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CHAPTER 7 BANKRUPTCY The Bankruptcy Abuse Prevention and Consumer Protection Act became effective in October of 2005. Since the passage of this law, it has been rumored that people cannot file for bankruptcy or that filing bankruptcy is too difficult to be considered a good option for consumers with financial difficulties. However, these rumors are false. Bankruptcy is still a viable option for restructuring or eliminating debt, preventing foreclosures and repossessions, and giving consumers a fresh start. This article is intended to give general information regarding a few of the issues involved in a Chapter 7 bankruptcy. It is not a substitute for discussing your specific situation with your legal counsel. Eligibility/Credit Counseling To be eligible to file Chapter 7 bankruptcy, the debtor must be an individual, a partnership, or a corporation or other business entity that resides or has a domicile, place of business, or property in the United States. Relief is available under chapter 7 of the Bankruptcy Code irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An individual cannot file bankruptcy, if during the preceding 180 days: - a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court;
- a prior bankruptcy petition was dismissed due to the debtor's willful failure to comply with orders of the court; or
- the debtor voluntarily dismissed a previous case after creditors sought to recover property upon which they held liens.
In addition, an individual cannot file bankruptcy unless s/he has, within 180 days before filing, received credit counseling from an approved credit counseling agency. The credit counseling agency must be approved by the United States Trustee's Office and counseling must be offered regardless of the debtor's ability to pay. The counseling may be given in person, over the telephone, or over the internet. If a debt repayment plan is developed during the credit counseling session, a copy of that plan must be filed with the court. There are limited exceptions to this credit counseling requirement in emergency situations or if the debtor is disabled, incapacitated or in active military duty in a combat zone. Automatic Stay Immediately upon the filing of a bankruptcy case, an "automatic stay" goes into effect which stops most collection activities against the debtor or the debtor's property. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, foreclosures, repossessions, wage garnishments, or even telephone calls demanding payment. Creditors are notified of the bankruptcy filing and the automatic stay by the bankruptcy clerk's office. The filing of a bankruptcy petition does not stay certain types of actions, such as criminal proceedings; paternity or child custody actions; the collection of alimony or child support; or police or regulatory actions. As it pertains to specific property, the automatic stay continues until that property is no longer property of the debtor's bankruptcy estate. In general, the stay continues until the case is closed, dismissed, or the debtor's discharge is granted or denied. However, the duration of the automatic stay may be limited if the debtor has previously filed bankruptcy. Creditors may seek to have the automatic stay terminated or modified. A creditor may request permission to act without the restraint of the stay if the creditor's property is not being adequately protected or if the debtor does not have equity in the property and the property is not necessary for the debtor's reorganization. In addition, a creditor may ask for relief from the stay if the creditor believes the debtor's bankruptcy was not filed in good faith. If a creditor violates the automatic stay, the debtor may be able to recover actual damages, including costs and attorney's fees, and punitive damages. Reaffirmation/Redemption When a debtor files bankruptcy, the debtor must state his/her intentions with regard to secured debts. The debtor may choose to reaffirm, redeem or surrender the property. The debtor may reaffirm the debt by entering into a reaffirmation agreement with the creditor. The debtor agrees to remain liable for the debt and to pay all or a portion of the debt that would otherwise be discharged. The creditor agrees not to repossess the property as long as the debtor continues to pay the debt. To be valid, the debtor must sign the written agreement and file it with court before the discharge is entered. The Bankruptcy Code requires that reaffirmation agreements contain extensive disclosures and if the debtor was represented by an attorney in the negotiation of the agreement, the attorney must make certain certifications. The Bankruptcy Court then reviews the reaffirmation agreement and may decide not to approve the agreement. However, the debtor may voluntarily repay any debt whether or not a reaffirmation agreement exists. The debtor may redeem certain personal property if the property is intended primarily for personal, family, or household use and if the property secures a dischargeable consumer debt. In addition, the debtor must have claimed the property exempt or the trustee must have abandoned the property. To redeem property, the debtor must pay the creditor the property's market value at the time of redemption. Therefore, redemption requires a lump sum payment, not installments. Finally, the debtor has the option of surrendering the property and discharging his/her remaining obligations to the creditor.
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