There are many myths about bankruptcy. You may think it will ruin your credit score, make you ineligible for a credit card, or force you to sell everything you own. These misconceptions are not true. Admittedly, bankruptcy can be a difficult and emotional process. However, if you are eligible for Chapter 7, you may be able to have all or most of your debts forgiven. By asking for help and making some changes, you may be able to move forward in life without debts hanging over your head.To learn more about Chapter 7 bankruptcy and your eligibility, contact The Law Group of Northwest Arkansas LLP to speak with a Fayetteville, Arkansas Chapter 7 bankruptcy lawyer. You can reach out using our online contact form or call us at (479) 316-3760 to set up a time to talk. Our initial consultations are free.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is one of the most common types of consumer bankruptcy. “Consumer” means it is for individuals, but not businesses.
Through a Chapter 7 bankruptcy, all or most of your unsecured debt is paid or discharged. These unsecured debts typically include credit card balances, medical bills, and other personal loans.
Your secured debts and many others, including your mortgage, auto loans, and student debts are not automatically forgiven. During a Chapter 7 bankruptcy, you may need to sell your home to take care of your mortgage debt. You may need to sell off a vehicle. Other secured debts remain behind and must still be paid. One of the most common debts that is not typically discharged in bankruptcy are federal student loans. However, there are exceptions to all of these, and this is where an experienced attorney can help.
You may wonder how the unsecured loans are paid. After you file for bankruptcy, you will be assigned a bankruptcy trustee. This person will determine what assets you have, and then will decide which of your assets are exempt property and which are not. The assets that are not exempt will be liquidated. This means they are sold, and the proceeds are used to pay as much of your debt as possible. This process is why Chapter 7 is known as a liquidation bankruptcy.
Once all eligible property is sold and as much debt as possible is paid, the remaining unsecured debt is discharged. You will no longer be responsible for it. The creditors no longer have the right to contact you, harass you, or bother you about it or make you pay it.
Eligibility for Chapter 7 Bankruptcy
There are a few eligibility requirements you must meet in order to be approved for Chapter 7 bankruptcy. If you have gone through Chapter 7 bankruptcy before, you must wait at least eight years before you can file again.
If you went through a Chapter 13 bankruptcy before, you must wait six years before you can file for Chapter 7. However, you may be able to file earlier if you tried to go through a Chapter 13 payment plan in good faith, and you paid at least 70 percent of the unsecured claims.
The most important eligibility requirement is the “means test.” This test looks at your monthly income and compares it to the median income of same-sized households in Arkansas. If your monthly income is below the median, you are eligible for Chapter 7 bankruptcy.
If your income is over the median, you may or may not be eligible. In this situation, the test requires you to subtract certain necessary expenses from your monthly income to determine your monthly disposable income. If you have enough disposable income to pay 25 percent of your unsecured debt, then you are not eligible for Chapter 7. Instead, you may need to go through a Chapter 13 bankruptcy. However, if you have little to no disposable income, you may be eligible for Chapter 7.
If you believe you are eligible for this type of bankruptcy, call a Fayetteville, Arkansas Chapter 7 bankruptcy lawyer at The Law Group of Northwest Arkansas LLP. One of our experienced bankruptcy attorneys will carefully review your Chapter 7 eligibility. While we are located in Northwest Arkansas, our firm serves clients throughout the state of Arkansas, and our attorneys are also licensed in Missouri, Oklahoma, Tennessee, and Virginia.
Bankruptcy Is a Legal Process
No matter what type of bankruptcy you go through, it is a legal process that takes place in federal court. In Arkansas, there are U.S. Bankruptcy Courts in the Eastern and Western Districts. Fayetteville is within the Western District.
You must file a petition for bankruptcy in the appropriate court. This includes filling out the correct paperwork, providing necessary financial information, and paying a filing fee. We recommend working with an Arkansas Chapter 7 bankruptcy lawyer located in Fayetteville to ensure you go about this process properly.
When you go through a Chapter 7 bankruptcy, you will have to attend at least one court hearing. You also must attend the 341 Meeting of the Creditors. This sounds intimidating, but is often quick. Few or no creditors may attend the meeting. While there, the creditors and the trustee can ask you questions, while you are under oath, about your financial situation. After the meeting, the trustee and creditors can choose to object or not object to the bankruptcy. Having an experienced attorney, like one from the Law Group of Northwest Arkansas LLP, can help you navigate this process and feel prepared for hearings and creditor meetings.
Federal law dictates most aspects of bankruptcy, although Arkansas law matters as well. Arkansas and the federal government both define exempt property. During a Chapter 7 bankruptcy, the trustee liquidates certain property. This means the property is sold and the funds are used to pay your creditors. Exempt property will not be liquidated, and you can keep it. To discuss which assets are exempt and which are not, speak with a Fayetteville, AR Chapter 7 bankruptcy lawyer.
The entire process can take between three and six months. When the trustee has liquidated eligible property and paid what it can to creditors, the rest of your unsecured debt is discharged. Everything is approved by the judge, your bankruptcy is finalized, and you can move forward with an entirely or mostly clean slate.
Other Requirements for Chapter 7: Debt Counseling
Before filing for Chapter 7 bankruptcy, you must be aware of other requirements you must fulfill. During the six months before you file, you must complete credit counseling provided by a federally approved organization. This has to be done before you file, but it cannot be more than six months old, so timing is important.
After you file, you must complete a second educational requirement. You must go through a personal financial management course, which will help you manage money and avoid obtaining too much debt in the future. This course is sometimes called a debt management course or pre-discharge debtor education course.
For both of these requirements, there are a few exceptions. If you are worried about being able to complete these counseling sessions, talk with an Arkansas Chapter 7 bankruptcy lawyer located in Fayetteville.
Are You Interested in Chapter 7 Bankruptcy?
If you believe you are eligible for Chapter 7 bankruptcy and are interested in going through the process, we recommend you hire a lawyer. By contacting The Law Group of Northwest Arkansas LLP, you can speak with a Fayetteville, Arkansas Chapter 7 bankruptcy lawyer about your options. If you can file for Chapter 7 bankruptcy, and you want to, then we will carefully guide you through this process from the beginning to the very end. You can reach us through our online contact form or call (479) 316-3760 to schedule a free initial consultation.