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In most cases, YES. State law provides statutes which we use
to protect the equity in your home. As a result, in most
cases our clients can keep their home, along with all of
their personal belongings and household goods!
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In most cases, YES. Similar to your house, state law
provides statutes which we use to protect your car. Using
these statutes, we can protect your vehicles, depending, as
above, on the amount of equity you have in your vehicles.
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Who Will Know? Will they tell my employer? My neighbors?
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No. The court does not provide anyone except the creditors
with notice. However, please keep in mind that the
bankruptcy petition is a public document and open for
public inspection.
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CHAPTER 7 BANKRUPTCY INFORMATION
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- What is chapter 7 and how does it work?
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Chapter 7 is that par (or chapter) of the
Bankruptcy Code that deals with liquidation. The Bankruptcy
Code is that part of the federal laws that deal with
bankruptcy. A person who files under chapter 7 is called a
Debtor. In a chapter 7 case, the Debtor must turn his or
her nonexempt property, if any exists, over to a trustee,
who then converts the property to cash and pays the
Debtor’s creditors. In return, the Debtor receives a
chapter 7 discharge, if he or she pays the filing fee, is
eli
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- What is a chapter 7 discharge?
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It is a Court order releasing a Debtor from all
of his or dischargeable debts and ordering the creditors not
to attempt to collect them from the debtor. A debt that is
discharged is one that the Debtor is released from and does
not have to pay. Some debts, however, are not dischargeable
under chapter 7, and some persons are not eligible for a
chapter 7 discharge.
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What debts are not dischargeable under chapter 7?
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All debts of any kind or amount, including
out-of-state debts, are dischargeable under chapter 7 except
the debts listed below. The following is a list of the most
common debts that are not dischargeable under chapter 7:
(a) Most tax debts and debts that
were incurred to pay federal tax debts.
(b) Debts for obtaining money, property, services, or
credit by means of false pretenses, fraud or a false
financial statement, if the creditor files a complaint in
the case (included here are debts for luxury goods or
services and debts for cash advances made within 60 days
before the case is filed).
(c) Debts not listed on the Debtor’s chapter 7
forms, unless the creditor knew of the case in time to file
a claim.
(d) Debts for fraud, embezzlement, or larceny, if the
creditor files a complaint in the case.
(e) Debts for alimony, maintenance, or support and,
if the creditor files a complaint in the case, certain other
divorce-related debts including property settlement debts.
(f) Debts for intentional or malicious injury to the
person or property of another, if the creditor files a
complaint in the case.
(g) Debts for certain fines or
penalties.
(h) Debts for educational benefits and student loans,
unless a court finds that not discharging the debt would
impose an undue hardship on the Debtor and his or her
dependents.
(i) Debts for personal injury or death caused by the
Debtor’s operation of a motor vehicle while intoxicated.
(j) Debts that were or could have been listed in a
previous bankruptcy case of the debtor in which the debtor
did not receive a discharge.
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What persons are not eligible for a chapter 7 discharge?
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The following persons are not eligible for a
chapter 7 discharge:
(a) A person who has been granted a discharge in a
chapter 7 cased filed within the last six years.
(b) A person who has been granted a discharge in a
chapter 13 case filed within the last six years, unless 70
percent or more of the unsecured claims were paid off in the
chapter 13 case.
(c) A person who files a waiver of discharge that is
approved by the Court in the chapter 7 case.
(d) A person who conceals, transfers, or destroys his
or her property with the intent to defraud his or her
creditors or the trustee in the chapter 7 case.
(e) A person who makes false statements or claims in
the chapter 7 case, or who withholds recorded information
from the trustee.
(f) A person who fails to satisfactorily explain any
loss or deficiency of his or her assets.
(g) A person who refuses to answer questions or obey
orders of the bankruptcy Court, either in his or her
bankruptcy case of a relative, business associate, or
corporation with which he or she is associated.
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What persons are eligible to file under chapter 7?
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Any person who reside in, does business in, or
has property in the United States may file under chapter 7,
except a person who has been involved in another bankruptcy
case that was dismissed within the last 180 days on certain
grounds.
