Stop Garnishment | Get Out of Debt | Keep Your Home and Car
Chapter 7 the most common type of Bankruptcy. It is called a liquidation because if you have nonexempt assets, those assets may be sold to pay your creditors. Most of your property is protected from liquidation due to your exemptions, so in most of the cases we file, our clients do not have any property liquidated. Exemptions in Mississippi protect your home and $10,000 worth of personal property, including vehicles, household goods, and tools of the trade. For more information about your exemptions, please click here. The most common property that is liquidated includes business property, personal injury lawsuits, rental property, and inherited property.
Discharge of Debt
At the conclusion of a Chapter 7 bankruptcy, your debts are discharged. This means that you will not legally owe the debt anymore and the account can no longer be reported as “past due” or “in collection”. Chapter 7 is commonly used for medical bills, personal loans, judgments, payday loans, and credit card debt. There are exceptions to discharge, however, for some taxes, most student loans, child support, alimony, and certain other debts including debts from drunk-driving accidents or intentional torts - such as assault. Taxes can typically be discharged if the taxes were due more than three years before the bankruptcy was filed, the taxes were filed more than two years before the bankruptcy was filed, and the taxes were assessed more than 240 days before filing. Due to how our courts interpret the law, student loans that are federally guaranteed are usually nondischargeable, but private student loans may be discharged.
There is an income requirement for Chapter 7, but if you are below median income, you are much more likely to qualify. If you are above median income, you may still be eligible for Chapter 7, but your eligibility will be determined by the Means Test. The test looks at your average income in the six months prior to when you filed bankruptcy and uses various figures from the IRS to determine if you have the “means” to repay your debt. Our attorneys will analyze your income and expenses to see if you are eligible to file in your free consultation. If more information is required, we can complete the means test at a later date at no cost to you.
Will I Lose My House and Car?
In most cases, you are able to keep some of your debt (like car loans and home mortgages) as long as you can afford to keep making payments and keeping the debt is in your best interests. This process is called “reaffirmation”. If you are behind on the debt or you owe more than the collateral is worth, you may not want to reaffirm the debt. In some cases, a Chapter 13 may be a better option for keeping these debts as you can catch up on these debts over time and in certain situations you may be able to reduce what you owe.
It may also be in your best interest to avoid reaffirmation on debts where you owe more than the value of the property. This is common with mortgages. As long as you are paying your mortgage payments on time, you are safe from foreclosure. The benefit of avoiding reaffirmation is that if you decide to walk away from the loan at a later date, you will not be liable for the balance of the loan after the property is foreclosed or repossessed. The downside of not reaffirming a debt is that in most cases, your payments are not reported on your credit report after the bankruptcy. This may have a negative effect on your credit and make it difficult to refinance down the road. Automobile loans work differently because the creditor may decide to repossess the collateral if there is no reaffirmation agreement filed. Usually if you want to keep a vehicle, you will have to reaffirm the debt.
Another option on secured debts is redemption. Section 722 of the bankruptcy code allows a debtor to pay the value of the collateral instead of what is owed on it. Redemption usually requires that you pay this amount in a lump sum, so this is often limited to property such as furniture. There are redemption lenders, however, that may help you finance a new car loan based on your car’s value instead of what is owed on it. This can be very useful and may be able to save you money. One of these companies is called 722 Redemption. To see if this option can help you save money, you can get an estimate here. Our attorneys can help advise you if this option is right for you.
Contact us today to speak with an attorney about filing Chapter 7.