The Majority of Bankruptcies are Chapter 7s
In the U.S. overall, generally about twice as many Chapter 7 “straight bankruptcy” cases are filed than Chapter 13 “adjustment of debts” ones. In 2014, for example, about 619,000 bankruptcies filed were Chapter 7s and about 310,000 were Chapter 13s, an almost exactly two-to-one ratio in favor of Chapter 7 cases.
Similarly in Texas, although with a slightly lower proportion of Chapter 7s. In 2014 about 36,500 Chapter 7s were filed in our state were Chapter 7s against about 20,500 Chapter 13s, about a 1.78-to-one ratio. Still, Chapter 7 cases are by far the most common type.
The Simplest Chapter 7 Case
A very straightforward Chapter 7 case:
- protects you and your possessions and property right away from all of 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) You Are Protected 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 it. As a result, almost always creditors do immediately stop once they become aware of a Chapter 7 filing.
There are some exceptions so this protection, but they are quite narrow. 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 debts like 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 protections against creditors either does not come into effect at all or potentially expires 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 actions against you, any collateral, and any of your assets.
2) Keep Everything You Own
In most Chapter 7 cases, everything you own is “exempt”—protected from your creditors, and therefore also protected from the Chapter 7 trustee who acts on their behalf.
Both federal bankruptcy law and each state’s laws provide lists of types of properties and dollar amounts that are exempt. Texas lets you choose between using either its or the federal exemptions. In general the Texas exemptions are much more generous than the federal ones, but there may be certain circumstances when the federal ones are better.
So in the simplest Chapter 7 case, everything you own is exempt, and you keep it all.
3) Follow Your Choice about Any Collateral
Under Chapter 7 you generally have the choice to either surrender collateral—your home, car, truck, or whatever you purchased—or to keep that collateral by catching up and keeping up on your payments on the debt.
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). And 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 proceeds to your account.
Under Chapter 7 you can also 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 that You Want To
In most Chapter 7 cases, all debts are discharged— legally written off—with certain exceptions.
There are two kinds of exceptions, one that involves your right to a discharge of 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 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 so that you will never owe them again.
I can help you find out your legal options and then if appropriate file a Chapter 7 case, if you live in the Dallas-Fort Worth Metroplex. My name is Carrie Weir, and I’m a Texas bankruptcy attorney serving the Metroplex, and especially the area around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, and Rowlett. Please contact me for a free and confidential consultation, so that you can make an informed choice. Call me at 72-772-3083 or use the contact form here. I look forward to helping you.
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