CHAPTER 7 OVERVIEW
The term “Chapter 7 bankruptcy” comes from the Federal statute that contains this particular section of the bankruptcy code. When most people talk of bankruptcy, they are generally referring to Chapter 7. This form of bankruptcy is often called personal bankruptcy, straight bankruptcy, or liquidation bankruptcy. Most bankruptcies filed by consumers are Chapter 7's and they represent over 95% of my practice. Chapter 7 is most appropriate when the monthly payment on all of your personal overhead (i.e., rent, car payment, utilities, groceries) exceeds or nearly exceeds your take home pay.
The primary purpose of filing a
Chapter 7 bankruptcy is to discharge most, if not all, of your debts, allowing you a "fresh start". A bankruptcy discharge effectively extinguishes a debtor's personal
liability for dischargeable debts. Although the filing of an individual Chapter 7 petition usually results in a discharge, an individual's right to a discharge is not absolute and some types of
debts are not discharged (i.e. most student loans, taxes, child/spousal support). Moreover, a Chapter 7 bankruptcy discharge does not extinguish a lien on property (although it may be possible
to avoid a lien in a separate procedure).
A Chapter 7 bankruptcy generally takes from 4 to 6 months to complete. In short, a bankruptcy petition is prepared and filed with the court. An examination of the debtor is scheduled approximately 45 days thereafter. If everything is done right, the examination will take less than 90 seconds (most of our cases, anyway). After the examination, the debtor is generally entitled to their discharge 60 days later. Most individuals are required to complete a “credit counseling session” before filing and a “debt education course” afterwards. Both of these requirements can be completed over the internet for a nominal fee.
Filing bankruptcy will
put into effect an "automatic stay". The automatic stay immediately stops your creditors from trying to collect what you owe them. So, at least temporarily, creditors will not be able
to go after your car, bank accounts, house, other property, or garnish your wages (except child/spousal support). Further, the automatic stay will stop most legal proceedings that may be running
Until your bankruptcy case ends, your financial affairs are in the hands of the Bankruptcy Court. The court assumes legal control of the property you own and the debts you owe as of the date you file. For most debtors, this is of little or no consequence. But nothing can be sold without the court's consent (i.e., short sale). You have control, with a few exceptions, of property and income that you acquire after you file for bankruptcy.
The Bankruptcy Court operates through an appointed person called a "bankruptcy trustee". The trustee goes through the papers we file with the court and conducts the above referenced examination at what is called a "341a Meeting of Creditors". While creditors can attend this meeting, they rarely do.
Most people that file Chapter 7 keep everything they own. However, there are limits to what you can keep. In the rare circumstance you are "over-the-limit," you may have to turn over some of your property to the bankruptcy trustee, who will then sell it and pay a dividend to your creditors. You can surrender the property to the trustee, pay the trustee its fair market value, or, if the trustee agrees, swap exempt property for nonexempt property. Very few people actually lose property in a Chapter 7.
If you have pledged property as collateral for a loan, the loan is called a “secured debt”. The most common examples of collateral are houses and motor vehicles. In most cases, you will have the choice to surrender the collateral and wipe out the debt, or make payment arrangements to keep the collateral.
At the end of the bankruptcy process, most of your debts are wiped out by the court. You no longer legally owe your creditors. You will not be able to file for Chapter 7 bankruptcy again for 8 years, but you may still find relief under Chapter 13 if you find yourself in significant debt within the next 8 years.
If you have any questions concerning qualifying for Chapter 7, what assets you may or may not keep, or anything else, give me a call at (714) 962-1892. I will gladly set you up with a free, no obligation, consultation. If you prefer, I will gladly answer all your questions over the phone, or you can email me at email@example.com.