Q.           What is Chapter 7?

Chapter 7 bankruptcy is a legal and moral way to “wipe out” {bankruptcy term: Discharge} most unsecured debts.  The most common unsecured debts that are generally discharged are credit cards, medical bills, unsecured loans, repossession deficiencies, personal obligations on business debts, charge offs, and mortgage or equity line deficiencies on foreclosed houses.  If any of these debts have gone to lawsuit and/or then a judgment, in most cases the lawsuit/judgment can still be eliminated.  There are two common types of unsecured debts that can not generally be eliminated; recent tax debt and student loans.  Also, if an unsecured loan or credit card debt was just recently incurred or recently ‘run up” it also may not be dischargeable.

Q.           Does Chapter 7 eliminate my mortgage payment, my equity line payment or my car payments?

Not if you are keeping the property.  Only if you choose to surrender the property, then the debt can be eliminated.

Q.           Do I have to qualify for Chapter 7?

Yes.  If the debts you seek to discharge are primarily consumer debts, you must “qualify” to be eligible for Chapter 7 relief.   Generally, there are only 2 ways to qualify.  {Disclaimer: Qualifying doesn’t necessarily mean that Chapter 7 is your best course of action – it just means you technically qualify.}   If your average monthly gross income over the 6 months prior to the month you file is less than the assigned “threshold” income for your household size, then you qualify for Chapter 7.  If your average monthly gross income is over the threshold, then we have to run the “means test” to determine of you qualify for Chapter 7 relief.  If your debts are primarily business debts, then the thresholds and “means test” don’t apply. 

Q.           Will I lose any of my property if I file Chapter 7?

There is no general rule, it depends on equity.  In most cases people do not lose any property in Chapter 7 bankruptcy because the law allows debtors to protect {bankruptcy term: exempt} certain amounts of equity in their various property.  If you have been a resident of North Carolina for at least 2 years you are required to use North Carolina exemptions.  {If you haven’t been in North Carolina 2 years you would generally be required to use federal exemptions which are actually more generous than North Carolina exemptions].  The most common exemptions allow debtors to protect $35,000 of equity per person in your primary residence, $5,000 per person in household goods and furnishings, $3,500 per person of equity in cars, and to the extent that you do need to use some of your residential exemption {for example - if your house is jointly titled and you only have $50,000 of equity in the residence you only need to use $50,000 of the possible $75,000 exemption} then you may have up to $5,000 a piece as a “wildcard” exemption that you can use to protect any property, even tax returns or cash in the bank.  IRA’s and 401-K’s are also almost always exemptible.

Q.           What will happen to my credit and my FICO score?

 How quickly your score recovers depends largely on what you do after bankruptcy.  Many people recover back to 700+ credit scores in 1 to 2 years just by using credit wisely after bankruptcy.

Q.           What is Chapter 13?  Why would I file Chapter 13 instead of Chapter 7?

Chapter 13 is a repayment plan, generally filed to catch up mortgage arrears.  {13’s are also commonly filed when you don’t qualify for Chapter 7, to save cars from repossession or when you have too much equity such that you would lose your property in a Chapter 7.}  In a Chapter 7, if you are behind on your house payments you can still lose your house.  Chapter 7 doesn’t provide any mechanism to cure the mortgage arrears.  Chapter 13 does allow you to catch up your mortgage arrears via a Chapter 13 repayment plan.  Once the Plan is filed, you do have to resume your regular mortgage payment, but the Plan will allow you to catch up the arrears over as much as 60 months, as well as disposing of the unsecured debt generally by paying only a minimum dividend to unsecured creditors. 

Q.           What if I have judgments?  What if I have repossessions? What if I have lawsuits pending against me?  Will my creditors keep calling me?

In most cases, lawsuits, judgments and repossessions can be completely eliminated in bankruptcy.  Once you file your bankruptcy you are protected by the “automatic stay”.  The Stay prohibits creditors from contacting you or engaging in any collection activities.  Once you have retained this office, even if you haven’t filed your case yet, we allow you to refer all collection calls, letters and lawsuits to us.  We will deal with the creditor and protect you {to the extent allowed by law} until you actually file your bankruptcy case.

Q.           What about the credit counseling I heard was required prior to filing?  What is Debtor Education?

You can complete your pre-bankruptcy credit counseling session on the internet with Hummingbird or other providers generally in about 30 minutes.

Q.           What are the attorney fees and costs to file bankruptcy?

The filing fee for Chapter 7 is $299.00.  The Chapter 13 filing fee is $274.00.  The credit counseling fee is $34.00.  The debtor education fee is $8.00 per person.  The attorney fee for Chapter 7 varies depending on the complexity of the case.  Generally, total fees and costs run less than $2,000.00 and you can make payments.  The total legal fee we charge for Chapter 13 case is that set and recommended by the Court, $3,250.00.   However, because you are entering into a Chapter 13 payment plan, we will generally defer approximately 70% of the fee into your 60 month repayment plan.