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Chapter 7 Bankruptcy: What you need to know before Filing a Bankruptcy Petition

Chapter 7 Bankruptcy: What you need to know before Filing a Bankruptcy Petition

If you or your business are going through financial difficulties and you wish to file for bankruptcy, you may choose to do so under the bankruptcy code. The Bankruptcy Reform Act of 1978, often referred to as the Bankruptcy Code is a federal law and must be read along with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Depending on the type of financial difficulties you or your business are facing, you would have to file a bankruptcy petition for liquidation, reorganization, or debt adjustment.

In most cases, when someone refers to bankruptcy, they are most likely referring to the liquidation of assets, which happens when an individual or business petitions under Chapter 7 of the Bankruptcy Code. This halts all creditors from chasing you to recover the debts you or your business owes to them.

A Chapter 7 Bankruptcy petition declares an individual or an entity's inability to repay debts. Consequently, it would then result in the liquidation of non-exempt assets of the petitioner. Although the procedure may seem straightforward, it is always recommended that you hire a bankruptcy lawyer with a proven track record.

When should you file for bankruptcy under Chapter 7?

  • Your debts exceed roughly half your annual income.
  • If your debts are so high that it would take five years or more to repay the debt despite extreme measures.
  • Your debt is causing friction in your relationships and affecting the various aspects of your life.
  • You do not have any disposable income.
  • Your monthly income is far below the average monthly salary in your state.

The above-mentioned scenarios indicate the inability to repay the debt, with little or no room for reorganization. In such cases, you may opt to file for a petition for liquidation under Chapter 7 of the Bankruptcy Code. Before filing, you should consult an expert Folsom bankruptcy attorney, who will help you identify which debts can be discharged under this petition. The attorney would also help you determine your exempt and nonexempt assets and help you plan the best course of action.

What is Discharged in a Chapter 7 Bankruptcy

What is Discharged in a Chapter 7 Bankruptcy

Chapter 7 bankruptcy is an effective form of personal bankruptcy because in as little as five to six months you can have your qualifying debt eliminated.

Qualifying debt usually includes unsecured debts such as credit cards, medical bills, payday loans, and utility bills. Chapter 7 may not discharge current taxes, some student loans, penalties and fines to government agencies, or debts not listed in your bankruptcy paperwork.

Some debt that will not be discharged include:

∙ Debts with the intention of causing injuries.
∙ Debts incurred by fraud.
∙ Alimony.
∙ Child support.

Credit card companies may make accusations of fraud. The purpose is to scare honest consumers to agree to pay the debt. If the creditor takes you to court and loses, the judge may order the creditor to pay your lawyer fees.

If you have a large amount of credit card and other unsecured debt, you may want to talk to an Elk Grove bankruptcy attorney to find out how you can have that debt legally eliminated.

Who Can File Chapter 7 Bankruptcy

Who Can File Chapter 7 Bankruptcy

When you are behind in debt and worry every day whether you can pay your bills or not, you may want to consider filing bankruptcy. Chapter 7 bankruptcy cases are usually the shortest form of personal bankruptcy. You can file Chapter 7 if you live in, have property, or a business in the United States.

Most people lose little to no income in a Chapter 7 bankruptcy. Your trustee will evaluate your assets, and if you have property that is not exempt and very valuable, it may be sold and distributed to your creditors. Due to the generous exemption allowance, most people do not lose much property. Exemptions can vary by state, so be sure you seek counsel from a local bankruptcy attorney to guide you through the exemption process.

Means Test

In order to qualify for bankruptcy, you also must pass the means test. The means test will determine if your income is at or below your state's median income. If your income is at or below the median income, you will pass the means test. If you make more than your state's average income, the bankruptcy court may turn your case into a Chapter 13 instead.

Dismissal

If your trustee feels that you are abusing the bankruptcy system, they may ask the judge to dismiss your case. Reasons for dismissal could be because you are using bankruptcy to harass your creditors or if you used your credit cards to purchase a large amount of non-essential items just before filing bankruptcy. Additionally, if you received a bankruptcy discharge within the last eight years, you will be disqualified from receiving another discharge in Chapter 7.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a type of personal bankruptcy permits you to maintain possession and ownership of your assets. In return you agree to pay a reasonable percentage of the debt through a payment plan. The trustee will distribute the monthly payments you make to the court to your creditors. Repayment periods last usually three or five years, depending on your income and level of debt. At the end of Chapter 13 bankruptcy, any remaining qualifying debt will be eliminated.

If you are overwhelmed in debt and are considering Chapter 7 bankruptcy, contact a Citrus Heights bankruptcy attorney today to find out what your options are.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy

 

Also called the “liquidation” bankruptcy, Chapter 7 is the quickest and easiest form of bankruptcy. In three to six months, all of your qualifying debt can be eliminated.

Anyone can file Chapter 7 bankruptcy that lives in the United States or has property in the U.S. if they meet eligibility criteria. In order to qualify, you must pass the means test for your state. The means test is used to evaluate whether your income is at or below your state’s median income. Those who pass the means test may qualify for Chapter 7. If your income exceeds the median income of your state, you may be directed to file Chapter 13 bankruptcy instead.

Paperwork

In your initial bankruptcy filing petition, you will file a statement of your finances, your property, income, and expenses. A list of all your creditors and their addresses needs to be listed, and which debt(s) you intend to eliminate in bankruptcy. Your attorney will help you complete these forms and review whether some of your property meets exemption laws.

