A straightforward Chapter 7 case does the following:
- immediately protects you and your possessions and property from your creditors;
- enables you to hold onto everything you own;
- lets you keep or surrender any collateral based on your choice; and
- discharges (legally writes off) all your debts that you want to discharge.
1) Protects You Right Away
The moment your Chapter 7 case is filed, virtually all collection efforts by creditors against you are legally stopped. This includes virtually any and all ways to collect a debt—garnishments, lawsuits, judgments, phone calls, mailed or emailed bills and collection letters, home and other real estate foreclosures, repossessions of vehicles and furniture, income tax liens. In addition, if a creditor does continue trying to collect illegally, the bankruptcy court could punish that creditor. As a result, creditors almost always do immediately stop once they are informed that you filed a Chapter 7 case.
There are some exceptions to this protection, but they are narrow exceptions. There are some very specific kinds of obligations and legal proceedings not affected by a Chapter 7 filing, like criminal fines and criminal proceedings, as well as child support arrearages and many domestic relations matters. Plus, very rarely, if you filed and had dismissed one or more bankruptcy cases in the prior year, the protection against creditors may either not come into effect at all or may expire after 30 days.
So in the simplest Chapter 7 case, the protection kicks in when your case is filed, it applies to all your creditors, and they all immediately honor it by stopping all their collection actions against you.
2) Keep All That You Own
In most Chapter 7 cases, everything you own is “exempt”—protected from your creditors, and also protected from the Chapter 7 trustee who acts on behalf of the creditors.
Both federal bankruptcy law and each state’s laws provide lists of types of properties and the maximum dollar amounts of each type that are exempt. New Jersey lets you choose between using either its state exemptions or the federal ones. (Some states only allow the use of their state exemptions.) This gives you and your attorney the flexibility to determine whether the New Jersey exemptions or the federal ones cover your unique set of assets better.
In the simplest Chapter 7 case (and indeed in most of them), everything you own is exempt, and you can keep it all.
3) Keep or Surrender Any Collateral
Under Chapter 7 you generally have the choice to either surrender collateral—your home, car, truck, or whatever you purchased and the creditor holds a lien on or to keep that collateral. If you keep it you usually have to catch up any late payments and keep current on it going forward.
The immediate advantage of surrendering collateral under Chapter 7 is that you can stop making payments on that debt, and also stop paying related expenses, like insurance on a vehicle loan (once you’ve surrendered it). But just as importantly you also almost never have to pay any of the remaining “deficiency balance,” the amount you would often still owe after your creditor sells the surrendered collateral and credits the sale proceeds to your account.
Under Chapter 7 you can usually keep the collateral, especially if you are current, or can get current within a few weeks. In most situations, you would enter into a “reaffirmation agreement” whereby you “reaffirm” your debt, excluding it from the discharge of your other debts.
So in the simplest Chapter 7 case, you can surrender the collateral and usually owe nothing, or you can keep it if you are current or close to current on your secured debt and are willing to reaffirm that debt.
4) Discharge All Debts
In most Chapter 7 cases, all debts are discharged— legally written off—with certain exceptions.
There are two kinds of exceptions. The first involves your right to discharge ANY of your debts, and another that involves your ability to discharge certain specific debts.
In the unusual event that a debtor hides assets or lies to the bankruptcy court or trustee in some other significant way, that debtor could potentially lose the ability to get a discharge altogether. Also, filing a new bankruptcy case too soon after an earlier one could result in no discharge of debts in the new case.
Certain specific kinds of debts are NEVER discharged—child and spousal support, for example. Some kinds of debts which are ONLY discharged under very specific or limited circumstances—income taxes and student loans, for example. Finally there are debts which are discharged UNLESS a creditor raises and proves the existence of specific conditions—for example, a loan that was procured through the debtor’s misrepresentations.
So in the simplest Chapter 7 case, you qualify for a discharge, and all your debts are in fact discharged.
Contact the law Office of Andrew B. Finberg
If you are in New Jersey, we can help you decide whether Chapter 7 is right for you. The Law Office of Andrew B. Finberg works with individual consumers and business owners facing financial challenges. Please call (856) 988-9055 or use the online contact form to contact your New Jersey bankruptcy attorneys at the Law Office of Andrew B. Finberg, LLC.