Chapter 7 Bankruptcy for Borrowers with Excessive Debt
Chapter 7 refers to a bankruptcy proceeding in which the non-exempt assets of the debtor are sold. The proceeds are distributed among the lenders. Businesses, corporations, partnerships, and individuals qualify for relief. Filers usually work low-paid jobs, are unemployed, or have serious financial problems due to a prolonged illness, divorce, or another major event.
Certain types of debt are dischargeable, including utility bills, personal and payday loans, medical bills, and department store and credit cards. People with excessive unsecured debt benefit from filing for bankruptcy. The procedure stops collection efforts on the part of creditors and allows borrowers to keep their assets and valuable possessions. These include wages, vehicles, and homes. Chapter 7 Bankruptcy is for borrowers with excessive medical and credit card debt as well as those who are unable to pay their bills. Debtors who file for bankruptcy are required to pass the means test. The court will use a complex formula to determine whether the borrower’s monthly income is less than a certain amount. Groceries, mortgage payments, rent, and other expenses are subtracted.
Chapter 7 is also a solution for borrowers who receive collection notices and calls from different creditors. Once the debtor files, creditors are prohibited from sending letters and contacting the borrower. Bankruptcy is an option for people who have poor or less-than perfect credit. The proceeding affects credit rating and remains on the debtor’s credit file for up to 10 years. Bankrupts have limited borrowing options but may apply for a home loan or car financing. Finally, this solution is for borrowers who don’t have many assets.
Exempt assets include clothing, books, furniture, work tools, house, and others. Debtors are allowed to keep exempt assets, but they should give up non-exempt property such as cottages and vacation homes, musical instruments, bonds, bank accounts, cash, and stocks. There are cases in which borrowers are allowed to keep non-exempt assets. The trustee in bankruptcy may abandon an asset if its value is slightly higher than the exemption amount. The debtor may offer exempt property for a non-exempt asset. Finally, the trustee may agree to a cash payment in exchange for some non-exempt property. While these are options, there are things that debtors shouldn’t do. They should not transfer property and assets to their parents, children, or other family members. Borrowers should not give their assets and property to others, even items that are of little value. They are prohibited from giving assets or money to others for the purpose of safekeeping.
There are three types of exemptions that allow borrowers to keep different assets – the wildcard, automobile, and homestead exemption. Debtors can keep any type of asset under the wildcard exemption. Exempt assets depend on the borrower’s state or province of residence. Some jurisdictions offer little protection while others have generous exemptions.
There are four ways to deal with secured creditors. A borrower can keep the collateral and continue making monthly payments. He or she can reaffirm the debt, surrender the asset pledged as collateral, or redeem and pay the outstanding balance in full. When debtors surrender assets, trustees in bankruptcy can lease, sell, or use them. The trustee may be authorized to operate the borrower’s business for a certain period of time. This happens if it will be of benefit to the creditors or the estate.
What is Statement of Financial Affairs
Borrowers who file for bankruptcy should present a Statement of Financial Affairs that lists their assets, income, and debts. The statement should include information about all secured and unsecured creditors, including credit card companies, financial institutions, and car dealerships. Borrowers should list their priority debts such as court fines, taxes, rent and mortgage arrears. Debtors should also list their assets and income, including personal and real property. This includes net wages, savings accounts, retirement funds, furniture, household appliances, and clothing. Property and assets that borrowers claim exempt should be listed as well. Basically, this statement presents information about the debtor’s financial history.
Finally, not all debts are dischargeable, including property settlements, child support and alimony, and fraud debts. Student loans and tax claims are also exceptions, and debtors are responsible for repayment.
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