A FRESH START
The type of bankruptcy most often associated with a “fresh start,” or Chapter 7 bankruptcy, allows debtors to wipe out certain debts (like credit card balances, personal loans, and medical bills) without paying into a monthly repayment plan.
The debtor must agree to allow the individual responsible for overseeing the case (the bankruptcy trustee) to sell certain, “nonexempt” property. One job of the trustee is to distribute those funds to the creditors based on a priority ranking system.
Typically, a debtor doesn’t have to relinquish any assets. You will be allowed to keep things that are necessary to continue work and maintaining a home, such as household furnishings, clothing, and some equity in your house and a vehicle. In many cases, chapter 7 filers can keep all of their property. Each state, including Ohio, determines what property its residents can keep.
Unfortunately, a Chapter 7 bankruptcy doesn’t discharge all debt. Certain types of debt are considered non-dischargeable, which remains with you even after bankruptcy, and until it’s paid. These types of non-dischargeable debt include:
- Income taxes incurred within the past three years, and possibly older taxes
- Student loan debt, unless you can demonstrate that it would be difficult or unfair to require repayment
- Domestic support obligations, like child support or alimony/spousal support.
- Wrongful death or injury awards incurred from operating a vehicle while under the influence.
Consumers and businesses may file Chapter 7 bankruptcy. A typical case may take four to six months to complete.
Key Aspects of Chapter 7 Bankruptcy
Keep these key points in mind when filing Chapter 7:
PROPERTY. Debtors may exempt property essential to work and maintain a home, such as clothes, a home or car, and household furnishings. In Ohio, many debtors who file Chapter 7 find that most or all of their property is exempt under state law, and sometimes, federal exemption laws.
ELIGIBILITY. Not everyone can file and successfully receive a discharge under this type of bankruptcy. For example, if most of your debt is consumer debt, and you have disposable income sufficient to fund a Chapter 13 repayment plan after subtracting certain eligible expenses, you will not be allowed to file Chapter 7. Debtors are also limited to a Chapter 7 discharge every eight years.
SECURED DEBT. When you have a secured debt, such as a car loan or home mortgage, you can decide if you wish to allow the creditor to repossess the property (and discharge the debt). If you are current on your payments, you are allowed to keep the property and continue to pay according to the terms of your original agreement.
CONSUMER DEBT THAT’S NON-DISCHARGEABLE. Some debt, such as domestic support obligation, student loans and current and recent income tax bills, may not be eliminated by bankruptcy. Chapter 7 works best to eliminate typical consumer debt, like medical bills, personal loans and credit card debt.
This article is intended to provide an overview of the bankruptcy process. Filing for bankruptcy is complicated and we recommend you contact us for a free consultation to discuss your situation.
Schedule your free consultation with David Bhaerman today to see if Chapter 7 or Chapter 13 bankruptcy can help you. Call 614-834-7110 or use the appointment request form on this page.