Making a Fresh Start with Chapter 7 Bankruptcy

Making a Fresh Start with Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes called the “fresh start” bankruptcy. The goal in filing for chapter 7 is to provide a clean slate for a debtor, allowing them to retain much of their property and receive a “discharge” that erases most of their debts. It is designed to help lower income wage earners (individuals, married couples, or small business owners) who have fewer assets. Some of the debtor’s non-exempt property and assets may be sold by a trustee and the money is used to pay creditors, but with skilled counsel this can usually be avoided. Chapter 7 is often a useful option for holders of upside-down mortgages (whose home is worth less than is owed) because the remaining balance of the mortgage is discharged after foreclosure.

In the vast majority of cases (about 90%), debtors will receive full discharges without losing any of their property. Most unsecured debts are discharged through chapter 7. This includes those debts which have been acquired without a lien; in other words, there is nothing for the creditor to take back from the debtor if payments are not made. Unsecured debts include things like hospital or medical bills; credit card debt; and utility bills. Back rent may be included in the items for discharge, although if the debtor is unable to continue paying future rent, the bankruptcy discharge does not prevent eviction. Most secured debts are also discharged in a bankruptcy settlement. In almost every case, our clients have assets that will be protected by exemptions allowed by Nevada bankruptcy code. If any property or assets are at risk, careful planning can alleviate the need to surrender any property.

Some debts cannot be discharged through chapter 7, including any credit or money obtained through fraudulent means.  Also ineligible for discharge are student loans, child support, alimony, cash advances obtained within 70 days of filing, and any luxury goods or services purchased within 90 days of filing. Certain fines or penalties owed to government agencies cannot be discharged, and some tax debts are also ineligible. A skilled bankruptcy attorney will be able to give you guidance on the tax stipulations. Further, any restitution due for DUI convictions cannot be discharged through chapter 7.

The process for chapter 7 generally can be completed in 4-6 months. The first step is to undergo debt counseling. Upon completion, you will receive a certificate and a debt repayment plan that you will present with your petition for bankruptcy. The next step is the means test to ascertain whether a debtor meets the requirements and prevents higher wage earners from abusing the provisions of chapter 7.

To qualify for chapter 7, you will need to show that your current monthly income is less than the median income for a household of your size. If you pass this part of the test, you can proceed with the filing; if not, you will need to complete the second phase of testing, showing that you do not have enough money left over each month to pay at least a portion of your unsecured debts. If you do not pass the means test, you will need to consider chapter 13 instead.

If you pass the means test, you may file for chapter 7. After submitting documentation about your financial situation and creditors, and paying the proper fees, a trustee will be appointed. At this point a “stay” is placed, preventing creditors from attempting to collect monies due while the proceedings are active. An estate is created and becomes the temporary legal owner of your assets. In order to retain certain items, such as a car, you will file an affirmation to show that you are able to continue making payments. At the end of the process, the debtor will finally have the fresh start they sought, released from liability and protected from creditors who can no longer take action to collect debts.

The decision to file chapter 7 is a very private matter and the process can be overwhelming. Call the Law Office of Erik Severino to arrange a free 30-minute introductory appointment. Your case will be handled with personal attention and a commitment to provide you with resolution, protection, and integrity. Erik Severino attained a degree in economics from the University of Nevada, Las Vegas, and his Juris Doctorate from the William S. Boyd School of Law, UNLV. Licensed to practice in Nevada since 2006, he has concentrated exclusively on Consumer Bankruptcy Law since 2009, and in 2016 was awarded the Avvo Clients’ Choice Award.