Are you drowning in debt and unsure about how to regain control of your finances? Chapter 7 bankruptcy is one solution that may work for you. Read on if you want to learn more about this tool that many have used to take control of their debts and financial future.
This article is not intended to act as legal advice and is for informational and education purposes ONLY.
If you are seriously considering filing a Chapter 7 Bankruptcy (or bankruptcy of any kind) please meet with multiple educated attorneys in your area to make sure you are getting a fair and unbiased recommendation about what works best for your specific situation.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as “liquidation bankruptcy”, is a legal process designed to discharge most, if not all, of your unsecured debts. Unsecured debts typically include credit card debt, medical bills, personal loans, and even some old tax obligations. Please know that certain debts, such as student loans, recent taxes owed and secured debts (e.g., mortgages and cars), are generally not eligible for discharge under Chapter 7.
Income Test for Chapter 7 Bankruptcy
Before filing for Chapter 7 bankruptcy in Virginia, you need to meet specific requirements. On of the filing requirements of Bankruptcy law in Virginia requires the completion of a means test to determine whether your income allows you to qualify for Chapter 7. This means test examines your income and compares it to the median income in your city in Virginia. If your income for your household size is less than the median, you automatically pass the means test. If you make more than the median, additional calculations are performed to determine your eligibility.
The Role of a Bankruptcy Trustee
Once you file for Chapter 7 bankruptcy, a bankruptcy trustee is appointed to oversee your case. The trustee's primary responsibility is to review your assets and determine if any of them can be sold (liquidated) to repay your creditors. However, Virginia's bankruptcy exemptions can protect certain assets from liquidation, allowing you to keep them. Common exemptions in Virginia include a homestead exemption for your primary residence, exemptions for pets, vehicles, a portion of earned wages and exemptions related to retirement accounts.
The Automatic Stay
One of the most significant advantages of filing for bankruptcy is the Automatic Stay. This is a federal court injunction which prevents creditors from engaging in any collection activities, such as wage garnishment or foreclosure, after you have filed for bankruptcy. The automatic stay provides immediate relief and allows you to focus on your bankruptcy proceedings without the constant pressure of collection effort or harassment from collection companies.
Discharge of Debts
Upon successful completion of your Chapter 7 bankruptcy case, the court will issue a discharge order. This order releases you from any personal liability for the debts covered by the discharge. Please keep in mind this does not prevent you from voluntarily paying back your creditors if you decide to do so in the future. Some smaller companies (doctors offices, private schools, etc.) may appreciate if you decide to voluntarily pay them in order to maintain a relationship in the future.
However, not all debts are dischargeable under Chapter 7. Debts such as child support, alimony, certain tax obligations, and debts incurred through fraud or willful misconduct, among others, are generally not eligible for discharge.
The Impact on Your Credit
Chapter 7 bankruptcy has a significant impact on your credit score and credit history. A bankruptcy filing of any kind typically remains on your credit report for 7-10 years and can affect your ability to secure loans or credit for some time. However, many individuals find that the discharge of their debts, combined with the shorter timeline of a Chapter 7 case (when compared to a Chapter 13 case) and the freedom to rebuild their financial lives outside of a Bankruptcy Court’s supervision outweigh the short-term negative effects on their credit.
Seeking Professional Guidance
Navigating the complexities of Chapter 7 bankruptcy can be daunting, which is why seeking the guidance of a qualified bankruptcy attorney is so important. An attorney with experience in bankruptcy law can help you understand your options, guide you through the filing process, and ensure that your rights and property are protected.
If you are overwhelmed by debt and considering Chapter 7 bankruptcy, remember that it is always wise to consult with an attorney who can provide personalized advice based on your unique circumstances. Bankruptcy laws can vary, so be sure to find an attorney who specializes in bankruptcy cases in your area so you make an informed decision.
Remember, Chapter 7 bankruptcy is not a one-size-fits-all solution, and it may not be the right choice for everyone. However, it can offer individuals facing overwhelming debt a fresh start and the chance to rebuild their financial future.
If you live in the Hampton Roads area, we hope you will contact our office for more specific information.
Our office offers Free Consultations so you can learn more about how Chapter 7 Bankruptcy applies to your specific situation and if it is an option for you. If you don’t live near our office, check if a Bankruptcy Attorney in your area offers free initial consultations so you can learn more about your options.
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