Bankruptcy is the federal program that allows a person who has too much debt to obtain a financial fresh start. This financial fresh start means a person can repay their debts over time or eliminate debts altogether. Chapter 13, or wage earner’s bankruptcy, allows a person to pay creditors over a three-to-five-year-period the money owed to them. Chapter 7 bankruptcy effingham county ga is the other bankruptcy option.
Chapter 7 Wipes Out Unsecured Debts
Chapter 13 focuses on repaying secured and unsecured debts. Secured debts are things backed by collateral like a mortgage. Chapter 7 only focuses on eliminating unsecured debts. Unsecured debts consist of any type of credit only backed by a promise to pay. These debts include credit cards, rent-to-own furniture, store cards and payday loans. Bankruptcy chapters come with an automatic stay. The stay prevents creditors from garnishing, suing or shutting off utilities.
The Chapter 7 Process Starts with Determining Eligibility
Bankruptcy laws require a person qualify for chapter 7 via a Means Test. This test looks at whether there is enough disposable monthly income left over to pay creditors in a chapter 13. If there’s no disposable income left, then a person completes the first step of qualifying for chapter 7. The second step is to a complete bankruptcy credit counseling session. The session can happen over the phone, in-person or online with a credit counselor. The counselor looks at the person’s expenses to determine if there is an alternative to filing bankruptcy such as making a budget. If no alternative exists, the person qualifies for chapter 7. They receive a certificate to include with their bankruptcy petition.
The third step is to file the bankruptcy petition. This is done by a person’s bankruptcy attorney after all the important documents are gathered and completed. Once the petition is filed, the person waits to find out when they will attend a meeting of the creditors. Until that time, they will enjoy the peace of mind of knowing any garnishment, judgment collections and lawsuits are immediately stopped. If their utilities are shut off, they can have them restored with the automatic stay.
The Step of the Bankruptcy Process is Called the Meeting of the Creditors
The meeting of the creditors can be an intimidating process for many people wanting their debts eliminated. Just as the name implies, it is a formal meeting for the person, their lawyer, bankruptcy trustee and creditors. The creditors, if they show up, can challenge the bankruptcy. If the bankruptcy trustee sides with them, then it may be dismissed. Most of the time, creditors don’t go to the meeting. During the meeting, the bankruptcy trustee questions the person about their finances. This means they answer questions about how they went into debt and how they plan to avoid it in the future. It is up to the bankruptcy trustee to determine if the chapter 7 petition will be approved or dismissed. Approved petitions are called confirmed in bankruptcy language.