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What persons should not file under chapter 7?
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A person who is not eligible for a chapter 7
discharge should not file under chapter 7. Also, a person
who has substantial debts that are dischargeable under
chapter 7 should not file under chapter 7. In addition, it
may not be wise for a person with current income sufficient
to repay a substantial portion of his or her debts within a
reasonable period to file under chapter 7, because the Court
may dismiss the case as constituting an abuse of chapter 7.
Although it is not a legal requirement
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How much is the chapter 7 filing fee and when must it be
paid?
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The filing fee is $200.00 for either a single or
joint chapter 7 case. If a Debtor is unable to pay the
filing fee when the case is filed, it may be paid in
installments, with the final installment due within 120
days. The period for payment may later be extended to 180
days by the Court, if there is a valid reason for doing so.
The entire filing fee must ultimately be paid, however, or
the case will be dismissed and the Debtor will not receive a
discharge. The fee charged by the Debtor’s a
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Where is a chapter 7 case filed?
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In the office of the Clerk of the Bankruptcy
Court in the district where the Debtor has resided or
maintained a principal place of business for the greatest
portion of the last 180 days. The Bankruptcy Court is a
federal court and is a unit of the United States District
Court.
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May a husband and wife file jointly under chapter 7?
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Yes. A husband and wife may file a joint
petition under chapter 7. If a joint petition is filed,
only one set of bankruptcy forms is needed and only one
filing fee is charged.
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Under what conditions should both spouses file under
chapter 7?
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Both husband and wife should file if one or more
substantial dischargeable debts are owed by both spouses.
If both spouses are liable for a substantial debt and only
one spouse files under chapter 7, the creditor may later
attempt to collect the debt from the non-filing spouse, even
if he or she has no income or assets. In community property
states (ie. California), it may not be necessary for both
spouses to file if all substantial dischargeable debts are
community debts. The community prop
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When should a chapter 7 case be filed?
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The answer depends on the status of the
Debtor’s dischargeable debts, the nature and status of the
Debtor’s nonexempt assets, and the actions taken or
threatened to be taken by the Debtor’s creditors. The
following rules should be followed:
(a) Don’t file under chapter 7 until all
anticipated debts have been incurred, because it will be
another six years before the Debtor is again eligible for a
chapter 7 discharge.
(b) Don’t file under chapter 7 until the Debtor has
received all nonexempt assets to which he or she may be
entitled.
(c) Don’t file under chapter 7 if the Debtor
expects to acquire property through inheritance, life
insurance or divorce in the next 180 days, because the
property will have to be turned over to the trustee unless
it is exempt.
(d) If the hostile creditor action threatens a
Debtor’s exempt assets or future income, the case should
be filed immediately to take advantage of the automatic stay
that accompanies the filing of a chapter 7 case (see
Question 12, below). If a creditor has threatened to attach
or garnish the Debtor’s wages or if a foreclosure action
has been instituted against the Debtor’s residence, it may
be necessary to file a chapter 7 case immediately in order
to protect the Debtor’s interest in the property.
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How does the filing of a Chapter 7 case affect
collection and other legal proceedings that have been filed
against the Debtor in other Courts?
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The filing of a chapter 7 case automatically
stays (or stops) virtually all collection and other legal
proceedings pending against the Debtor. A few days after a
chapter 7 case is filed, the court mails a notice to all
creditors ordering them to refrain from any further action
against the Debtor. If necessary, this notice may be served
earlier by the Debtor or the Debtor’s attorney. Any
creditor who intentionally violates the automatic stay may
be held in contempt of court and may be liable
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May a person file under Chapter 7 if his or her debts
are being administered by a financial counselor?
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Yes. A financial counselor has no legal right
to prevent anyone from filing under chapter 7.
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How does filing under chapter 7 affect a person’s
credit rating?
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It will usually worsen it, if that is possible.
