Chapter 7 Bankruptcy

Chapter 7 is a procedure, based on federal law, used to discharge (eliminate) most debt so a debtor can have a fresh start financially.

HOW TO START A CHAPTER 7

It is started with the filing of a petition and related documents, and payment of a fee.  A credit counseling course completion certificate is also filed with the petition.

 

CREDIT COUNSELING COURSE

Prior to filing, a person is required to take a counseling course online.

It usually takes 1 to 2 hours and the cost is about $15.00

 

WHAT IS INCLUDED IN THE PETITION ?

In the schedules and other parts of the petition, a person must list all assets (property), all liabilities, monthly income and expenses, and answer questions related to finances.

WHEN THE MEANS TEST DOES NOT APPLY

If the majority of your debts are business debts (incurred in a business), you qualify for Chapter 7 even if you do not pass the means test.

 

MEANS TEST

To qualify for a Chapter 7, debtors must be below a certain income level based on family size.  If a person or married couple have income below the median income level for their family size, they automatically qualify for Chapter 7.  If their income is above that level, they may still qualify for Chapter 7 based on net income after allowed expenses.

WHAT HAPPENS IF YOU DO NOT QUALIFY FOR CHAPTER 7

If your average income will decrease in the future, you may be able to wait and file later.  Another choice is to file a Chapter 13 bankruptcy.

CREDITORS ARE PROHIBITED FROM COLLECTION ACTIONS

Once you file for a bankruptcy, a court order is issued which stops creditors from any further collection actions.

APPOINTMENT OF A TRUSTEE

When you file a Chapter 7, a trustee is appointed for your case.  The trustee's job is to review your case to see if there are any of the assets that can be liquidated so money can be distributed to your creditors.

 

EXEMPTIONS

You can claim certain exemptions for your assets in order to keep the assets.  The trustee can only take assets that are "not exempt".

RESULTS OF HEARING

The trustee will either declare your case to be a "no-asset case" or will hold your case open in order to sell your "non-exempt" assets.

 

HOW LONG DOES THE PROCESS TAKE

If your case is a "No-Assett Case" it will usually be all over in about 75 days after the hearing.  Trustees can hold "asset cases" open until the "non- exempt assets" are sold and the proceeds are distributed.

 

PRIOR CHAPTER 7

In order to qualify for Chapter 7, at least 8 years must have passed from the start of a prior Chapter 7 (in which you received a discharge of depts) to the start of a subsequent Chapter 7.  If you received a discharge of debts in a prior Chapter 13 at least 6 years must pass before you can file a Chapter 7.

 

DEPTS NOT DISCHARGED IN CHAPTER 7

These debts include: 

-Recent year income taxes.

-Most student loans.

-Child and spouse support.

-Debts incurred in a divorce.

DEBTS DISCHARGED IN CHAPTER 7

These include most depts such as credit card debt, medical bills, and loans.

 

CAN I KEEP MY CAR

Yes.  If your car is collateral for a loan (a car loan), you can keep the car if you "re-affirm" the debt.

 

FINANCIAL MANAGEMENT CLASS

A second financial course is required to be completed before you receive a discharge of debts.  This course should be taken after filing of the case.

 

ATTORNEY FEE

This fee is paid prior to filing the bankruptcy.  Your attorney usually will evaluate the complexity of your case and quote a lump sum fee.

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