CHAPTER 7

What Is A Chapter 7 Bankruptcy?

A ‘chapter 7’ bankruptcy is the most common type of personal bankruptcy. A chapter 7 bankruptcy, also known as a liquidation bankruptcy or straight bankruptcy, is process that eliminates most, if not all, of an individual’s or couples debts. The bankruptcy trustee can seize and sell nonexempt assets of the debtor and distribute these proceeds to the creditors. However, there are numerous exemptions that can be used to protect your assets. In many cases, it is possible to file a chapter 7 bankruptcy without surrendering any assets. Even cash can be exempted! It is important to have your finances carefully reviewed by a bankruptcy lawyer to ensure that your assets will be protected from creditors during a chapter 7 bankruptcy.

The Chapter 7 Process

The first step in every chapter 7 bankruptcy should be a comprehensive consultation with a bankruptcy attorney to assess whether a chapter 7 bankruptcy is an appropriate option for your financial situation. If so, the bankruptcy is started by filing a petition for bankruptcy. The petition includes a number of schedules and exhibits which provide a comprehensive description of your assets, debts, income and expenses. In order to properly prepare the petition, it is necessary to obtain financial documentation including pay stubs, income tax returns and credit reports. The bankruptcy petition is then carefully prepared to accurately reflect your finances and to maximize exemptions to protect as many assets as possible from liquidation.

As soon as a chapter 7 bankruptcy is filed, an automatic stay is entered which prevents your creditors from taking any steps to collect on your debts or enforce any judgments against you. A chapter 7 will also stop foreclosures, wage garnishments, stay pending lawsuits, stop repossessions and even stop harassing telephone calls from creditors.

Following the filing of the petition, a creditors’ meeting will be scheduled approximately four to five weeks later. The creditors meeting is held at the bankruptcy court before the bankruptcy trustee. The bankruptcy trustee is not a judge. Rather, he or she is an individual that evaluates your finances with the objective of trying to determine if there are any non-exempt assets which can be liquidated and distributed to your creditors. At the creditors’ meeting, the bankruptcy trustee will have the opportunity to interview debtors regarding their finances. Although uncommon, creditors also have the opportunity to be present at the creditors meeting and ask questions. The creditors’ meeting is the only time most debtors need to attend bankruptcy court.

Following the creditors’ meeting, the creditors have 60 days to file an objection to the discharge. If no objection is filed within 60 days, the debtor is usually then discharged.

Eligibility for A Chapter 7 Bankruptcy

To be eligible to file a chapter 7 bankruptcy, your income must be below a certain threshold which is measured by the means test. The chapter 7 means test is a multi-step analysis of your income and debts. The first step of the analysis consists of an assessment as to whether your income is below the median state income for a family of your size. If your income is below this amount, you will qualify for a chapter 7 bankruptcy. If your income is above this level, then the second part of the means tests needs to be evaluated. The second step of the means test analysis assesses the relationship between your income and your amount of debt. Performing the means test to determine your eligibility for a chapter 7 bankruptcy can be complicated and should be performed by a bankruptcy attorney.

What is A Bankruptcy Discharge?

A discharge extinguishes certain debts meaning that the debtor doesn’t need to repay these debts and creditors are prevented from collecting on these debts. Creditors aren’t even allowed to telephone or send correspondences to collect these debts. However, even though discharged debts are not enforceable against a debtor after discharge, a secured creditor can still seize property secured by a lien if a secured debt is unpaid.

What Debt Is Discharged?

Most debts are discharged in a chapter 7 bankruptcy. However, the bankruptcy code does exempt a limited number of debts from discharge. The most common types of nondischargeable debts are certain tax debts, assets that weren’t disclosed in the bankruptcy petition, spousal and child support, debts from willful or malicious injuries, government fines, student loans, debts from injuries caused during the commission of a DUI, debts to retirement plans and condominium fees. The exemptions to discharge are set forth in the Bankruptcy Code. These debts are generally nondischargeable which means that these debts must still be repaid even after bankruptcy. However, other debts are dischargeable in bankruptcy.

We Can Help

A chapter 7 bankruptcy is a complex process that should be carefully evaluated and thoroughly prepared. If the documentation is not prepared properly, you can suffer serious financial and legal consequences. Accordingly, it is important to consult an attorney to guide you through your bankruptcy so that you may obtain your fresh start. We would be happy to meet with you to discuss your financial situation and provide you with a free initial consultation.