When you're considering filing bankruptcy there are some major differences between the chapters you should know. The main difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy filing, is that Chapter 7 does not involve the creating of a plan of repayment as in Chapter 13. Instead, when you file a Chapter 7 the bankruptcy trustee collects the debtor's property and sells any nonexempt assets and uses the proceeds of these assets to pay the creditors, in accordance with the provisions of the bankruptcy code. Some of the debtor's property may be subject to liens and mortgages that secure the property to other creditors. The bankruptcy code will allow the debtor to keep exempt property. There are two types of exemptions in a bankruptcy filing for the debtor is to choose from. There are the default federal exemptions and every state also has their own exemptions. It's important for the debtor to go over this with their bankruptcy attorney and make sure that the exemptions they use protect their property to the fullest.
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Filing a chapter 7 bankruptcy begins with a debtor filing a voluntary petition with the court. Included in the petition are schedules of assets and liabilities, schedules of income and expenditures, and other related documents. The debtor is also required, by the court, to provide a copy of their most recent tax filing, the proof of income and most bankruptcy trustees also require your bank statements. Prior to filing the petition the debtor must take a pre filing credit counseling course and show proof with their petition. A bankruptcy lawyer and their staff will be very helpful walking you through all these requirements. Married couples may file joint petitions if they desire. Immediately upon the filing of the petition with the court the automatic stay takes effect. This is a temporary injunction that stops all collection attempts, repossessions and foreclosures, and all creditor harassment. The automatic stay is taken very seriously by the court. Creditor violations of the automatic stay may be acted on by your attorney and may result in damages paid to you.
Outside of bankruptcy, the typical foreclosure takes about four to six months. Add to this the two to four months of being in default before the process is started, most people generally will not be foreclosed on in less than nine or ten months. After a foreclosure, the lender still needs to evict the debtor. This may take another month or so as the lender has to file a motion with the court for relief of stay. If you add a chapter 7 bankruptcy to the foreclosure process, it's not surprising to see debtors in their homes for a year or more from when they stopped making their mortgage payments. Moreover, since the bankruptcy should erase the personal liability of the debtor, there is no recourse the lender has against the borrower even if the foreclosure results in less than full payment on the loan. When a person is in a bankruptcy filing, the lender's preference usually is to non- judicially foreclose and give up their claim for damages against the debtor. The other option for lenders is to foreclose in a court of law and obtain a deficiency judgment against the borrower. Most all foreclosures are non-judicial foreclosures since the judicial foreclosure is very expensive and time-consuming for the lender. Even when the lender wins in court, the debtor can still have a one-year right of redemption period, where the borrower can come back within one year, pay the amount due, and get their property back. You could see why not many of these are filed. So if you decide to surrender your house in Chapter 7, you can pretty much expect to stay there for at least six months to a year from your last mortgage payment. This extra monthly savings, by not having a rent or mortgage payment, truly gives debtors a fresh start.
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