However, some financial institutions openly solicit business
from persons who have recently filed under chapter 7,
apparently because it will be at least six years before they
can again file under chapter 7. If there are compelling
reasons for filing under chapter 7 that are not within the
Debtor’s control (such as illness or an injury), some
credit rating agencies may take that into account in rating
the Debtor’s credit after filing.
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Are the names of persons who file under chapter 7
published?
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When a chapter 7 case is filed, it becomes a
public record and the name of the Debtor may be published by
some credit-reporting agencies. However, newspapers do not
usually report or publish the names of consumers who file
under chapter 7.
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Are employers notified of chapter 7 cases?
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Employers are not usually notified when a
chapter 7 case is filed. However, the trustee in a chapter
7 case often contacts an employer seeking information as to
the status of the Debtor’s wages or salary at the time of
the case was filed. If there are compelling reasons for not
informing an employer in a particular case, the trustee
should be so informed and he or she may be willing to make
other arrangements to obtain the necessary information.
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Does a person lose any legal or civil rights by filing
under chapter 7?
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No. Filing under chapter 7 is not a criminal
proceeding, and a person does not lose any civil or
constitutional rights by filing.
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May employers or governmental agencies discriminate
against persons who file under Chapter 7?
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No. It is illegal for either private or
governmental employers to discriminate against a person as
to employment because that person has filed under chapter 7.
It is also illegal for local, state, or federal
governmental units to discriminate against a person as to
the granting of licenses (including driver’s licenses),
permits, student loans, and similar grants because that
person has filed under chapter 7.
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Does a person lose all of his or her property by filing
under chapter 7?
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Usually not. Certain property is exempt and
cannot be taken by creditors, unless it is encumbered by a
valid mortgage or lien. A Debtor is usually allowed to
retain his or her unencumbered (i.e. unsecured) exempt
property in a chapter 7 case. A Debtor may also be allowed
to retain certain encumbered (i.e. secured) exempt property
(see Question 28, below). Depending on the law of the local
state, property that is exempt in a chapter 7 case may be
either property that is exempt under state la
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When must a Debtor appear in Court in a chapter 7 case
and what happens there?
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The first court appearance is for a hearing called the
“meeting of creditors.” This hearing usually takes
place about a month after the case is filed. At this
hearing, the Debtor is put under oath and questioned about
his or her debts and assets by the hearing officer or
trustee. In most chapter 7 consumer cases, no creditors
appear in court; but any creditor that does appear is
usually allowed to question the Debtor. If the Bankruptcy
Court decided not to grant the Debtor a discharge or if the
Debtor
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What happens after the meeting of creditors?
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After the meeting of creditors, the trustee may
contact the Debtor regarding the Debtor’s property, and
the Court may issue certain orders to the Debtor. These
orders are sent by mail and may require the Debtor to turn
certain property over to the trustee, or provide the trustee
with certain information. If the Debtor fails to comply
with these orders, the case may be dismissed and the Debtor
may be denied a discharge.
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What is a trustee in a chapter 7 case, and what does he
or she do?
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The trustee is an officer of the Court,
appointed to examine the Debtor, collect the Debtor’s
nonexempt property, and pay the expenses of the estate and
the claims of the creditors. In addition, the trustee has
certain administrative duties in a chapter 7 case and is the
officer in charge of seeing to it that the Debtor performs
the required duties in the case. A trustee is appointed in
a chapter 7 case, even if the Debtor has no nonexempt
property.
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What are the Debtor’s responsibilities to the
trustee?
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The law requires the Debtor to cooperate with
the trustee in the administration of a chapter 7 case,
including the collection by the trustee of the Debtor’s
nonexempt property. If the Debtor does not cooperate with
the trustee, the chapter 7 case may be dismissed and the
Debtor may be denied a discharge.
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What happens to the property that the Debtor turns over
to the trustee?
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It is usually converted to cash, which is used
to pay the fees and expenses of the trustee and to pay the
claims of unsecured creditors. The trustee’s fee is
usually $60.00 plus a percentage of the amount collected
from the Debtor.
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What if the Debtor has no nonexempt property for the
trustee to collect?
