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Top Questions for Chapter 7 Bankruptcy

The practice of filing a Chapter 7 bankruptcy is very common these days. Millions of people file bankruptcy for several reasons. The most common type of Bankruptcy is a Chapter 7 Bankruptcy. It is called Chapter 7 because the laws that guide this kind of bankruptcy are found in “Chapter 7” of the bankruptcy code. Below is information that is frequently asked about in our consultations with clients.

What is a Chapter 7 Bankruptcy?

“Chapter 7” bankruptcy is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by Chapter 7 trustee and proceeds are distributed among the creditors according to the rules established under the Bankruptcy Code. Fortunately, in the vast majority of consumer debt cases (the most common type of case), no assets are actually distributed, as there are no non-exempt assets to liquidate. To determine the eligibility of filing “Chapter 7” bankruptcy, the courts look at the means test. In most of the consumer cases, the assets are exempt, thus there are no assets to liquidate. Chapter 7 is considered to be the simplest and quickest form of bankruptcy and is available to married couples, corporations, and partnerships.

Procedure for Filing Chapter 7

The case is initiated by filing an official petition, schedules, and statement of financial matters. The forms ask you to list all the assets and debts, along with recent financial history. Listing out all the assets and debts is considered to be the most important and time consuming part of bankruptcy filing. It is important to list out every creditor in the bankruptcy documents  with an accurate mailing addresses. Additionally, you are required to list all the debts, even if the debts are nondischargeable or even if you intend to reaffirm the debt.

The schedule also lists your property, any debts secured by the property, and the market value of the property. Property not only includes real property, but also includes personal property. Your choice of exemptions is made on one of the schedules, signed by the debtor under the penalty of perjury. The schedules are filed with the bankruptcy clerk in the district in which you live, or have lived for greater part of the last 180 days. All of the proceedings in bankruptcy after the filing relate to the situation, as it was on the day the case was filed.

The Creditors Meeting

Following the filing of the Chapter 7 Bankruptcy, you will receive a notice that a “creditors meeting” has been scheduled. The meeting is run by the bankruptcy trustee, and under oath, you will be asked questions pertaining to your bankruptcy and papers you filed. In vast majority of the cases, this likely is the only time you will have to go to Court under Chapter 7 Bankruptcy filing. Although your creditors have the right to attend this meeting, very few creditors actually do attend, so meetings generally only last five to ten minutes.

What Happens with the Property?

If during the meeting, the trustee determines that you have some nonexempt property, you will likely be required to surrender the property or provide the trustee cash in exchange of the property. If, however, the property is not worth much or it would be extremely cumbersome for trustees to sell the property, then the property will likely be “abandoned”, meaning you get to keep the property, even though its nonexempt. Determining which property is exempt, varies state by state.
Generally, most property owned by Chapter 7 debtors is either exempt or is essentially considered to be worthless with no value. As a result, few debtors end up having to surrender the property.

How Your Secured Debts Are Treated

If, for some reason, you have pledged your property as a collateral for a loan, the loan is known as secured debt. The most common examples of collateral are houses and automobiles. If you are behind your payments, creditor can ask to have the automatic stay lifted in order to repossess or foreclose the property. However, if you are current on payments, you will be allowed to keep the property and keep making the payments.

Bankruptcy Discharge

At the end of the bankruptcy proceeding, all of the debt is wiped out, in other words discharged. However, some exceptions follow:

  • Child Support
  • Alimony
  • Most tax debts, but income taxes under the right conditions is dischargeable
  • Most student loans
  • Debts that court considers non dischargeable such as debt incurred by fraud or malicious acts.

A complete list of nondischargeable debts can be found here: 11 U.S. Code § 523 – Exceptions to Discharge

This feature is written for educational purposes and highlight some of the most common questions regarding the Chapter 7 Bankruptcy. It is advised that before filing for Bankruptcy that you consult with an experienced bankruptcy attorney that is familiar with filing cases in your  area.  Filing for Bankruptcy does not have to be cumbersome or a burden. Call our office at 770-609-1247 to speak with one of our experienced bankruptcy attorneys today.

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