Chapter 7

Do you want a fresh financial start?  If you do, you may want to consider the benefits that come when you file a bankruptcy. Bankruptcy is a legal process that allows debtors to discharge certain debts that may never be paid off. If you're considering bankruptcy, you will need to do research on the types of bankruptcy chapters before you decide what chapter is right for you. If you want a fresh financial start, meaning you want your debt discharged, you may want to consider a Chapter 7.

When you file for bankruptcy through a Chapter 7 bankruptcy, you can achieve a fresh financial start depending on your type of debt. Debt that is dischargeable is debt that can never be claimed or pursued by debt collectors or creditors. After the debt is discharged, the only possible way that you a creditor can pursue payments is if they are able to prove in a courtroom that you have committed fraud or have made a mistake. Filing a bankruptcy requires that all the statements you provide are truthful and accurate. Failing to provide adequate documents can result in the dismissal of your case.

If are considering filing for bankruptcy you may want to speak with an attorney. Aside from providing legal counseling, an attorney will help you fill out the documents required to satisfy a bankruptcy claim. In addition, an attorney will make sure that all your documents are in line with the law so that your claims are not dismissed for missing information. Furthermore, an attorney will assist you through every step of the filling process. If you are considering bankruptcy, it is a big financial decision that you do not have to tackle by yourself. The bankruptcy code can be very confusing and if you go about it alone, you may lose more than you have to.

To speak with an attorney about your unique financial circumstances, you may contact the Bankruptcy Attorney at 424-285-5525. We are here to help you file a bankruptcy claim and provide a clear assessment of your case so that you can make a sound decision that works for you.   

Who is eligible for a Chapter 7 Bankruptcy?

Generally speaking, any person may file a Chapter 7 bankruptcy, but those who earn more than the median wage may be required to undergo a “means test”. A means test allows individuals who earn higher than the annual median wage to file a Chapter 7 bankruptcy. A means test is a calculation of the debtor's income and financial obligations. Debtors with a high earning potentials may not file a bankruptcy through a Chapter 7 liquidation but may file through a Chapter 13 bankruptcy or Chapter 11 bankruptcy.

Individuals who earn under the median annual income roughly around $50,000 dollars a year, may not have to undergo a means test. In addition, the median increases for individuals with bigger families. For instance, if you have a family of four, you may file a Chapter 7 without a filling out a means test if your annual income is lower than $75,000. Debtors that have a substantial amount of disposable income may not file a Chapter 7 but may seek relief through other bankruptcy chapters.

In addition, to be eligible for a Chapter 7 bankruptcy, the debtor must have obtained credit counseling from an eligible counseling agency. The counseling must have taken place within 180 days of filing for bankruptcy. If you are not eligible for a Chapter 7 bankruptcy it is most likely because you have too much disposable income. The bankruptcy law attempts to provide financial relief for honest working individuals that are suffering through an economic hardship.

How does a Chapter 7 work?

When debtors consider a Chapter 7 bankruptcy they must follow a certain guideline in order to have their case processed in a courtroom. Debtors who are filling a petition must submit the following documents:

  • A petition to the bankruptcy court  
  • A schedule of your all your debts and of all of your assets
  • A statement of all of your creditors and the amount owed to each
  • A schedule of your unexpired leases or executory contracts
  • A schedule that highlights your income and financial responsibilities (a.k.a monthly expenses)
  • A statement of financial affairs otherwise known as SOFA
  • A statement of your most recent tax return (a copy should be provided to the bankruptcy trustee)

All documents must be accurate and up to date. The information you provide will be heavily analyzed, if you miss a section from above you will have to refile your documents. Furthermore, if most of your debts are consumer debts, you will most likely have to file additional paperwork. A debtor with a substantial amount of consumer debt, also known as credit card debt or other unsecured debt, will have to file the following in addition to the documents mentioned above:

  • A document that says you have already completed the credit counseling requirement
  • A statement of your monthly income
  • A statement of any debt you owe to the state or federal government (student loan debt)
  • A statement of your expenditures and of any potential increases in income
  • A debt repayment program that is completed at the time of credit counseling

Upon satisfying the requirements mentioned above, the debtor will be required to pay a total of $335 to the court ($245 is for the court case fee, $75 is for the administrative fee, and 15 is for the trustee). Debtors that do not have enough money to pay the court fees upon filing their case may be able to pay the fee with installments. If you are filing a joint bankruptcy, you will only be required to pay for this fee once. However, if you and your spouse are filing a bankruptcy separately you will have to pay two separate fees. In any case, if you fail to pay the fees within one hundred and twenty days from the date of filing, you may have your case dismissed. Keep in mind that if you are facing extreme poverty, you may not be required to pay the court fees.

