How To File Bankruptcy Chapter 7
If you're struggling with overwhelming debt and considering filing for bankruptcy, Chapter 7 may be a good option for you. Chapter 7 bankruptcy allows you to discharge most unsecured debts, such as credit card debt and medical bills, and start fresh.
Here's a general overview of the steps involved in filing for Chapter 7 bankruptcy in Alabama:
- Take a credit counseling course: Before you can file for bankruptcy, you must complete a credit counseling course from a provider approved by the Department of Justice
- Qualify via the means test: This test compares your income to the median income in Alabama. If your income is below the median, you may qualify for Chapter 7. If it is above, then Chapter 13 may be a better option for you.
- File the petition: Once you've completed the credit counseling and means test, you can file a petition for Chapter 7 bankruptcy with the court and pay the fee. The petition includes information about your debts, assets, income, and expenses. If you cannot pay the fee, installments for 4 monthly payments are available.
- Automatic stay: When you file for bankruptcy, an automatic stay goes into effect, which stops most creditors from trying to collect on your debts.
- Attend 341 meeting of creditors: You'll be required to attend a quick meeting of creditors, where a bankruptcy trustee will review your petition and ask you questions about your finances. This is typically to verify your identity and to understand more about your financial situation. Creditors are allowed to attend this, but it they do not generally appear.
- Discharge of debts: If everything goes well, your debts will be discharged, and you'll have a fresh start.
If you're considering filing Chapter 7 in Alabama, it's important to work with an experienced bankruptcy attorney. At Ryan Legal Services, Inc, our Mobile Chapter 7 lawyers have over 26 years of experience helping clients throughout Baldwin County and Mobile navigate the bankruptcy process. We offer free consultations, 24/7 availability, and weekend appointments in Mobile or Robertsdale to make it as convenient as possible for our clients. We also offer payment plans for Chapter 7 cases to make our services affordable for those in need.
Why You Should Choose Chapter 7 Bankruptcy over Chapter 13
A Chapter 7 bankruptcy case is a liquidation bankruptcy. Liquidation is a procedure wherein a Trustee is appointed to represent your general unsecured creditors from a panel of Trustees hired and supervised by the United States Bankruptcy Court Bankruptcy Case Administrator.
The State of Alabama and North Carolina are currently the only states who utilize a Bankruptcy Administrator. All other states operate their Bankruptcy Trustee program through the United States Department of Justice, Office of the United States Trustee.
In Alabama, the Bankruptcy Courts supervise the Bankruptcy Administrator rather than the United States Department of Justice Office of the U.S. Trustee (“the Trustee program”). The law and role of a panel trustee in a Chapter 7 case are basically the same in every state, regardless of whether the Bankruptcy Administrator or the United States Department of Justice Office of the U.S. Trustee is overseeing the panel trustee. The panel trustee is a liquidator.
Should I Liquidate Everything I own?
That is a commonly asked question when a person thinks about contacting a Chapter 7 bankruptcy attorney. The best answer is that you would not be submitting to a Trustee who sells all of your property. Alabama law provides the legal protections mentioned earlier called “exemptions.” It cannot be stressed enough the importance of consulting with an Alabama bankruptcy lawyer who fully understands how these exemptions apply to your particular circumstances.
Can I Keep My Car in Chapter 7 When There is a Lien on It?
Before filing for Chapter 7, a bankruptcy lawyer would first verify that the lien on your vehicle was properly recorded under Alabama law to confirm that it is a valid publicly noticed lien. This is usually not a problem for the major auto lenders and major banks and credit unions.
It may become a problem if you bought your car and financed it at a local 'buy here, pay here" type business. It is more likely that the paperwork was mishandled or an error in the filing of the lien occurred. Sometimes a delay in filing the lien on the vehicle can enable a Chapter 7 bankruptcy trustee to sell the car.
The bankruptcy Trustee has to pay off the full balance of a publicly noticed lien on a vehicle. In addition, the Debtor has to be paid the full value of any exemption taken on vehicle equity.
In a Chapter 7 case, this has the practical effect of discouraging the bankruptcy Trustee from selling a vehicle where there is a lien plus available exemption(s) that protect most of the value of the car.
For example, a $15,000.00 vehicle ( value) with a $10,000 lien (an auto loan that complies with the above requirements for timely filing and recording with the Secretary of State) and a $4,000.00 vehicle exemption would leave $1,000.00 in unprotected equity in the vehicle if the debtor files for Chapter 7.
The bankruptcy trustee has to weigh the risk of paying to tow the vehicle, advancing the auctioneer fees, insurance costs and other costs of sale, and having to pay the lienholder AND the Debtor the available exemption out of the sale proceeds.
With a small amount of unprotected equity in the vehicle, it would be unwise for the trustee to sell the vehicle. So long as the debtor remains current with the loan payments the debtor would be able to keep this vehicle in a Chapter 7 bankruptcy case.
If the non-protected equity in the vehicle is more than $1,000.00, then you start to get into an area where the debtor may have to offer some money to the bankruptcy trustee to "buy back" the equity from the bankruptcy estate. Remember that the filing of the Chapter 7 case puts all of the debtor's property into the bankruptcy "estate." There is a sorting out process as the case is administered to see what amount of property, if any, has to be liquidated and paid over to creditors.
