The Advantages of a Bankruptcy Attorney for Guidance

Posted on: 10 July 2020

When you declare Chapter 7 bankruptcy, anyone you owe money to is referred to as a creditor. These credit card companies, mortgage holders, auto loans, medical facilities, and utilities all hope to be paid something when you go through bankruptcy but few of them are ever paid a cent. Creditors are not all equal when it comes to Chapter 7 bankruptcy, so read on to find out more about the way the bankruptcy courts view creditors.

The Liquidation Bankruptcy

The above term is sometimes used to describe Chapter 7 because the filer's property can be seized, sold, and used to pay creditors. In real life, though, very few bankruptcy filers have enough assets to be seized and most of those are protected by exemptions and lack of equity. For example, the courts won't be interested in seizing your car if you owe more on the loan than its resale value. To find out how much of your property could be seized with a Chapter 7 filing, speak to a bankruptcy lawyer and that should ease your mind about the loss of property.

When Property is Seized

If the filer has considerable assets not protected by exemptions, the bankruptcy trustee has the power to take assets and sell them. They do not pay off your debts randomly, however. There is a pecking order among creditors based on which category they fall into.

Why Pay Some Before Others?

The bankruptcy rules place a priority on paying administrative and societal debts first. Administrative debts mostly mean paying the trustee. They are entitled to a certain percentage of everything sold along with a flat fee per case. Societal debts mean things like child support and taxes. The priority system assures that protections are in place when the debtor has assets that cover certain sectors of society.

The Order of Payments

When assets exist, the following order of payment is followed:

1. The bankruptcy court for filing and administrative fees.
2. Secured creditors like mortgage lenders and auto loan lenders. They can seek to be paid by foreclosing on the home or repossessing the vehicles.
3. Domestic support obligations like spousal support and child support.
4. Taxes owed to include income taxes, property taxes, and others.
5. Credit cards, personal loans, and medical debts are the final category of creditors.

The above information may be valuable for anyone considering the effect a bankruptcy might have on their property. In most cases, the average consumer filing Chapter 7 never loses any property. Talk to a bankruptcy attorney to find out more about property seizures and what to expect with your filing.