If you are filing for a Chapter 7 bankruptcy and you are in a marriage, the court will take into account the household income. For instance, if your spouse makes more than the median income and there is enough disposable income, you may not be allowed to file for bankruptcy through a Chapter 7. When married, you will need to include your spouse's income and monthly expenditures even if they are not filing for bankruptcy.

Upon successful completion of the above-mentioned requirements, the debtor will be protected by the automatic stay laws that guide the bankruptcy codes. Once you submit your documents, the bankruptcy trustee will notify all creditors of your bankruptcy and of your protections under the automatic stay. During the automatic stay, your creditors or debt collectors may no longer pursue any debt collecting activity. This means that a creditor or debt collector may not reach you through phone calls, emails, fax, or any other means of communication with the purpose of collecting a debt. In addition, creditors and debt collectors will be unable to file lawsuits or pursue a wage garnishment. When creditors violate the automatic stay laws, they may be charged with criminal offenses. Most times if a creditor wants to pursue debt collecting activity they will do so by asking for permission from the court. If they successfully lift the automatic stay laws then they may pursue lawsuits and wage garnishments. Lifting the automatic stay is not common so if you are an honest person suffering through economic hardships, you will most likely not have to worry about a motion to lift the automatic stay.

After submitting the initial documents for filing a bankruptcy under Chapter 7, you may submit a “schedule of exempt property”. Every state provides legal literature on the types of properties that may be exempt from liquidation. Exempt property is a type of property that is under a certain value that may be protected from a liquidation under Chapter 7. In other words, exempt property is a property that cannot be repossessed and sold to pay off debts. This means that you may be able to keep your car, clothing, instruments, jewelry, and other properties so long as they do not exceed a certain value. Both the federal government and state provide legal definitions on the types of properties that may be kept. You may want to speak with an attorney before you file a Chapter 7 so that you have a clear understanding of the local and federal exemption laws. In some cases, we can help you keep more property that you think is possible.

Once the petition is successfully submitted with all the documents required, the debtor will be required to attend a creditors meeting. A creditors meeting can be intimidating, you will be placed under oath and you will be required to answer any question that the bankruptcy trustee or creditor may have. The meeting is meant to give your creditors a chance to ask any questions that they may have about your financial state. They may ask about a recent credit line or may ask how you will go about your secured property. During this meeting, you will be required to answer truthfully (you are under oath!) and you will be required to attend. If you fail to attend, you will have violated the provisions under Section 341 of the bankruptcy code. Violation of Section 341 can result in your case being dismissed.

Debt Discharge

After having completed all of the steps and you have attended the required meeting, your case will either be honored or not. If your case is honored, your dischargeable debt will be discharged forever unless a creditor or trustee is able to prove that you committed fraud. If you commit fraud (meaning you were not truthful about your economic state) your discharge may be revoked by the court. In most cases, once a debt is discharged the debt is discharged forever and you will never have to pay back the debt.

The Role of a Trustee

In a Chapter 7 liquidation, the trustee will play different roles, satisfying a variety of demands. In some cases, a trustee may be a lawyer. In a bankruptcy liquidation, the trustee is in charge of making sure that the debtor is sure of his or her decisions. The trustee will highlight the impact of a bankruptcy on your credit history, the terms and conditions upon receiving a discharge, and of the ability to file under a different chapter. Debtors may be swayed away from a Chapter 7 and may instead file a bankruptcy through a Chapter 11 or through a Chapter 13.

In addition to providing informal counseling, the trustee will be in charge of repossessing all of your non-exempt items. The trustee will sell off or auction your items and will use the proceeds to pay off the creditors. Usually, the trustee will act as a middleman between the debtor and the creditors.

A Chapter 7 is not meant to satisfy the needs of all debtors. In cases where the debtor does not want to lose their property or if they wish to pay back the debt because they have a stable income, they may choose another bankruptcy chapter that will allow them to keep their property and make an adjustment to their debt. Individuals who wish to readjust their debt may file through either Chapter 11 or Chapter 13. Both chapters allow the debtor to keep their property and allows them to create a repayment program. The repayment program must be agreed upon by the debtor and the creditor.

A bankruptcy can easily become a messy ordeal when there is real or secured property involved. If you wish to speak with an attorney about your case, you may contact the Bankruptcy Attorney at 424-285-5525. As mentioned earlier, filing a bankruptcy is a big step in dealing with your debt and you do not have to go about it on your own. An experienced lawyer will help guide you through the different requirements and of the different chapters that may benefit your situation.