Bankruptcy – Chapter 7

What you need to know if you are thinking of filing a Chapter 7

Bankruptcy.

Overview (continued on next page) 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. (see Tennessee bankruptcy exemptions)

Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)

Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.

Overview (continued)

Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.

Restore or prevent termination of utility service. Allow you to challenge the claims of creditors who have

committed fraud or who are otherwise trying to collect more than you really owe

Topics We Will Cover

What is a Chapter 7 Bankruptcy? The Process of Filing Chapter 7 Are there any debts I can’t discharge? Tennessee Bankruptcy Exemptions What property, if any, can I keep? Reaffirmation Resources

In a Chapter 7 bankruptcy you wipe out your debts and get a "Fresh Start". Chapter 7 bankruptcy is a liquidation where the trustee collects all of your assets and sells any assets which are not exempt. (see Tennessee Exemptions) The trustee sells the assets and pays you, the debtor, any amount exempted. The net proceeds of the liquidation are then distributed to your creditors with a commission taken by the trustee overseeing the distribution.

What is a Chapter 7 Bankruptcy?

The Process of Filing Chapter 7Gathering Paperwork

To begin the bankruptcy process you must itemize your current income sources; major financial transactions for the last two years; monthly living expenses; debts (secured and unsecured); and property (all assets and possessions, not just real estate). You should also collect your tax returns for the last two years, deeds to any real estate you own, your car(s) titles, and the documents for any loans you may have.

The Process of Filing Chapter 7Filing the Petition

Once you have gathered this information, either on your own or with the help of an attorney, you should then determine which property you believe is exempt from seizure based on the Tennessee exemptions. To actually file, either your or your attorney, will need to file a two-page petition and several other forms at your Tennessee district bankruptcy court.

These forms, collectively are referred to as the schedules and ask you to describe your current financial status and recent financial transactions (typically within the last two years). If your creditors or the judge feel or find out that you have not been entirely forthcoming in your bankruptcy filing, it could jeopardize the outcome of your petition.

The cost for filing a Chapter 7 bankruptcy is $200. This fee may not be waived but you may be able to pay it in installments. The fee of $185 for a Chapter 13 bankruptcy can not be waived.

The Process of Filing Chapter 7Filing the Petition

The Process of Filing Chapter 7 The Automatic Stay

Once you have filed your paperwork with the bankruptcy court, an automatic stay immediately goes into effect. This provision prevents creditors from making direct contact with you or staking a claim on any of your property from the day of filing forward.

This will stop any foreclosure proceedings. If you have filed Chapter 13, you must begin making your plan payments. Generally these payments will be withdrawn directly from your wages and you or your attorney should arrange for these payments to be deducted from your wages

Upon filing, the court will assume legal control of your debts and property not covered by your Tennessee exemptions. A trustee will be appointed to your case by the court. The job of the trustee is to see that your creditors are paid as much as possible. This person will thoroughly review your paperwork, particularly the assets you have in your possession and the exemptions you wish to claim, and can challenge any element of your case.

The Process of Filing Chapter 7The Bankruptcy Trustee

Approximately a month after filing, the trustee will call a first meeting of creditors, which the debtor must attend. This proceeding is also referred to as the § 341 meeting, named after the corresponding section of the bankruptcy code. Creditors rarely attend a Chapter 7 bankruptcy meeting; one or two creditors may attend a Chapter 13 meeting, especially if there is a question as to the legitimacy of some aspect of the plan. Objections are typically resolved by negotiation between the debtor or the debtor's counsel and the creditor. If a compromise can not be reached, a judge will intervene.

The Process of Filing Chapter 7The Meeting of Creditors

The meeting of creditors typically lasts about five minutes. You will receive notice of the location of the meeting but you may contact the court to confirm the address and time. (see Tennessee Bankruptcy Court Directory)

Most Chapter 7 filings involve no non-exempt assets, however, if you filed for Chapter 7 and do have non-exempt assets, you will have to turn over non-exempt property (or its fair market value in cash) to the trustee after the meeting.

