Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is also called Straight Bankruptcy or Straight Liquidation. In a Chapter 7 Bankruptcy, a Debtor is allowed to keep only certain assets as provided under Federal or State Bankruptcy Laws. A Chapter 7 Bankruptcy Trustee is assigned by the Federal Bankruptcy Court to administer your Case on the Court’s behalf and to determine what Assets the Trustee may sell to pay the Debtor’s Creditors. For example, in Florida, if a Debtor has a Home and a Motor Vehicle, she is generally only allowed to have $1000.00 equity in the Motor Vehicle. This is usually not a problem because most Debtors do not have any equity in their Motor Vehicles. However, if one significantly exceeds the Equity Allowance or Exemption in that Motor Vehicle, then the Chapter 7 Trustee can sell the Vehicle at a Bankruptcy Auction, give the Debtor her $1000.00 Allowance and distribute the remainder of the proceeds to the Creditors, and the Trustee herself in the form of a Fee or Commission. Your Bankruptcy Attorney can also negotiate a Buy-Back where you, the Debtor, are allowed to “buy-back” the amount you exceed the Motor Vehicle Equity Exemption over a period of usually three to six month by paying the Chapter 7 Trustee the amount you exceed the Exemption in payments.

This is the basic principle behind Chapter 7 Bankruptcy. Bankruptcy Law is a balancing of the interests between Debtors and Creditors. Bankruptcy Law is designed to give Debtors a “fresh start” and therefore the Laws allow one to Discharge or eliminate their Debts , but are only allowed to retain a prescribed number of Assets. If one exceeds that prescribed number the Bankruptcy Court through a Bankruptcy Trustee can Auction or Liquidate those Assets to benefit the Creditor’s interests.

There are also Income Restrictions on whether a Debtor qualifies of a Chapter 7 Bankruptcy. If a Debtor exceeds various Income Levels based on the number of Persons in her Household, she may not qualify for a Chapter 7 Bankruptcy.

If a Debtor does qualify, the Chapter 7 generally can eliminate her Credit Card, Medical Bills, and other Unsecured Debts. It may eliminate Tax Debts in some cases and Student Loans in almost no cases. It can eliminate most or all the Debt associated with a House or Real Property that is surrendered back to the Mortgage Company.

The Chapter 7 Bankruptcy will be on your Credit Report for ten (10) years. However, you can re-establish your Credit much faster than ten years, through a well-conceived Credit Repair Program and various strategies to improve your Credit Report Score. The Bankruptcy in itself can be an initial step in establishing your Credit because a successful Bankruptcy will dramatically improve your Debt to Income Ratio, which is a crucial element in determining Credit.