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Chapter 7 for "Joe the Plumber"

Topic: Mortgage

Chapter 7 of the Bankruptcy Code is used when a trustee, to pay off a holder's claims, sells the debtor's nonexempt assets. Some of the property may have liens against it or be within the bounds of a mortgage; if that is the case, the proceeds from that will have to go to those creditors rather than the ones with alternate claims. Additionally, the debtor may keep some exempt property; but the trustee will likely liquidate all assets, and the debtor will undoubtedly lose some property. And since no repayment plan will be filed as in chapter 13, none will be gotten back.

To file for chapter 7 you must meet certain requirements: As the individual, partnership, corporation or business entity filing, you must not have had a petition for bankruptcy dismissed within the 180 days prior due to willful failure to appear in court or comply with court orders. You also must not have voluntarily dismissed a case in which creditors asked the court to recover property that had liens on it. Finally you must have sought credit counseling within 180 days prior to filing, from an approved credit counselor or group.

Despite these limitations, there are no bounds on the amount of debt you are in or any requirements surrounding your solvency as the debtor. And as always there are emergency situations in which exceptions will be made, as well as cases where a U.S. trustee will determine credit counseling could not be sought for lack of funds and waive that portion of the requirements.

As a final stipulation, it should be noted that while individuals, corporations and partnerships can file for chapter 7, only individuals will receive a discharge of debt. Further, the right to a discharge is not absolute and will depend on the circumstances surrounding the case as well as the varying types of debt. A lien on a property, for example, will not be discharged.

If you find you are not eligible for chapter seven there are alternatives to this portion of the Bankruptcy Code. To avoid liquidation, debtors in business can file under chapter 11, in which the debtor seeks an adjustment of debts either by reducing the debt or extending the time for repayment. The debtor may also develop a more comprehensive reorganization plan.

Those not in business may file under chapter 13. Through this chapter, the debtor may avoid home foreclosure and may have more success in courts, as some courts will dismiss chapter 7 petitions if the debt stems primarily from consumer purchases.

As in all cases, an out of court agreement between the debtor and the creditor may also be a simpler and more beneficial way to reduce, reorganize or remove debt.

Before filing for bankruptcy under any chapter, it is important that you are fully aware of your options, as well as the results of each petition. You must remain fully informed throughout the process so as to reach the solution that most benefits you and eradicate as much, if not all, of the debt as possible.

For more information on chapter 7, visit http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter7.html

About the Author

Joe Cline is a freelance writer who frequently contributes and comments on legal issues. Learn more by visiting The Cronfel Firm website. Guillermo Ochoa-Cronfel is the principle of The Cronfel Firm and specializes in Business entity formation.


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Ok. I understand you dont have incmoe right now, but 800 is a figure that credit card companies would work with you for. The cost of filing for bankruptcy is far higher then 800. I recomend that you call your credit card company and see what solution they offer.
read more... 05/01/2012

Brett:That is a great point, prices down and rates down ealqus a good equation for buying. I saw a statistic in our area that the median price was down and the median income was down but with the low rates, the income required to buy that median home is lower too, meaning that more people actually are approved for the median price home than in past years.Mike Grumbles
read more... 05/01/2012

Read all comments: 2


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