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The Process of Filing Chapter 7 The Meeting of Creditors

The Process of Filing Chapter 7The Meeting of Creditors (continued) The trustee will sell this property and distribute the

proceeds to your creditors. If the property isn't worth a great deal or would be hard to sell, the trustee may decide to abandon the property (and return it to you). Trustees and creditors have 60 days to challenge the debtor's right to a discharge. If there are no challenges, you will receive a notice from the court that your dischargeable debts have been discharged within roughly three to six months.

Most Chapter 7 filings involve no non-exempt assets, however, if you filed for Chapter 7 and do have non-exempt assets, you will have to turn over non-exempt property (or its fair market value in cash) to the trustee after the meeting.

The trustee will sell this property and distribute the proceeds to your creditors. If the property isn't worth a great deal or would be hard to sell, the trustee may decide to abandon the property (and return it to you). Trustees and creditors have 60 days to challenge the debtor's right to a discharge. If there are no challenges, you will receive a notice from the court that your dischargeable debts have been discharged within roughly three to six months.

The Process of Filing Chapter 7 The Meeting of Creditors

Are there any debts I can’t discharge?

Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged.

Usually, large credit card debt and other unsecured bills coupled with few assets typify a Chapter 7 bankruptcy filer. In the vast majority of cases this type of bankruptcy is able to completely eliminate all of the filers debts.

What property, if any, can I keep?

You may keep certain secured debts such as your car or your furniture or house by reaffirming those debts. To do so, you must sign a voluntary "Reaffirmation Agreement". However, you cannot wipe out that debt (or discharge the debt) for another six years. In other words, if you decide that you want to keep your house or your car or your furniture, and you reaffirm the debt, you cannot bankrupt (or wipe-out) that debt again for six years. You will still owe that debt and you must continue to pay it just as you were to continue to pay it before you filed the bankruptcy.

Tennessee Bankruptcy Exemptions

The Tennessee bankruptcy exemptions chart, details the property you can exempt or protect from creditors. You may exempt any property that falls into one of the exemptions categories below, up to the dollar amount listed. You will be able to kept this exempted property after you file bankruptcy. Please note that there are certain debts which you will not be able to erase in bankruptcy.

Tennessee Bankruptcy Exemptions

An exemption limit applies to any equity you have in the property. Equity is the difference between the value of the property and what is owed on the property. For example, a car valued at $5000 with a loan of $4500 has an equity value of only $500.

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Tennessee Bankruptcy Exemptions

If the property is secured by a loan, such as a car or home, and you are current on the payments, the equity is covered by your exemptions, and you elect to keep making payments on the loan you generally can keep this property through the bankruptcy. If all the equity is not covered by your exemptions the trustee may elect to liquidate this asset and distribute the assets. Generally, in this case, you would be entitled to the value of your exemption in the asset as a cash payment.

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Tennessee Bankruptcy Exemptions

Bankruptcy law allows married couples filing jointly to each claim a full set of exemptions, unless otherwise noted.

To keep non-exempt property, a debtor must generally pay the trustee the value of the non-exempt property.

You also may use certain federal exemptions in addition to your Tennessee exemptions.

More About Reaffirmation

In order to reaffirm the debt, you must also bring it current. In other words, if you are three or four months behind, then you must pay the back payments which are due in order to reaffirm it. You can selectively reaffirm your debts - you can state that you wish to keep the house and the furniture, but that you want the car and the jewelry to go back to the respective Creditors.

Reaffirmation agreements can be set aside during the

earlier of 60 days after the agreement is filed with the Court, or upon the Court's issuance of an Order of Discharge.

How Will A Chapter 7 Affect My Credit?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. The fact that you've filed a bankruptcy can appear on your credit record for ten years. But since bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.

Resources

Tennessee Bankruptcy Law Tennessee Bankruptcy Law Frequently Asked Questions Tennessee Bankruptcy Exemption Chart United States Bankruptcy Court for the Middle District of

Tennessee