Important Truths about Bankruptcy under Chapter Seven
Sometimes life can take a turn for the worst. Many aspects of a person’s life can go wrong, all at the same time. This includes losing a job or business, losing a loved one, incurring heavy medical expenses due to an accident or unexpected disease. In addition to all this, they are still expected to meet their normal obligation of paying for children’s upkeep and tuition, pay for mortgages, and other utility bills. All this can cause a heavy financial dent on a person’s life. If such a person has got other financial debts, they may feel overwhelmed and depressed. Such a person may try their level best to repay their loans and fail. It is at this point that they may decide to file for bankruptcy.
When a borrower owns a lender money, they are obligated to pay it. If they fail to meet their debt obligations, the creditor has the right to file a suit against such a borrower to compel them to repay their debt. It is worth noting that not all credit defaulters are looking for an easy way out. In some cases the borrower is financially pressed and cannot repay their debts no matter how hard they try. This is usually the case when their debts are above fifty percent of their total income. This situation is made worse if such a person has been laid off and doesn’t have a steady source of income.
Such a borrower can opt to file for bankruptcy under chapter seven. The importance of this type of bankruptcy is that if it successful, the court of law can opt to discharge some of the borrower’s debts. It is worth noting that this petition is subjected through a court process and is not always successful. The first step that a person has to take is find a reputable bankruptcy advocate to file the petition for them. They are required to attach certain documents that will assist the court to determine their financial status and their level of indebtedness. This documents include all bank statements, a list of their assets and list of creditors plus the debt owed.
The borrower will be asked by a court to attend a credit counseling course. This course is meant to be an eye open and give the borrower other options to repay their debts other than filing for bankruptcy. The debtor will also be expected to pass a means test. This test confirms that the debtor is in a position to repay a portion of the non-exempt debt. The court will then appoint a trustee to oversee this bankruptcy process. The work of the trusty is to ascertain who the bona fide creditors are, seize and sell off the non-exempt assets, identify the non-exempt assets and pay off some of the debts. The creditors will be given an opportunity to face the borrower and ask any burning questions pertaining to their debt and the bankruptcy petition.
It is worth noting that statutory obligations cannot be wavered and the debtor will have to explain to the IRS how they intent to clear their outstanding debt in the next five years. Other obligations such as mortgage and car repayment are also not exempt from repayment. Any outstanding debt at this point will be discharged by the bankruptcy bank.