As of December 30, 2021, the chapter 7 Voluntary Petition for Bankruptcy filing fee in Utah is $338.00.
Chapter 7 is known as the “liquidation bankruptcy’’ because it discharges most of your unsecured debt. That includes credit card debt, medical bills and personal loans. It’s the quickest, simplest and most common type of bankruptcy. According to the American Bankruptcy Institute (ABI), 63% of the 774,940 bankruptcy cases filed were Chapter 7. An even more encouraging bankruptcy statistic: 94.3% of Chapter 7 filings had their debts discharged, meaning forgiven.
You must pass a “means test’’ to qualify for Chapter 7 filing. The bankruptcy means test examines financial records, including income, expenses, secured and unsecured debt to determine if your disposable income is below the median income (50% lower, 50% higher) for your state. The means test income level varies from state to state. You might be forced to sell any non-exempt assets, though several online sites claim that 96% of Chapter 7 filings are “no asset” cases, meaning there is not enough equity or value in the property for a trustee to sell it and pay off creditors.
Debts That Can and Can’t Be Discharged in Chapter 7 Bankruptcy
Chapter 7 should dismiss most of the debts you owe, but there are some hard-and-fast debts that can’t be discharged in Chapter 7.
The list of non-dischargeable debts includes:
• Child support
• Tax liens
• Court fees and penalties
• Personal injury debts owed due to an accident while you were intoxicated
The list of items that can be discharged in a Chapter 7 bankruptcy include:
• Credit card debt
• Medical bills
• Personal loans
• Mortgage or automobile loans that you can no longer pay
• Income tax debt
• Student loans — must prove undue hardship
• HOA fees — if you surrender your home or condo
• Any other form of unsecured debt.
When to File Chapter 7 Bankruptcy?
There are several warning signs that you should be considering Chapter 7 bankruptcy. Five strong signs that indicate filing for Chapter 7 may be the right solution include:
Your debts total more than half your annual income.
It would take five years (or more) to pay off your debt, even if you took extreme measures.
Your debt creates stress in essential aspects of your life, such as relationships and your ability to sleep.
You have little to no disposable income.
Your monthly income is below the median level in your state.
How to File Chapter 7 Bankruptcy
The most important factor in filing Chapter 7 bankruptcy is finding an experienced bankruptcy attorney. Once you decide on an attorney, you can refer creditors to your lawyer’s office. Filing the petition will trigger an “automatic stay,’’ which means creditors can’t pursue lawsuits, garnish your wages or contact you about your debts. If you’re qualified, it will take 4-6 months to complete the bankruptcy process.
Here are the steps you must take when filing for bankruptcy:
1. To start the process, the debtor must fill out a long series of forms that detail records of assets, liabilities, income, expenses and overall financial standing, plus any existing contracts or leases in the debtor’s name.
2. Pre-bankruptcy credit counseling ($50) is the next required step for debtors filing under Chapter 7. These courses typically are offered by nonprofit credit counseling agencies, which look at your financial situation to determine if there are other avenues (debt management, debt consolidation, debt settlement) that could resolve the issue without having to file bankruptcy.
3. If it’s determined that bankruptcy is your best solution, then you, or your attorney, must take the forms you filled out in Step 1 and file a petition for bankruptcy at the local bankruptcy court.
4. From there, it’s time to reach into your wallet (what’s left of it) and start paying for the process. Some of the bills you must pay include a petition filing ($335), court fees (which vary by state) and attorney fees (the national average for Chapter 7 bankruptcy is $1,250, according to the National Bankruptcy Forum). Bankruptcy involves a lot of paperwork, which becomes public record. Bankruptcy court participants are generally featured in newspapers and online, so there’s a potential loss of financial control and privacy.
5. Once your case has been filed, the court will appoint a bankruptcy trustee to oversee the accuracy of the documents you filed. The trustee will want to see copies of bank statements, paycheck stubs, tax returns, etc. to verify that your documents are accurate.
6. The next step is a meeting with the trustee and creditors, if any creditors decide to pursue the debts you are trying to discharge. The trustee (and possibly the creditors) may have questions about some of the documents you filed and you are required to answer. The trustee has 30 days for objecting to property the debtor wants the right to retain. Other creditors have 90 days from the meeting to file a suit alleging that their debt should not be eliminated in the bankruptcy. It’s possible the trustee will say the Chapter 7 case should have been filed as a Chapter 13.
7. The next step is to make sure that if you made promises about secured debt usually a home or automobile you fulfilled those promises.
8. Then comes a second counseling session called “debtor education.” These also are administered by nonprofit credit counseling agencies who try to teach you ways to handle debt so you don’t wind up back in court again.
9. If all goes well and in the vast majority of cases it does, the judge will discharge your qualified debts and you no longer have a legal obligation to pay them.
Preparing for Chapter 7 Bankruptcy
There’s some protocol to follow in the months before filing for bankruptcy. Failing to follow these instructions could undermine your efforts.
Don’t Pay Creditors: It seems counterintuitive and you should definitely make routine payments. But any large or unusual payments could be viewed as “preferential transfers.’’ That means one creditor has benefited unfairly over others.
No New Debt: A new creditor could claim you took out a loan or ran up the balance on a credit card without intending to pay it back. Legally, that’s fraud and it will not be forgiven.
No Unusual Transactions: Don’t stray from the routine. Don’t transfer titles of cars or homes. Don’t buy luxury goods. Don’t transfer your business or remove your name from it. They can all be classified as fraud.
Be Truthful: You are required, while filing for bankruptcy, to provide full and complete information. You must disclose any debt, assets, accounts or other financial information. Failure to comply could lead to fraud and potential criminal charges.
