Chapter 7 Bankruptcy information from a California Attorney
Chapter 7 bankruptcy (Title 11 of the United States Bankruptcy Code) is commonly
known to attorneys, lawyers, and others as a liquidating bankruptcy,
personal bankruptcy, or just plain
"
bankruptcy." It is also referred to as consumer, although businesses can also file under
Chapter 7.
For cases filed after October 17, 2005, eligibility to file Chapter 7
is to be determined by a
means test if your annual income exceeds the
median income for your geographic area as determined by the IRS. Under any Chapter, you are required to list all of your
assets and all of your debts on your petition.
An
asset is anything you own or may have a right to own at some future
date (for example, if you are in someone's will). Some (and in many
cases, all) of your assets will be
exempt. California law provides two
separate sets of exemptions from which to choose. A detailed analysis
of these exemptions is not possible here. Basically, you can exempt any
items normally used for your support and maintenance, such as clothing,
furniture, household goods, and so forth. After you file your case, a
Trustee is appointed. He (or she) will liquidate (sell) all of your
non-exempt assets and pay your creditors according to the priority
afforded to them by the
Bankruptcy Code. You may voluntarily repay any
debt upon agreement with the creditor. Whether this is ever advisable
is questionable and is an issue to be discussed with your attorney.
Click here for an "official" explanation of Chapter 7 prepared by the U.S. Dept. of Justice.
Should you file Chapter 7?
The goal of most any personal
bankruptcy is to discharge or bankrupt your existing debts and allow you a *
fresh
start* on your finances. In other words, once your discharge is
granted, you no longer need to repay the debts that were incurred
before you filed your bankruptcy. Your creditors are entitled to share
in the proceeds obtained from the liquidation of your non-exempt
assets. Under
Chapter 7, the amount your creditors will get is fixed by the value of your non-exempt assets.
Technically, the word "bankrupt" is not the correct terminology when referring to getting rid of debts, but most people use that phrase. "I want to bankrupt my credit cards or bankrupt my student loan debts". The correct legal term is "
discharge". You discharge your obligation to pay on debts. Throughout this webpage, that is the term that will be used to describe getting rid of (bankrupting) debts in bankruptcy.
Certain debts are non-dischargeable in a Chapter 7.
Examples of these are alimony and child support obligations, taxes less
than three (3) years old, student loans (with the sole exception listed
below), and any debts procured by fraud (fraud debts may be
dischargeable in a Chapter 13), incurring debt without a reasonably
certain ability to repay the debt, and so forth.
Assuming you
need to file a bankruptcy, the only way to determine which Chapter to
file under is to first compare your options under the other available
Chapters (with the assistance of a bankruptcy attorney). Generally,
Chapter 7 is the cheapest, quickest and least burdensome of
the three major Chapters (the others being 11 and 13) of bankruptcy law. Costs and fees
vary depending on the number of creditors you have, complexity of your
case, and other factors.
Click here to prepare for and schedule a free phone consultation.If you are an individual, and meet the requirements,
Chapter 7 allows
you to discharge most or all of your debts. It allows you to do this
regardless of how many assets you have or how much your creditors
ultimately receive. It basically allows you to walk away from your
debts and start over.
Corporations do not receive discharges of
debts, but there still may be some benefit to allowing a trustee to
liquidate the assets.
What are some of the disadvantages?
You are only able to receive a discharge after eight (8) years have
passed since the commencement of the last case in which you received a
discharge, although you can file another Chapter 13 case sooner (usually 4 years). Thus, you should not file a bankruptcy if you need the option of
doing it again in the next eight years.
If you are a corporation, you must stop operating your business immediately upon filing the Chapter 7 petition. Only under extraordinary circumstances will the Trustee operate a business.
Payments made to or on behalf of any relatives within twelve
(12) months prior to filing your bankruptcy case are recoverable
by the Trustee in your case. That's right. If you repaid
money during that period to your brother, or made payments on a credit
card that your mother let you use, they will have to pay back that
money to your Trustee who will then distribute it equally to all your
creditors. This is one of the biggest mistakes people make, often
innocently because they don't know they will be filing a bankruptcy,
but that's the law. It's designed to prevent debtors from
preferring one creditor over another. The same is true for
non-relatives, although the lookback period for them (such as credit
cards, etc.) is only ninety (90) days and most people don't really care
if their Trustee sues the credit card company to recover the money.
What about your credit?
The bankruptcy will appear on your
credit report for up to ten (10) years after you file. Other accurate
negative reports on your credit must be removed after seven (7) years
(like late payments on credit cards, foreclosures, etc). However,
according to my former clients, this is usually not as big a problem as
most people think. Credit lending agencies know you won't be able to
file another bankruptcy for at least 6 years, and therefore, they don't
have that risk to bear. You will not get as high a credit limit as you
once had, or be able to borrow a large sum of money, but getting some
credit (such as a secured credit card) shouldn't be that difficult and
you can rebuild your credit over time. What you will likely face is
higher interest rates, required higher down payments, more points, etc.
Some people do have difficulty rebuilding their credit, but it is
usually due to other factors besides bankruptcy, such as their
employment record, other credit problems, etc. In any event, I can
provide you with excellent materials for helping you rebuild your
credit should you so desire.
A word about credit cards and cash advances
Any debt
aggregating more than $550.00 from any single creditor for
non-essential,"luxury" goods, or cash advances totaling over $825.00
on a credit card, incurred or taken within 90 days prior to filing the
bankruptcy, are presumed to be
nondischargeable. The obvious reason for
this is to discourage would-be debtors from "running up" their credit
charges, then filing bankruptcy. To be safe, do not use your credit
cards for anything other than food, clothing and other essentials
during this two month period (actually, it's best not to use them at
all). It may also be considered grounds for objecting to your discharge
if you have taken cash advances on one credit card to pay the minimum
balances on the others, or if you transfer balances from one card to
another shortly before filing bankruptcy. You should consult with your
attorney about your personal situation. This particular provision is
just a presumption of nondischargeability. It does not mean that if you
wait more than 90 days you are magically free from nondischargeability
issues; nor does it mean that if you file the bankruptcy within the 90
days that you won't be able to discharge that debt. What it basically
does is shift the burden of proving that the debt should or shouldn't
be discharged onto the debtor during that 90 day period (rather than on
the creditor where it would otherwise be).
common misspellings: chapter 7 bankrupsy, bankruptsy, bankrupcy, bancrupcy, bankrupt
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