Chapter 7 Overview
Chapter 7 bankruptcy, also known as straight bankruptcy or liquidation, is one of the simplest forms of bankruptcy. The process of filing for a Chapter 7 bankruptcy generally takes about 4-6 months to complete. Because it is a relatively simple process, the burdens on a Chapter 7 bankruptcy debtor are minimal. Other than honestly and completely providing the information requested by the filing attorney at the beginning of the process, the Chapter 7 bankruptcy debtor usually only needs to attend a single creditor meeting.
After a Chapter 7 bankruptcy petition is filed, a trustee is appointed by the court. This trustee is responsible for collecting the Chapter 7 debtor’s non-exempt property and distributing this property to the creditors to pay down as many of the debts as possible. For most people filing chapter 7, the majority of their personal property is completely exempt and the trustee has nothing to distribute to the creditors. From the perspective of a Chapter 7 bankruptcy debtor, this means that they will be able to keep most or all of their property.
At the end of a successful Chapter 7 bankruptcy, the debtor receives a ‘discharge’ of all eligible debts. Post bankruptcy, a debtor is no longer required to repay any discharged debts and the creditors that are affected cannot collect against the debtor.
2005 Bankruptcy Reform
Because of the bankruptcy law changes which went into effect in November 2005 fewer bankruptcy applicants are eligible for Chapter 7 bankruptcy. The bankruptcy code was changed in a number of places but one of the most apparent to the bankruptcy debtor is the “means test”. The means test affects who can qualify for a chapter 7 bankruptcy. Those who cannot qualify for a Chapter 7 bankruptcy are now required to file for a Chapter 13 bankruptcy.
How it works: The means test compares a person’s income with the median income of their state. If a person earns more than the median income, they are assumed to have enough disposable income to pay some of their debt under a chapter 13 bankruptcy plan. This seems simple enough at first glance but determining what qualifies for income and what the appropriate median income is at any given time can be tricky. The best way to find out if you qualify for a Chapter 7 bankruptcy or need to file for a Chapter 13 bankruptcy is to speak with a bankruptcy lawyer.
The new bankruptcy law also affects which debts are dischargeable. Debts discharged under the new bankruptcy law include: auto accident claims, business debts, credit cards, guaranties, leases, most lawsuit judgments, negligence claims, personal loans and repossession deficiencies. Other types of debts are much more difficult, or in some instances impossible, to discharge in bankruptcy. Examples include state and federal tax debts, debts for child support, and DUI injury accident claims. Neither of these lists contains all types of debts. For information on whether a particular debt is dischargeable in bankruptcy, please give us a call to speak with a bankruptcy lawyer.
The Process
The process of filing for chapter 7 bankruptcy is easy. The first thing to do is call us and set up a free consultation. Gather as many of your financial records as you can. Of special interest to the bankruptcy attorney are records of your assets, debts and liabilities. At your free consultation we will go through these records and help you decide whether bankruptcy is right for you and if so, which form of bankruptcy is appropriate.
By law you must take part mandatory credit counseling before filing a bankruptcy petition. This can be done in person, over the phone or online and is done through a separate company. Information on this requirement is provided at the free consultation.
Bankruptcy payment plans can be arranged for your legal fees, but full payment is needed before filing. Once the bankruptcy petition is filed, an automatic stay is put in place which will stop all creditors from harassing you.
As mentioned above, in most cases a consumer bankruptcy does not require a hearing in front of a judge. Instead you will attend a creditors meeting in which your creditors can object to your bankruptcy. In most bankruptcy cases (especially when dealing with large loan companies) the creditors meeting will only be attended by you, your attorney and your court appointed trustee. The trustee will ask you a series of questions regarding your financial situation and the bankruptcy case. Your bankruptcy attorney will be present to help you through this quick meeting. In most Chapter 7 bankruptcies this is it. A few months after the creditors meeting you will receive a discharge of your debts. |