Automatic Stay

When you file your petition with the court, an automatic stay will immediately go into effect. Once an automatic stay has been filed, creditors are not allowed to contact you regarding your debt. All collection actions must stop, which includes foreclosures, evictions, utility shut-offs, and repossessions.

Trustee

Your court-appointed trustee is there for the interest of the creditors. The trustee will determine if you have any non-exempt property that can be sold to satisfy the creditors. The trustee will only sell items that exceed the limits of the exemption benefits. Most, if not all, of your assets will usually be covered under the exemption laws, helping you prevent the loss of your assets.
If the trustee does find something that falls under the non-exemption rules, you can contest the sale, or pay for the value of the item at that time and not the original sale value. Exemptions laws vary by state, and some states allow you to take the federal exemptions instead. Your bankruptcy lawyer will help you decide which exemptions will work best for your unique situation.

Meeting of the Creditors

The meeting of the creditors is usually held inside of the courthouse but outside of the courtroom. The trustee goes over your paperwork and will ask you some routine questions. You, and if you are filing jointly, your spouse must attend this meeting. Creditors rarely attend these meetings, but might attend if they are contesting the discharge. This meeting will last for about five to thirty minutes.

Discharge

If there are no objections to your case, the court will discharge your debt without a hearing. You will receive the order in the mail. You will no longer be legally responsible for the eligible debt you listed in your original paperwork.
If you have more questions about bankruptcy, contact a Sacramento bankruptcy attorney today.

How fast is a Chapter 7 bankruptcy in California?

How fast is a Chapter 7 bankruptcy in California?

One advantage of a Chapter 7 bankruptcy in California is the short amount of time a debtor can obtain debt relief through a bankruptcy discharge. How fast is a Chapter 7 bankruptcy in California you may ask? While the amount of time a Chapter 7 bankruptcy can be different for everyone depending on their circumstances, here's a general time table that one can expect.

Initial Steps

Before you can file for Chapter 7 bankruptcy in California, you must complete a mandatory credit-counseling course. This course can be completed online and generally takes a few hours. Once completed, debtors can immediately file their bankruptcy petition with the California Bankruptcy Court and can expect a reply from the bankruptcy trustee with the time and date of your 341 Meeting of Creditors within 30 days. A large number of bankruptcy cases, holidays, and even a government shutdown can impact this time somewhat.

341 Meeting and Creditor Notification

The meeting of creditors or 341 meeting, is usually the only court appearance that individuals filing for bankruptcy in California must attend. While creditors seldom attend meetings, they will be notified of the meeting and afterward will have 60 days to file an objection to bankruptcy discharge. If a creditor or the bankruptcy trustee filed an objection to discharge, the court must go through the discovery process and set a trial date to decide the matter. An objection to discharge will obviously delay your Chapter 7 bankruptcy case.

Receiving Your Bankruptcy Discharge

Assuming that none of your creditors object to any of the debts you aim to discharge, then the court will create and mail you a written debt discharge within 2-3 months of your creditors' meeting. Therefore, assuming you provide the bankruptcy trustee with all requested information promptly and no additional motions arise during your bankruptcy case, you can expect a discharge of your eligible debt as soon as 90 days after you file. By obtaining the assistance of an Elk Grove bankruptcy attorney, debtors can also ensure that they will be able to foresee any issues that might arise during the course of the bankruptcy case which might slow down or dismiss a bankruptcy proceeding.

Keeping Non-Exempt Assets in Chapter 7

Keeping Non-Exempt Assets in Chapter 7

When you file Chapter 7 bankruptcy, certain types of unsecured debt, such as credit card debt and medical debt are discharged (wiped out). You are also granted bankruptcy exemptions, which protect certain assets from entering into the "bankruptcy estate". Items in your bankruptcy estate are known as non-exempt and will be sold off by the bankruptcy trustee who will pool that money together and make payments to each of your creditors. There are some situations where you may be able to keep the nonexempt property.

Nonexempt Property

Once your Chapter 7 bankruptcy is confirmed, the bankruptcy trustee will review your bankruptcy petition, identify any non-protected assets and collect and sell them. The proceeds from selling non-protected property are divided up among creditors while also charging a nominal fee for the trouble. Trustees are paid by commission according to how much they sell. Bankruptcy trustees will usually enlist the assistance of an auctioneer or broker to sell off assets. They may also publish a public notice about an item for sale, to be sold to the highest bidder.

Keeping Nonexempt Property

In some instances, if a non-exempt asset has a relatively low value or is difficult to sell the trustee may abandon selling it, allowing you to keep it. While you shouldn't ever expect to keep the non-exempt property if it isn't worth the bankruptcy trustee's time and effort to liquidate the property you may actually be able to keep the non-exempt asset. In addition, you may be able to bid for your own non-exempt property.  If the trustee accepts your offer, you could find yourself keeping your assets after all.

Contact a California Bankruptcy Attorney

As previously stated, an experienced Citrus Heights bankruptcy attorney will be of invaluable in helping to make sure that you protect as much property as you can use in your state's exemptions. Additionally, by enlisting the help of a bankruptcy lawyer, you'll gain insight into how the bankruptcy court and bankruptcy trustees operate in your jurisdiction, which can vary from state to state and district to district.