Chapter 7

Chapter 7 Bankruptcy in Hawaii

Hawaii Bankruptcy Attorney Blake Goodman

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A Chapter 7 bankruptcy permits the debtor to settle debts in an orderly way. In Chapter 7 (also known as “straight” bankruptcy), a trustee is appointed. The trustee collects all nonexempt assets of the debtor, sells those assets, and distributes the proceeds to creditors. There is no minimum or maximum debt limitation for Chapter 7, and the debtor doesn’t have to be insolvent. The goal of an individual debtor in a Chapter 7 case is to get a “discharge” of his or her debts. Far from being something to be ashamed of, bankruptcy is a tool that can help you get your life back from creditors.

What Happens Upon Filing Chapter 7?

The automatic stay is a feature of bankruptcy law that goes into effect immediately upon filing a petition. The automatic stay forces creditors to stop all collection actions (like foreclosures, repossessions, garnishments, and evictions) against the debtor, so that collection and distribution of assets can occur according to a fair and orderly method as specified in the Bankruptcy Code, rather than according to the whims of the creditors. People can stop foreclosure and stop car repossession by filing Chapter 7, giving them time to review their best options with a qualified attorney.

Individual debtors are entitled to keep certain assets free from the claims of creditors, under federal or state exemption laws. Typical exemptions are the homestead exemption (equity in the debtor’s personal residence), cash value of insurance policies, household goods and furnishings, clothing, wages, and tools used in the debtor’s job. The amount of the exemption depends on whether federal or state exemptions are available and/or used.

Certain types of property are exempt, however, which means that the debtor can keep them. Exempt property can include:

  • The equity in your home up to about $22,975 per person filing.
  • Motor vehicles, up to a certain value
  • Reasonably necessary clothing
  • Reasonably necessary household goods and furnishings
  • Household appliances
  • Jewelry, up to a certain value
  • Pensions
  • Tools of the debtor’s trade or profession, up to a certain value
  • A portion of home equity
  • A portion of unpaid but earned wages
  • Public benefits, including public assistance (welfare), Social Security

Generally, a discharge means that a debtor’s obligations are erased or wiped out. When a discharge is granted, it protects the debtor from personal liability on the discharged debt. A discharge is only available to certain debtors and for certain debts. For example, debtors that are not individuals cannot receive a discharge in a Chapter 7 bankruptcy.

With Chapter 7 Bankruptcy You Get a Fresh Start in a Matter of Months

The U.S. Constitution abolished debtor’s prisons in favor of a more workable solution. Instead of jail, you are discharged (or excused) from the majority of your debts. Congress enacted Chapter 7 Bankruptcy as part of the U.S. Bankruptcy Laws in order to prevent increasing the ranks of the homeless, wageless, divorced, and depressed. Chapter 7 gives you a fresh financial start and 95% of the cases are finished in about four months.

With Chapter 7 Bankruptcy You Will Be Able to Keep What You Need to Start Over

You’ll be able to keep what you need to make a new start in life. Some of your property may be exempt, meaning creditors can’t take it, such as your house (if below a certain equity), furniture, clothes, tools of trade, cars, and jewelry. Not all property is exempt, but there’s usually a way so that the average person or family can keep most of their belongings. We can advise you of ways to keep the things you need.

You Will Be Allowed To Continue Paying Any Secured Debts

A secured debt is one where your creditor has a lien or security interest in something you own. For instance, if you’re paying off your car or house, these creditors have a security interest in the house or car. In most cases you will be able to continue paying on the secured debts without losing them. Conversely, you will be given the opportunity, if you so desire, to return these assets back to the creditor and erase all responsibilities for continuing to pay these debts.

In Chapter 7 Bankruptcy You Can Continue to Pay Any Debts That You’ve Discharged, But Want to Keep Paying

The law encourages you to keep paying any obligations that you desire to pay. Your creditors will love you for it; they just can’t legally force you to keep paying.

Creditors Are Prohibited From Collecting Discharged Debts – Forever

If a creditor attempts to collect a discharged debt from you after your Chapter 7 Bankruptcy is over, they risk being held in contempt of Court. Furthermore, you may be able to sue that creditor for damages.

Chapter 7 Bankruptcy Will Excuse Most of Your Debts

While the vast majority of the average person’s debts are forgiven in Chapter 7, some debts will remain. These typically include the last 3 years of federal and state tax debts, alimony, child support, student loans, and debts entered into under the pretense of fraud, embezzlement, and intentional injury. This list is somewhat simplified, so make sure a qualified Hawaii bankruptcy attorney can evaluate the factors in maximizing your right.

