Filing a Chapter 7 bankruptcy is a great move if you are in debt and want that debt discharged or wiped out. The debts that can be wiped out include unpaid utility bills, unpaid credit card bills, personal loans and other unsecured debt. It is a chance for literally a fresh start because the court appointed trustee will collect all of your assets and sell any assets which are not exempt.
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Ch 7 Liquidation
Once the trustee sells the assets they pay the debtor, you, any amount exempted. Your creditors get a share of the net proceeds of the liquidation and the trustee takes a commission for overseeing the distribution. You will also get to keep property that is covered by the Texas Chapter 7 exemption because that property cannot be sold to cover your debts.
Chapter 7 Exemptions
The Texas Chapter 7 bankruptcy laws offer a way to protect property and are the best in the country. For example, in Texas, your home, one car and up to $60,000 worth of property for a family is completely exempt. A Chapter 7 bankruptcy can also:
- Restore terminated utilities or prevent termination
- Protect you from debt collection harassment
- Restore suspended licenses that were suspended because you failed to pay court-ordered damages for a driving accident (if no is DUI involved)
- Force creditors to return property in some situations if it has been repossessed
Non-Dischargeable Debts
However, not all debts can be discharged in a Chapter 7 bankruptcy. They include:
- Alimony
- Child support
- Fraudulent debts
- Most student loans
- Certain taxes
- Court ordered fines and penalties
- Certain items charged
Liquidating assets is often a scary thing for any debtor but the reward is no longer having to be anxious or stressed about mounting debt. Your creditors will not be able to take legal action against you or harass you for money or even contact you altogether.
Chapter 7 Means Test
A lawyer with years of experience can review your financial status to determine whether Chapter 7 bankruptcy is the right path to take. You will also have to take a “means test” to file for a bankruptcy under Chapter 7. The test is a formula-based screening tool used to determine whether you qualify for a Chapter 7 or a Chapter 13 bankruptcy.
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What Are Secured Debts?
You will need to sign a “Reaffirmation Agreement” to keep certain secured debts. For example, you may keep secured debts such as your house, car and others by reaffirming those debts. However, you will not be able to wipe out (bankrupt) that debt for eight years if you decide to keep those assets and reaffirm the debt.
Reaffirming Agreement simply assures your creditors that you will continue paying those debts as you are obligated to before you filed for bankruptcy. You will also have to pay back the payments that are due if you are three or four months behind, in order to reaffirm that debt.
If you do not want to file for bankruptcy you can negotiate a payment agreement with your creditors.