Russack Law Explains the Purpose of Chapter 7 Bankruptcy

Annapolis, MD -- (SBWIRE) -- 01/10/2013 -- A lot of people believe filing bankruptcy will completely eliminate all their debts and let them keep everything they have. Glen Burnie bankruptcy law firm RussackLaw.com said bankruptcy can eliminate a lot of debts and prevent creditors from hounding you.

“That’s the important part,” said Russack, lead attorney for the firm. “You can get credit card debt wiped out, most hospital bills eliminated and stop a foreclosure on your house. It can even stop someone from garnishing your wages. That’s a critical part. You need your income to help get out form under the mountain of debt you are in.”

The Severna Park bankruptcy lawyer said different bankruptcy filings affect debts in different ways. He pointed to Chapter 7, what’s often called a “straight bankruptcy” as a way to eliminate debt that lets a person keep most of their property. If any property can’t be kept, it is sold and proceeds divided among the creditors.

Among other things Chapter 7 allows people to keep:

- $21,625.00 equity in a home.
- $5,000 worth of any property of the debtor's choosing (except for real estate)
- $1,000 worth of household goods, furniture, appliances, home electronics, clothing, books, pets, etc.
- $5,000 in items needed for profession, trade or business.
- $6000 to be applied to any property of the debtor’s choosing.
- All or virtually all funds set aside specifically for retirement and pension benefits (as defined by the IRS)

“What’s important here is that most of the these exemptions are doubled for a married couple filing bankruptcy. So a married couple could double the $5,000 exemption to $10,000 and the $6,000 exemption to $12,000," Mr. Russack said. “They would also increase the household item exemption to $2,000."

Annapolis attorney Russack said property must be considered at fair market value for purposes of the bankruptcy. That does not mean the purchase or replacement cost. With that in mind, he said a “yard sale” value of things like plates and silverware and household appliances is often the benchmark.

The entire bankruptcy law is extensive and complex, he said. If a person is considering filing for bankruptcy, they should fully understand what it will mean to their current financial situation, their future ability to get credit and their current property. Because Chapter 7 does allow repossessions, he said it may not be appropriate for everyone.

“Understand too bankruptcy can eliminate a lot of your debts, but it may not eliminate debts like past due federal income taxes. It will not eliminate child support payments. These obligations take precedence over a bankruptcy filing,” said attorney Russack. “Most of the time a bankruptcy can’t wipe out student loans. There are some very narrow circumstances where this can be done.”