Just a small emergency or shift in circumstances can have devastating effects on a person’s finances, and if reserves are not found, one small downturn can lead to disaster over the long-term. For those with financial obligations beyond their control, Chapter 7 bankruptcy may be the right way to ease the burden of overwhelming debt. People face this decision for a variety of reasons. The recession in 2007 was particularly instrumental in a large number of individuals filing for bankruptcy when they lost their jobs and could not find new ones. In fact, the numbers were so significant and spurred by speculative mortgage lending, that the law was changed to alter how lenders deal with borrowers in financial hardship.
A recent look at bankruptcy filing trends over the past decade shows a notable decline in the number of petitions filed, but the raw numbers are not the whole story. Some experts believe that many in the country never truly recovered from the recession, and thus, have nothing to protect by filing for bankruptcy. Others look to the fact that young people have so much student loan debt, an obligation that is almost impossible to discharge, that taking on additional credit just is not an option. Regardless of the reason for the decline, new shifts in the economy may signal a return to more people needing this relief. A discussion of how Chapter 7 bankruptcies work, and what a filer needs to prepare in order to file a petition, will follow below.
Basics of Chapter 7 Bankruptcies
Chapter 7 bankruptcy is a liquidation process that results in the complete discharge of non-exempt debt from the person’s obligation to repay. This type of bankruptcy is most effective for those with primary consumer-based debt, i.e., credit card debt, medical bills, personal loans, etc., rather than debt secured with collateral, unpaid taxes, or debt accumulated by a business. Being a liquidation process, any property that is not exempt from the bankruptcy estate, which is set by Indiana law, is subject to seizure and sale by the bankruptcy trustee. Most Chapter 7 filers do not have any non-exempt property, and thus, will see all or most of their debt discharged or wiped out once the case is over. Note that home mortgages, court-ordered obligations, and taxes, among others, are not dischargeable, and would not benefit from a Chapter 7 petition. Talking to a bankruptcy attorney about the particular debt a person has is key to learning which type of bankruptcy would work best for him or her.
Preparing to File
In order for the bankruptcy court to discharge a person’s debt in a Chapter 7 case, the debtor must provide certain information with the initial petition so the court knows how to proceed. Information related to the person’s income, expenses, assets, and property transfers must be included. Part of the reason for this information is to allow the court to determine if the debtor qualifies for a Chapter 7 discharge, as not everyone does, and it also allows the appointed bankruptcy trustee to start verifying the accuracy of the information provided. Supporting documents will be part of this initial disclosure and the following is a general outline of what debtors are expected to produce. Individual trustees and the facts of a case could require additional evidence. These documents include:
- Tax returns for the last two years;
- W-2s for employees or profit and loss statements for the self-employed;
- Proof of the value of any real estate, such as an online valuation or professional appraisal;
- Recent bank and retirement account statements; and
- Proof of the value of any car owned by the debtor.
Get Legal Advice
If you have questions about addressing your debt through bankruptcy, contact an experienced bankruptcy attorney to determine what options you may have. Bankruptcy is a specialized area of the law that really needs the guidance of an attorney to get the desired result. Christopher L. Arrington, P.C. know how to assess your situation and recommend an effective solution to your problems. Contact the Avon bankruptcy firm to schedule an appointment and learn more.