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If, from the Debtor’s chapter 7 forms, it
appears that the Debtor has no nonexempt property, a notice
will be sent to the creditors advising them that there
appears to be no assets from which to pay creditors, this it
is unnecessary for them to file claims, and that if the
assets are later discovered they will then be given an
opportunity to file claims. This type of case is referred
to as a no-asset case. Approximately, one-half of all
chapter 7 cases that are filed are no-asset cases.
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How are secured creditors dealt with in a chapter 7
case?
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Secured creditors are creditors with valid
mortgages or liens against property of the Debtor. Property
of the Debtor that is encumbered by a valid mortgage or lien
is called secured property. A secured creditor is usually
permitted to repossess or foreclose its secured property,
unless the value of the secured property greatly exceeds the
amount owed to the creditor. The claim of a secured
creditor is called a secured claim and secured claims must
be collected from or enforced against secure
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How are unsecured creditors dealt with in a chapter 7
case?
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An unsecured creditor is a creditor without a
valid lien or mortgage against property of the debtor. If
the debtor has nonexempt assets, unsecured creditors may
file claims with the Court within 90 days after the first
date set for the meeting of creditors. The trustee will
examine these claims and file objections to those deemed
improper. When the trustee has collected all of the
debtor’s nonexempt property and converted it to cash, and
when the Court has ruled on the trustee’s objections t
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What secured property may a Debtor retain or redeem in
a chapter 7 case?
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A debtor may retain or redeem certain secured
personal and household property, such as household
furniture, appliances and goods, wearing apparel, and tools
of trade, without payment to the secured creditor, if the
property is exempt and if the mortgage or lien against the
property was not incurred for the purpose of financing the
purchase of the property. A debtor may also retain and
redeem without payment to the secured creditor any secured
property that is both exempt and subject only to a
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How can a Debtor minimize the amount of money or
property that must be turned over to the trustee in a
chapter 7 case?
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In a chapter 7 case the debtor is required to
turn over to the trustee only the nonexempt money or
property that he or she possessed at the time the case was
filed. Many nonexempt assets of consumer debtors are liquid
in nature and tend to vary in size or amount from day to
day. It is wise, therefore, for the debtor to engage in
some negative estate planning so as to minimize the value or
amount of these liquid assets on the day and hour that the
chapter 7 case is filed. The most common none
(1) cash;
(2) bank accounts;
(3) prepaid rent;
(4) landlord and utility deposits;
(5) accrued earnings and benefits;
(6) tax refunds, and
(7) sporting goods.
It is usually advantageous for the debtor to take steps to
insure that the value of each of these assets is as low as
possible on the day and hour that the chapter 7 case is
filed. By doing this the debtor will not be cheating or
acting illegally; the debtor will simply be using the law to
his or her advantage.
CASH. If possible, the debtor should have no cash on hand
when the chapter 7 case is filed. Further, if the debtor
has received cash or the equivalent of cash in the form of a
paycheck or the closing of a bank account shortly before the
filing of the case, the debtor should obtain receipts when
disposing of the funds in order to prove to the trustee and
the Court that the funds were disposed of prior to the
filing of the case. Money possessed by the debtor shortly
before the filing of the chapter 7 case
BANK ACCOUNTS. The best practice is to close out all bank
accounts before filing under chapter 7. If a bank account
is not closed, the balance of the account should be as close
to zero as the bank will allow and all outstanding checks
must clear the account before the case is filed. If the
debtor has written a check to someone for, say, $50.00 and
if the check has not cleared the account when the case is
filed, the $50.00 in the account to cover the outstanding
check will be deemed an asset of the debto
PREPAID RENT. If the debtor’s rent is paid on the first
day of the month and if the debtor’s chapter 7 is filed on
the tenth day of the month, the portion of the rent covering
the last 20 days of the month, if not exempt, will be deemed
as an asset of the debtor and will later have to be paid to
the trustee. If possible, the debtor should make
arrangements with the landlord to pay rent only through the
date that the case is to be filed and to pay the balance of
the rent from funds acquired after the case
LANDLORD AND UTILITY DEPOSITS. Unless they are exempt, the
debtor should attempt to obtain the refund of all landlord
and utility deposits before filing the chapter 7 case.