Minimal Appearances In Court

In both Chapter 7 and Chapter 13 bankruptcy, there’s only one mandatory appearance in front of your assigned trustee. The meeting will typically last five to ten minutes and there’s no judge, jury or courtroom.

No One Will Be Able to Discriminate Against You in the Workplace

It’s illegal for private or government employers to discriminate against you just because you filed for Chapter 7 or Chapter 13 bankruptcy. Additionally, no governmental agency can refuse to grant you a driver’s license, a permit, student loans or similar governmental grant.

What is a fraudulent transfer, and how could I have committed one accidentally before filing under Chapter 7?

A fraudulent transfer is a transfer made by a debtor with the intent or effect of reducing the assets available to creditors. For instance a debtor might attempt to repay a loan to a friend or family member when those funds rightfully ought to be divided between all the debtor’s creditors. Fraudulent transfer law exists both in and outside of bankruptcy. A trustee has the power to undo or nullify (“avoid”) transfers of the debtor made with actual intent to hinder, delay, or defraud creditors, and certain transfers for which the debtor did not receive a reasonably equivalent value in exchange for the transfer.

Will a debtor lose his or her home by filing Chapter 7 bankruptcy?

If the debtor in a Chapter 7 liquidation bankruptcy is behind on his or her mortgage payments, the home could be lost. The mortgage lender in such cases usually asks the bankruptcy court to lift the automatic stay so that it can institute foreclosure proceedings, in which case the home will be sold and the proceeds used to pay off the debt. Whether a debtor who is not behind on mortgage payments will lose his or her house depends on how much equity the debtor has in the property and the amount of the state homestead exemption. However, filing Chapter 7 will automatically stop foreclosure and stop car repossession at least temporarily, so the person has time to review their options with a bankruptcy attorney.

What does the Chapter 7 trustee do as it relates to my case?

Actually there are several types of bankruptcy trustees:

The United States Trustee is responsible for oversight of the bankruptcy process as a whole. The United States Trustee’s duties are to maintain and supervise a panel of private trustees (usually, but not always, private attorneys) to serve in Chapter 7 cases. The United States Trustee appoints the trustee from a panel of private trustees.

A Chapter 7 Trustee is responsible for representing the interests of the debtor’s estate and creditors as a whole. You will meet the Chapter 7 Trustee appointed to your case at the creditor’s meeting, the one simple, but mandatory hearing that you must attend with your attorney.

Can I discharge my student loans in Chapter 7?

Student loans are no longer dischargeable in any chapter of bankruptcy unless you can prove that repaying the loan creates an undue hardship on you or your family. Prior law allowed their discharge once they had been in pay status for 7 years. The law changed in the fall of 1994.

In my experience, if you can walk and talk, you are probably going to have to pay back your student loans. Proving hardship usually requires showing that you can’t provide a minimum standard of living for yourself and your dependents if you have to repay the loan. A Chapter 7 filing should have no effect on such collections.

How will filing under Chapter 7 impact my credit report?

While your credit score will be damaged for 10 years, in most cases you’ll bounce back quicker than you think.

Having a bankruptcy on your credit report doesn’t mean you can’t get credit, it merely means you’ll have to overcome the poor credit ranking by paying higher interest, larger down payments, or discussing your circumstances for filing bankruptcy with your credit grantor. If you’ve had to file because of an illness or injury, many credit rating agencies will take that into account. Some lenders welcome business from people who have recently filed a Chapter 7 Bankruptcy because it will be eight more years before a person can file Chapter 7 again.

Depending on various factors regarding your income and income stability, the vast majority of my clients can obtain financing for a vehicle immediately after their case is finished. The mortgage lending industry will tell you that two years after your case is over you will usually qualify for conventional house loan. (Don’t take it from us – call any mortgage broker and they’ll say the same thing.)

Most of my clients obtain credit cards and unsecured bank loans way before the ten year period expires. This is just the reality of aggressive lending policies that creditors practice today.

Usually the cost of obtaining credit with less than a squeaky clean credit report profile results in the payment of higher interest rates on your borrowing. But you must ask yourself- what is the cost of not declaring bankruptcy, both economically and emotionally?

Debt can be frightening, and it’s difficult to know what affect it will have on your family’s future – but there’s no need to suffer the unknown. Having an experienced Hawaii bankruptcy lawyer can end the collection calls and put you on the path towards a new financial life. Contact our law firm today or fill out our questionnaire to take the first step towards freedom.