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What is Chapter 7 Bankruptcy?

Chapter 7 is one of the two types of bankruptcy that is available to most individuals; the other is Chapter 13.  Chapter 7 is what is commonly referred to as a “liquidation” or “straight” bankruptcy. 


In simple terms, a person who files Chapter 7 is saying that they can no longer afford their bills and they are asking from relief of them all subject to other provisions of the law.  In essence, when you file Chapter 7, you list your debts and your assets and it is assumed that you are requesting discharge of all of your debts. 


On certain secured debts, like a home or vehicle, you have the option of surrendering the property and being forgiven of the debt or keeping the property and paying per the terms of the contract.  If you keep the property,  you may be required to enter into a reaffirmation agreement which states that the contract will continue as if you had never filed bankruptcy as to that debt.  Unsecured debts that are dischargeable will be discharged and you will no longer be required to make payments on them.

Who Can File Chapter 7 Bankruptcy?

The new bankruptcy laws put certain limitations on who may file Chapter 7 based upon household income.  There can be other restrictions on who may file for relief under Chapter 7, but Chapter-7 is far from dead as reported by many news agencies on the eve of the bankruptcy laws changing in 2005.


In our practice estimations, at least 85-90% of those individuals/couples who could have filed under Chapter 7 under the old law still can.  However, in some cases the calculations that are involved in what Congress calls the “means test” are so complicated that special software is required to determine whether someone is eligible to file for Chapter 7 or not.  Two general requirements for bankruptcy are that you must have received qualified “credit counseling” and have filed taxes, if you are required to, for the past four (4) years.

Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

Chapter 7, unlike Chapter 13, is not a repayment Chapter.  Other than the fees and costs you pay to file the case, you do not make payments to a Trustee as you do in Chapter 13.  In Chapter 7, you pay the fees and costs set forth by your attorney and then you will only be making payments on secured debt that you are keeping and your living expenses thereafter. 

One of the primary advantages of Chapter 7 is that the entire case is usually completed within six (6) months of filing.  There can be other advantages, but they are case specific and that information can be given to you during your free initial consultation.  If you are several or more payments behind on a car or home that you wish to keep, it is generally not advisable to file a Chapter 7 generally as it does not enable you to catch the payments up over time as a Chapter 13 does.

Additional Chapter 7 Bankruptcy Details

In either Chapter 7 or Chapter 13 a “Trustee” is appointed to oversee your case.  In Chapter 7 the function of a Chapter 7 is to insure that you have met basic filing requirements, that your bankruptcy documents are truthful and accurate and, if there is property that is not protected by law, to sell property to pay unsecured creditors

In over 85-90% of the Chapter 7 cases we file there is no property that is not protected by law.  The Federal law gives rather generous “exemptions” in many different kinds of property.  An exemption is created by the law saying that there is a certain amount of value in property that you are allowed to retain. 


For instance, currently the Federal Exemptions allow you to protect up to $22,975.00 in home equity ($45,950.00 for married couples).  This means that if you have a $90,000.00 home with $62,000.00 owed, you can protect the full $28,000.00 in equity if married, but if you were an individual, you would have $5,025.00 that is not protected which the Trustee could access for sale. 

There are many other exemptions for household goods, clothing, tools, vehicles, retirement accounts and more.  Please remember as I said before, most people do not exceed the exemption levels and you will need to speak with a qualified attorney for complete advice on the subject.  It is our job to help you arrive at fair values from property and to determine to what extent the law allows you to protect the property.


Of course, the information contained on this website is merely general information and the facts and circumstances of your individual case may vary and should contact us to receive proper legal advice. For specific personal Arkansas bankruptcy law information contact our office to arrange a FREE consultation.

Bankruptcy Discharge
What is Bankruptcy Discharge?

A discharge is the primary reason why people file a bankruptcy case.  Upon the successful completion of a bankruptcy, you will receive a “discharge” of your debts.  This discharge prevents creditors from ever trying to collect the debt again. 


There are certain types of debt that are not usually or ever discharged and some types of debt for which the discharge has only a partial impact.  There are of course other reasons to file a bankruptcy, such as the opportunity to catch up payment on secured debts, but discharge is the primary “reward” for filing.


Discharge prevents creditors from collecting, but it does not prevent you from voluntarily repaying the debt if you so choose.  Discharge binds the creditor, not you.

What Can Be Discharged in Bankruptcy?

Typically, although circumstances may vary, all credit card debt, medical bills, service contracts, taxes over three years old (subject to circumstance and nature of tax debt) and most other forms of “unsecured” debt are discharged by a bankruptcy. 


You can also discharge “secured” debts, such as vehicle debt, home debt and other debt for property purchased, IF you are willing to surrender the property. 


You cannot keep a home or car and not pay for it.  A bankruptcy discharge only discharges you of debt for property that you are not keeping.  Of course, your individual circumstance and the facts of your case may have an impact on this information.

Which Debts Are Not Discharged?

The primary debts that are not discharged that affect many people are debts for child support, alimony, taxes that are less than 3 years old and student loans. 


Other types of debt can be non-dischargeable as well.  The facts of each case vary and you will need to consult with a qualified, experienced attorney to be certain.

How to Stop Harassing Creditor Calls

The calls will stop very shortly after a bankruptcy case is filed. Please understand that merely coming to see an attorney cannot stop the phone calls, a case must actually be filed in order to actually stop the creditors from calling. Our authority to stop that ringing phones comes from the Federal District Court in which your bankruptcy case is filed and the authority given by the United States Bankruptcy Code.

When a bankruptcy is filed, the Court imposes an “automatic stay” upon collection activities. In simple terms, a stay means exactly what it sounds like; it makes a creditor stop in their tracks and any and all further collection action must pass through the bankruptcy Courts if the action will be allowed at all. The ringing phone has usually grown silent within a matter of days of the bankruptcy filing. This is because the Court has mailed notices to these creditors telling them that further collection activities may result in large fines. Even the most ignorant and abusive collection agent will stop calling within a week to 10 days of the filing – unless they just enjoy being hauled in front of a Federal Judge and being berated.

Please remember that, given the extensive documentation needed to file bankruptcy pursuant to the law changes enacted in 2005, the filing process can take anywhere from 1 day to 2 weeks depending on how prepared you are to file and how quickly you do what we ask you to do. If your phone is ringing off the wall and the stress is eating at you, stop the abuse.


Of course, the information contained on this website is merely general information and the facts and circumstances of your individual case may vary and should contact us to receive proper legal advice. For specific personal Arkansas bankruptcy law information contact our office to arrange a FREE consultation.


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