CHAPTER 7

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The purpose of a Chapter 7 is to give the debtor a “fresh start' by eliminating credit card and other unsecured debts. It will allow the debtor to give back expensive or unaffordable automobiles or other secured purchases without having to pay a deficiency if the item sells for less than what is owed.  If the secured loans are current and the debtor wants to keep the vehicle or other property securing a loan, then the Debtor will sign a reaffirmation agreement continuing the loan after the bankruptcy is completed, which will make all provisions in the contract enforceable including collection and repossession if the Debtor later defaults.

Some debts are not eliminated by a bankruptcy. These include past due child support, alimony, newer personal income taxes, business taxes, some business debts such as some employee wages, student loans, and debts where fraudulent or criminal activities were involved. Those who have such debts often file a Chapter 13 to spread the payment of such debts over up to a five year period. 

Chapter 7 is nicknamed a “liquidation.” This is because the debtor is allowed to retain specific amounts of personal and real property, but property owned in excess of the allowed amounts may be sold by the Trustee, who then distributes the proceeds pro-rata to unsecured creditors. Less than 4% of Chapter 7 bankruptcy cases involve a liquidation of non-exempt assets. This is because the exemptions are quite liberal in the amount of property debtors are allowed to keep.

There are two exemption lists for Washington residents, Washington State and Federal.  You may use either one but not a blending of the two. Also, the values listed are for the current fair market value of the things owned, not their replacement cost.  For example, when determining the value of your assets, consider what you would pay for your used furniture or car, or whatever you may own. Once you look at the exemption lists, you will understand that it is a myth that filing a Chapter 7 means you will lose alyour possessions to the Trustee.

Those who say such things are either ignorant or have some profit motive behind their attempt to convince you to pay them a substantial sum to “settle your debts for pennies on the Dollar.” 

Of course, most folks are worried about their credit score, and a Chapter 7 bankruptcy may be the best thing you can do to get your credit score back on track. It is not uncommon for a Debtor's credit score to increase  to 35 to 120 points in just one year after the filing date.  By paying your remaining bills on time, your credit score will improve. A wise man once told me, “Live beneath your means and build your emergency funds, three to six months of your income, then start an investment program that is automatic.

Don't borrow money except to buy a home, but save up so you can put 20% down and you will get a good home loan. If you don't have any money, people won't lend you money, but if you have money, you can always get a loan.”

Most millionaires don't buy a new car because cars depreciate-- they are not assets. They are wise with their money. They learn how to make money work for them.  They are owners, not borrowers. They don't follow the crowds into investments that are popular. My grandfather told me that when you read about it in the newspaper, it is history.  Those who bought homes at the top of the market cashed out the wise investors.

Getting a fresh start is a great way to free up income to start back on the path to financial security! 

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor 

must provide the following information:

1- A list of all creditors and the amount and nature of their claims;

2- The source, amount, and frequency of the debtor's income;

3- A list of all of the debtor's property;

4- A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household's financial position.

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