Otherwise, the deposits, or their cash equivalents, will
have to be paid to the trustee.
ACCRUED EARNING AND BENEFITS. In most states, and under the
federal law, only a certain percentage (usually 75%) of a
debtor’s earnings are exempt. Therefore, the trustee may
be allowed to take the nonexempt portion (usually 25%) of
any accrued and unpaid wages, salary, commissions, vacation
pay, sick leave pay, and other accrued and nonexempt
employee benefits. Normally, then, the best time to file a
chapter 7 case is the morning after payday. Even then , if
the pay period does not end on payday, the
TAX REFUNDS. In most states, a tax refund is not exempt and
becomes the property of the trustee if it has not been
received by the debtor prior to the filing of the chapter 7
case. Therefore, if the debtor is scheduled to receive a
tax refund, a chapter 7 case should not be filed until after
the refund has been received and disposed of. Even if the
case is filed before the end of the tax year, if the debtor
later receives a refund, the trustee may be entitled to the
portion of the refund earned prior to
SPORTING GOODS. If the debtor owns guns, fishing gear,
skis, cameras, or other similar items of value that are not
exempt, he or she will later have to turn them, or their
cash equivalent, over to the trustee. Such items should be
disposed of prior to the filing of the case, especially if
they are of considerable value.
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May a utility company refuse to provide service to a
Debtor if the company’s utility bill is discharge under
chapter 7?
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If, within 20 days after the chapter 7 case if
filed, the debtor furnishes a utility company with a deposit
or other security to insure the payment of future utility
services, it is illegal for a utility company to refuse to
provide future utility service to the debtor, or to
otherwise discriminate against the debtor, if its bill for
past utility services is discharged in the chapter 7 case.
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What should the Debtor do if he or she moves before the
chapter 7 case is closed?
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The debtor should immediately notify the
bankruptcy court in writing of the new address. Because
most communications between a debtor and the bankruptcy
court are by mail, it is important that the bankruptcy court
always have the debtor’s current address. Otherwise, the
debtor may fail to receive important notices and the chapter
7 case may be dismissed. Many courts have change-of-address
forms for debtors to use when they move, and the debtor
should obtain one if a move is planned.
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How is a Debtor notified when his or her discharge has
been granted?
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Usually by mail. The courts sends a form called
“Discharge of Debtor” to the debtor and all creditors.
It is usually mailed about four (4) months after the case is
filed.
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What if a Debtor wishes to repay a dischargeable debt?
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A debtor may repay as many dischargeable debts
as desired after filing under chapter 7 and, as long as he
or she has not entered into a reaffirmation agreement with
the creditor, has no legal obligation to repay the debt,
even if he or she has made a payment on the debt since
filing under chapter 7, has agreed in writing to repay the
debt, or has waived the discharge of the debt.
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How long does a chapter 7 case last?
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Usually about four (4) months from the date of
filing to discharge unless the debtor has nonexempt assets
to collect from the debtor. If that is the case, the total
time can be approximately six (6) months but could last
longer.
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What should a person do if a creditor later attempts to
collect a debt that was discharged under chapter 7?
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The debtor should give the creditor a copy of
the order of discharge and inform the creditor in writing
that the debt has been discharged under chapter 7. If the
creditor persists, the debtor should contact our offices.
Also, if the debtor gets sued by a creditor and the creditor
obtain a judgment on a debt that was previously discharged,
contact our offices so that we can seek to void the recent
judgment.
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How does a chapter 7 discharge affect the liability of
cosigners and other parties who may be liable to a creditor
on a discharged debt?
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A chapter 7 discharge releases only the debtor.
A consigner or other co-guarantor is still liable for the
debt regardless of the debtor’s chapter 7 discharge. The
only exception to this rule is in community property states
(ie. California, for example) where the spouse of a debtor
is released from certain community debts by the debtor’s
chapter 7 discharge.
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