Sponsored Content by Tommy Allen French
Bankruptcy may make it possible for you to:
- Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
- Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
- Give you peace of mind and a more restful sleep.
Is Chapter 7 (Liquidation) Bankruptcy Right for Me?
When you call an attorney to inquire whether a Chapter 7 Bankruptcy is right for you, please have in hand before calling certain information in order for the attorney to best assist you in determining whether filling will be in your best interest. Items which will assist are:
- If you own your home (regardless of whether you have a mortgage against it), the tax assessors value (or a current appraisal) AND a payoff amount issued by your bank.
- Your average monthly income from employment or self-employed job. Add your last six months of paystubs and divide it by six and this will give an average for the previous six months.
- A general value of all your property (including all furniture, electronics and yard equipment)
- Payoff information on any vehicle.
- How many people reside in your home.
This information will help the attorney evauluate whether you qualify for a Chapter 7. What the attorney is looking for with this information is:
- Whether you own property over and above state exemptions (which I will detail in a few minutes)
- Whether your income is too high over the last six months to qualify. This is based on Alabama median income figures issued by the Federal government.
- And weigh the risk of losing any property such as a car or home if you should file.
What are exemptions and what does this have to do with bankruptcy?
When you file for Chapter 7 bankruptcy, one of the biggest questions is whether or not you will be able to keep your property.
That depends on which property exemptions you can use on your bankruptcy forms. They are called exemptions because they “exempt” — or “excuse” — certain property from being taken by the Trustee and sold to pay your creditors. In most cases, exemptions protect most day-to-day items that you own, unless you have expensive property like a house or a car.
General exemptions available to most filers are:
- Homestead: up to $15,500 in equity (increases to $16,450.00 in April 2021)
- Wild Card: $7,500 of any personal property (including equity in vehicles) (increases to $8,225.00 in April 2021)
- Retirement accounts are exempt 100%
- Clothing, book and family portraits are fully exempt
- Burial place is fully exempt
This is not a full comprehensive list but the ones generally available to most filers.
Can I wipe out all my debts?
Generally yes, with the exception of:
- money owed for child support or alimony,
- past due Federal or State Taxes
- Most student loans
- loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
- Criminal Restitution owed to a victim in a criminal case
- Judgements in civil actions based upon “willful and malicious” harm to another, including and up to wrongful death actions
- This is not a full comprehensive list but the ones generally available to most filers.
Will I have to go to Court?
In most instances, no. You will be required to attend a creditors meeting where you will meet the trustee assigned to your case. He is not the Judge. His role is to examine your petition for accuracy and truthfulness, ask you questions about your petition, and if all looks in line, he will consent to a discharge.
How will the filing of chapter 7 bankruptcy affect my credit?
The filing of bankruptcy will remain on your credit for 10 years; however, the effect it has on your credit will diminish each year.
Generally, you will see a sharp decline in your credit score and it will be difficult for you to obtain credit in several years. However, if you pay any reaffirmed debts and other payments timely, you will be able to obtain credit in about four years at a competitive interest rate. Do not confuse competitive with prime. I have known individuals to obtain mortgages at competitive interest rates around year four.
Keep in mind that the filing of bankruptcy will likely cause you to pay more for an item than someone who has not filed bankruptcy, meaning: if you file and Susie Q does not, and you both purchase the same vehicle at the same sales price, your payment will be more than Susie Q’s based upon your interest rate being higher.
Will filing of bankruptcy affect my employment?
Generally no. However, if you are in a profession that routinely checks credit for continued employment, this may be cause for termination.
The filing of bankruptcy can have a negative impact on your ability to get gainful employment in the future, if that new potential employer should so check credit as part of their hiring process.
Keep in mind that all cases are different and that you should not solely rely on this article for a full explanation of the bankruptcy laws. This article just answers common questions and not comprehensive.
Please consult with an experienced bankruptcy attorney to answer specific questions and to see if bankruptcy is right for you.
Tommy Allen French, Attorney at Law
800 Watterson Curve,
Trussville, AL 35173