What Debts Are Discharged In A Chapter 7 Bankruptcy?
My standard answer is all of your dischargeable debts. Generally, that consists of unsecured debt, credit cards, bank loans, medical bills. Under certain circumstances, taxes can be discharged depending upon how old the income tax is. On the other hand, if you are an individual who has incurred trust fund taxes, these kinds of taxes are not dischargeable in a Chapter 7 under any circumstance. It would be dischargeable under Chapter 13 if you pay them enough money over five years to pay it off, but otherwise, you can’t discharge trust fund taxes. Discharged debt also includes hypothetical deficiencies on car loans and mortgages if you have a car loan or a mortgage and get a discharge.
This situation is dealt through what is called the reaffirmation of a debt. This is accomplished through a reaffirmation agreement, an agreement in which the debtor says I am allowing my debt to survive this discharge and that reaffirmation agreement needs to be approved by the judge appointed in the case. In Massachusetts, we have three judges in Boston, two judges sitting in Worcester, and they have to decide that it doesn’t impose an undue hardship on you. So that involves your income, your expenses, how much the house is worth, and whether or not there is equity. Oftentimes, many car dealers making it very easy for you to get out of an old deal, but what they do is take the deficiency and stick it on to your new car loan. So, I’ve had people supporting $40,000 loans on cars that were worth $10,000. In a situation like that, the judge may not allow them to reaffirm it because what it would mean is if something interrupted their income stream and they seize the car, the dealer would be on the hook for the remainder of the deficiency.
The Bankruptcy Court judges have told me it’s pay and retain if, for some reason, the court isn’t inclined to let you reaffirm the debt. The creditor doesn’t want your car or your house, and they’ll lose money. The only twist about reaffirmations and non-reaffirmations is, let’s say you don’t reaffirm the debt. Five years in, what resulted in me drafting this statute and getting in touch with my local rep, was a client who had owned a home with no equity. He was in the computer business when all the computer business crashed around 2005, 2006. He went bankrupt and couldn’t reaffirm the debt. Ten years later, he wanted to refinance, and when he went to the bank, he made ten years’ worth of payments. The bank did a credit check and said it showed his mortgage as being discharged in bankruptcy. So, if you don’t reaffirm the debt, that’s how it shows up regardless of how many payments you’ve made.
So, the statute I drafted tried in Massachusetts to make creditors disclose the payments whether it had been reaffirmed or not, but that’s been sitting around for several years, and I’m not optimistic.
Do I Have To Qualify For A Chapter 7 Bankruptcy?
Everybody qualifies for bankruptcy. The real question is whether the debtor’s income puts them over the Chapter 7 income limit, which requires them to do the complete means test that determines whether they can file a Chapter 7 or have to file a Chapter 13. So, for instance, and it’s probably going to change in a month, if you are a family of 4, to where you even have to concern yourself with having to contemplate a Chapter 13, you’d have to make over $140,000. But part of the process is that my assistant Cathy determined 6-moths’ worth of the debtors’ income. But if it’s a Chapter 7 or a Chapter 13, Chapter 7 trustees get paid very little money in assetless cases. Most debtors’ cases are what we would call assetless cases.
There is nothing for the creditors there. So, you go through the process, creditors don’t show up at the 341 meetings, and it’s a matter of just waiting for the time to pass. Chapter 7 takes about four months from filing the case to getting your discharge.
How Will A Co-Signer On My Debts Be Affected If I File A Chapter 7 Bankruptcy?
Ultimately, because they are a guarantor or a co-signer, they are on the hook for the debt. I typically suggest in such a situation that the debtor and listing the particular creditor that they are both on the hook for also lists the relative as an unsecured creditor. For instance, the debt is for $10,000, they come after the relative, and the relative settles it for $6000. The relative is entitled to contribution from the primary obligor for half of that. So, that’s why the relative should be listed too, but ultimately, it’s a matter of who has the deeper pocket, and sometimes it’s the relative which getting back to my note, no good deed goes unpunished.
My Wages Are Being Garnished. Will Filing a Chapter 7 Bankruptcy Stop The Wage Garnishment?
Absolutely. It would be best if you didn’t let it go on that long because garnishment is something that doesn’t happen in a vacuum. However, if there is a garnishment in place, by filing the bankruptcy, the automatic stay Section 362 will stop that wage garnishment upon letting the creditor know that you filed a bankruptcy. Certain creditors can be obnoxious and ignore it, but there’s always the bankruptcy court to enforce the automatic stay. But generally, once they get notified of the filing of a bankruptcy, the wage garnishment ends.
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