Discharging Debts Through Chapter 7 Bankruptcy

Summary: A successful Chapter 7 bankruptcy discharges all unsecured debts, such as credit card debts, medical bills, signature loans, payday loans, and it stops all collection efforts. In addition, filing a bankruptcy petition offers permanent relief from harassment by debt collectors.

Most Americans own at least one credit card, and many do not pay their balance in full every month. While unwise, maintaining a small balance is usually harmless. Some credit card users, however, slip into delinquency. For those who cannot repay their balances, Chapter 7 bankruptcy offers a permanent solution.

One of the biggest misconceptions about filing for Chapter 7 bankruptcy is that a debtor must liquidate most of their assets. That is incorrect. In almost all cases, the debtor keeps all of his property because it is exempt under either the state or the federal exemption statutes. Every so often, a portion of an asset, that is not completely exempt, must be paid to the trustee. Most often, this is a portion of the tax refund that is not 100% exempt or equity in a newer paid off vehicle. Your bankruptcy attorney will discuss if an asset is not completely exempt before you file bankruptcy, most often these issues can be spotted at the first consultation with your bankruptcy attorney. Non-exempt assets are paid to a court-appointed trustee, who distributes the money to the creditors. Following the distribution, the court discharges any remaining debts. All unsecured debt, such as medical bills, credit card balances, and signature loans can be discharged in this manner. If the consumer acted fraudulently for example by taking out high amount of cash advances shortly before filing, however, the court may refuse to discharge the full amount. This happens very seldom and only if the creditor objects to the discharge of this debt.

Our office is one of the biggest bankruptcy law firms in the St. Louis Metro Area, with around 600 bankruptcy filings per year. Within the last four years, we have seen only one case in which a creditor objected to the credit card charge and this was for good reason. The debtor had used the credit card to pay for a cruise shortly before filing. However to the debtors’ defense, the cruise was planned for a long time. The debtor and the creditor settled the dispute through an agreement that the debtor will pay half of the charged that were made shortly before filing.

If you have questions about your debt and about filing bankruptcy, our bankruptcy attorneys in St. Louis and St. Charles offer a free consultation to discuss your options. If cash advances or payments on luxury items were made, issues with the creditor might be averted by waiting a few weeks or months before filing the bankruptcy case. The bankruptcy code states in section 523 that a debt of more than $500 incurred for luxury goods or services within 90 days of filing, is considered to be fraudulent and the creditor could object to the discharge of this debt. Cash advances of more than $750 within 70 days before filing is considered to be fraudulent and could cause a problem if the creditor files an objection.

If the cash advance or the spending on luxury goods were above these amounts but not significant, debtor still might to go ahead with filing of the bankruptcy if the filing will stop a foreclosuregarnishment, or harassing collection efforts. As soon as a debtor files a bankruptcy petition, the automatic stay goes automatically into effect and creditors must stop collection efforts, such as foreclosure proceedings, garnishments and lawsuits. The automatic stay prohibits any of the creditors from attempting to collect directly from the debtor. This practice protects both the debtor and the other creditors; if one creditor reaches a separate agreement with the debtor, the remaining creditors may not receive their rightful share of the estate. Creditors must take this prohibition seriously – debt collectors who ignore a stay may be exposed to civil liability and contempt

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