Don’t Touch Retirement Funds: You are generally allowed to keep retirement plans and accounts, so keep them safe while considering bankruptcy and don’t use those funds to pay down debt.
Use Common Sense: You should not file for bankruptcy if you’re about to receive a large sum of money, such as an inheritance. You could use that money to pay down your debts. Otherwise, if you’re involved in a bankruptcy process, that money could be seized by a court representative to pay your debts.
Pros of Chapter 7
It will prevent your lenders from aggressive collection action.
Chapter 7 is easily understood and explained to curiosity-seekers and future lenders. Sure, they might have questions about bankruptcy and how it will affect your credit. But if you talk yourself out of Chapter 7 when it could be the right decision, consider a future of trying to explain your missed debt payments, defaults, repossessions and lawsuits. And yes, all of those will hurt your credit, too.
You will be forced to be more disciplined financially. If you ever intend to borrow money again, you will need to be frugal and demonstrate responsibility in repaying debt. Even though you might be able to open new lines of credit anywhere from one to three years after filing for bankruptcy, the interest rates will be much higher. Demonstrating ability to pay those debts on time is the only way to get the interest rates down.
In many states, exemptions will allow you to keep many of the things you own, including more property than you probably need. After you file, you will be able to keep any salary you earn and any property you purchase. Take a look at the chapter 7 home equity exemption to see if your house is at risk.
Whether you are successful with your chapter 7 bankruptcy or not, you are able to file bankruptcy again after the time limit has passed.
Cons of Chapter 7
The bankruptcy impact on your credit score. Chapter 7 bankruptcy can remain on your credit report for up to 10 years though if bankruptcy is a viable option, chances are your credit is already tarnished.
You will lose all of your credit cards.
You may lose luxury possessions, like a boat or second home, depending on how much equity you have.
You will need to wait 2-4 years (depending on the type of loan) before you are able to get a mortgage.
It won’t automatically relieve you of student loan debt or obligations to pay alimony and/or child support.
Chapter 7 Attorney Fees
The attorney fees associated with bankruptcy are entirely up to the individual attorney, and for a Chapter 7 case can range anywhere from $1100 to $2400, generally hovering between $1100 and $1400. Bankruptcy attorney fees are separate from court filing fees, so keep that in mind when you are getting quotes from attorneys and be sure to ask if they have included that other fee. Attorney fees are of course going to be something you think about when looking for a lawyer. Keep in mind, however, that discounted products may not work as well as the original and the same goes for attorneys. Our rates may be a little higher than some others, but we have decades of experience in the field of bankruptcy law and know how to make those laws work best for you.
Chapter 13 Attorney Fees
The attorney fees for a Chapter 13 claim will be different than if you were to file Chapter 7. These fees are actually set by the Utah bankruptcy court, so, unless your case is exceptionally complicated, they will be the same no matter what attorney you choose. Chapter 13 attorney fees vary slightly depending on your income and the kind and amount of debt you are claiming, but it is generally going to run $3,250 to $4,000. The variable that does change depending on the attorney is how much you have to pay up front before your case is filed with the court. How does that make a difference? Here is the scenario: If you have a typical Chapter 13 claim, then your court-set attorney fee will be $3,250. You choose an attorney who charges $900 before filing your case, of which he will use $310 to pay the court fees and put the remaining $590 toward his overall attorney fees, bringing your new balance down to $2660. And what happens to that balance? It gets rolled in with all the other debt you are consolidating and your trustee will pay him out of your monthly payments. Whether they charge more initially or wait and get paid over time after your case, the attorneys make the same amount – it’s all about what you can afford and how you want to pay.
Alternatives to Filing Chapter 7 Bankruptcy
If you are wondering if you should file for bankruptcy, there are many nonprofit consumer credit counseling organizations that have the ability to negotiate more favorable terms with creditors. It’s particularly effective with credit-card companies. The repayment program will be managed expertly and fees could be avoided.
Here are some options:
• Debt Management Plan: Entering into a debt management program can provide relief from interest rates, late fees and penalties from creditors. Under a DMP, which is negotiated by credit counselors, you promise to pay back the full principal over time in an efficiently managed manner. The debt management program provides an organized monthly payment plan. It provides an opportunity to handle the debt more efficiently than trying to sort it out yourself. By keeping the payments on track, it will be good for your credit score.
• Some caveats: There is generally an enrollment and maintenance fee and the DMP is never a guaranteed option. Creditors have no obligation to participate.
• Debt Consolidation— This option reduces interest rates and combines all of your debts into one manageable monthly payment. Under debt consolidation, you take out a loan, which is used to consolidate and pay off all of your other debts. Debt consolidation companies are experienced at acquiring loans and finding the lowest monthly payment. With credit-card loans, the consolidated interest rate can be significantly less than what is being charged on each of your credit cards. A word of caution, though. Be sure to look for a dependable and experienced debt consolidation company (with at least five years of experience). Also, be wary of consolidating several unsecured loans into one secured loan. If you can’t pay back the loan, collateral items at stake typically include your home or car and you could lose one or both!
• Debt Settlement: It’s a lump-sum settlement payment with creditors, although this option is generally a consideration only for people with very poor credit. It allows you to decrease the principal you owe while eventually retiring the debt. In most cases, you will around 50%-75% of the original debt. But it’s important to determine up front whether the company is charging a percentage of the debt as its fee or you could find yourself paying even more. Be aware that debt settlement is damaging to your credit score. Lenders often will report the debt as “settled for less than agreed’’ or “settlement accepted’’ for seven years.
• Personal Loan for Bad Credit: Yes, you can get a personal loan with bad credit, depending on your situation. You can expect high interest rates and should only consider this option if you can truly afford the monthly payment.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506