainly medical bills, credit card balances and personal loans. There are some debts, though, that will not be discharged by Chapter 7. Debts that are not relieved by Chapter 7 include:

  • Family support such as back child support and alimony
  • Debts from a personal injury or wrongful death case caused by driving under the influence
  • Student loans, unless it would cause excessive hardship to pay back
  • Penalties and fines from a criminal conviction, traffic tickets and restitution
  • Income tax debt from the past three years
  • Debts that were not listed on bankruptcy papers

A bankruptcy judge has the authority to declare qualifying debts as non-dischargeable if a creditor challenges a request for relief. Debts that may be labeled as such include:

  • Debt incurred from fraud
  • $725 or more of luxury goods or services purchased on credit within 90 days of filing
  • $1,000 or more of cash advances of loans taken within 70 days of filing
  • Debts incurred from malicious or willful injury to another person or property
  • Debts from breach of trust, embezzlement or larceny
  • Debts owed from a divorce or settlement, unless:
    • A debtor could still not afford them after bankruptcy; or
    • The benefits from discharge outweigh any debts to the ex-spouse

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Who Can File for Chapter 7 Bankruptcy in Texas?

Federal law allows anyone to file for Chapter 7 bankruptcy, but they must pass the means test.  A means test is a formula-based screening tool used to see if applicants qualify for debt relief. This test only applies to applicants with income above the Texas median. This means individuals with yearly income below the state median are eligible for Chapter 7.

The median income is based on yearly income and the number of members in a household. Listed below is an estimate of the median income for households in Texas, according to the United States Department of Justice:

  • 1 Person: $47,238
  • 2 Persons: $63,148
  • 3 Persons: $69,294
  • 4 Persons: $78,572
  • 5 Persons: $86,972

Anyone who passes the means test can file for Chapter 7 bankruptcy. However, there is an exception to this rule. Individuals who pass the means test, but meet any of the requirements below will not qualify for Chapter 7:

  • Anyone granted Chapter 7 relief within the last eight years
  • Anyone who fails to complete an instructional course on personal finance management after filing
  • Anyone acting with intent to defraud the trustee or creditors
  • Anyone one who fails to obey orders and answer questions from the bankruptcy court
  • Anyone who refuses to explain the loss of assets
  • Anyone granted discharge in a Chapter 13 case within six years, unless 70 percent or more of the unsecured debts were paid 

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When Should I File for Bankruptcy?

Bankruptcy is not a seasonal affair like basketball or gardening. Determining when is the best time to file depends on various factors like anticipated debts and creditor threats. No two cases are the same, so consulting with an attorney is the best way to gauge when the time is right for you to file.

Listed below are examples of when you should wait or proceed to file for Chapter 7: 

  • You should wait to file until after a non-exempt asset, such as tax returns, has been received and disposed of. The asset will be forfeited to the trustee if it is received after filing.
  • You should file immediately if creditors are threatening to take action. This would allow you to take advantage of the automatic stay, which halts actions by creditors. An automatic stay comes into effect once Chapter 7 has been filed. 
  • It’s not wise to file for Chapter 7 if you anticipate incurring additional debts. Debts acquired after Chapter 7 is filed will not be relieved. Instead, you will have to wait eight years before you can file to discharge the debt. 
  • You should hold off on filing if you plan to acquire non-exempt property from a life insurance policy, divorce or inheritance in the next 180 days. Such property may be forfeited to the trustee if it is received after filing.

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 Why Do I Need a Lawyer to File for Bankruptcy?

Bankruptcy is a complicated legal procedure that requires a host of critical decisions. You will also be required to navigate a maze of paperwork and procedures that comes with the bankruptcy process. Fortunately, a lawyer who specializes in bankruptcy law can take on the stressful process and counsel you through it.

Experience is the biggest benefit to a bankruptcy attorney. The proceeding requires in-depth knowledge of both state and federal law. Since bankruptcy attorneys already understand the rules governing the process, using such representation will expedite and smooth the process. Not only this, but bankruptcy attorneys already have established connections with the court, which can help keep a case moving through the system.

As part of the bankruptcy process, you will be required to negotiate and settle with creditors. Doing so is not only uncomfortable, but you may not know how to communicate the appropriate information. A bankruptcy attorney will handle this in addition to representing you in court and meetings. An attorney can also accept calls from creditors on your behalf.

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Additional Resources

Bankruptcy | United States Code – Follow the link to read the Chapter of the United States Code governing bankruptcy. You can learn about the powers of the court, the penalties for fraudulently filing and the duties of a debtor. 

Median Family Income by Family Size | U.S. Department of Justice  - Follow the link to view a chart for the most current median income of every state in the United States by family size. You can find out how much is added for each additional member over four and learn about the median income for U.S territories like Puerto Rico.

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Bankruptcy Lawyer in Dallas, TX

Speaking with an attorney is the best thing you can do when deciding to file for bankruptcy. They can evaluate your situation and help you decide if Chapter 7 is right for you. Take advantage of a free consultation with Littlefield Law Firm. Getting started is easy. Just call (972) 812-0900 to schedule a time to speak with us.

Littlefield Law Firm is based in Dallas but also helps clients in the surrounding areas such as Plano, Kaufman and Rockwall.

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