A Chapter 7 is a court proceeding, providing relief for debtors, under the Bankruptcy Code. Chapter 7 bankruptcy is a way to legally discharge your debts giving you a fresh start by eliminating most unsecured debts. A person who files for a Chapter 7 is called a debtor. A debtor may only file a Chapter 7 once every 8 years and certain types of debts are not dischargeable. A Chapter 7 bankruptcy is generally sought by truthful debtors who find themselves in positions of overwhelming debt. Those who file Chapter 7 are protected from collections and harassment from their creditors by the Bankruptcy Code.

QUALIFYING FOR CHAPTER 7 BANKRUPTCY

In order to qualify for relief under chapter 7 of the Bankruptcy Code, the debtor must be an individual, a partnership, or a corporation. 11 U.S.C. §§109(b); 101(41). A debtor may file a Chapter 7 bankruptcy regardless of the amount of debt that is involved. However, it may not be worth it for some to file at all. To determine if a debtor qualifies for a Chapter 7 bankruptcy, a two part test is applied. It must be determined if the debtor has the ability to repay by comparing the debtor’s income to the median state income. If the debtor’s income is in excess of the states median income and is able to repay 25% of their non-priority unsecured debt then the debtor will be ineligible for a Chapter 7 and may be able to proceed with a Chapter 13 bankruptcy. In addition, the debtor must meet with an “approved nonprofit budget and credit counseling agency” within 180 days of filing their bankruptcy petition and must attend money management classes at their own expense before the court will issue a discharge to the debtor.

CHAPTER 7 BANKRUPTCY PROCESS

The Chapter 7 petition is filed with the bankruptcy court in your district. Once the petition is filed, the “automatic stay” takes place, which halts the debtor’s creditors from taking further collection efforts. The bankruptcy clerk assigns the debtor a judge, a trustee, a case number and mails a notice of the bankruptcy to the creditors.

The debtor will be required to appear at the Section 341 Meeting of Creditors about 4-6 weeks after the petition is filed. The trustee will review the petition, schedules and statement of financial affairs. The trustee is there to make sure everything has been filed correctly and to see if there are any assets in which to administer to the debtor’s creditors.

In most of the Chapter 7 cases filed in the United States each year, the trustee comes to the conclusion that the debtor has no assets worthy of liquidation. If the trustee determines that the debtor has no assets worthy of liquidation, then the trustee files a “report of no assets” with the Clerk of the Bankruptcy Court. In a minority of Chapter 7 filings, the trustee will proceed to liquidate some nonexempt assets, from which the trustee pays first his own fees and the fees of his attorneys, accountants and other professionals and then pays the creditors proportionately from the available funds, if any. If the trustee issues a “no asset” report you should receive your discharge within 60-90 days of that meeting.

BENEFITS OF FILING FOR CHAPTER 7 BANKRUPTCY

• Stop creditors from harassing you
• Stop creditor collection letters
• Stop existing lawsuits and new law suits
• Stop wage garnishments and wage assignment
• Stop foreclosures
• Eliminate your debts
• Eliminate certain IRS tax liabilities
• Possibly lower your payments or interest rate
• Get your license back

KEEP YOUR PERSONAL ITEMS

You will be able to keep your personal belongings, i.e., furniture, TV, etc., as long as any of the items do not create an asset that will exceed the exemptions that your state provides for you. In addition, you will also be able to keep your car and/or house as long as they are protected by your states exemptions and have no equity. In order to keep certain financed items, such as vehicles, furniture, jewelry or real estate you may be asked to sign and file a reaffirmation agreement with the bankruptcy court stating that you will continue to make payments. To determine if your property is protected by your states exemptions I encourage you to speak with a bankruptcy attorney.

HOW TO FILE FOR A CHAPTER 7 BANKRUPTCY

The new bankruptcy laws are very complicated. Bankruptcy attorneys have studied the new bankruptcy laws and are in a better position to complete the forms and equations correctly to insure that you get the results you are seeking. To file Chapter 7 bankruptcy you can find the forms and complete them yourself or find a document preparation company to help you complete these forms. For more successful results you should seek professional help from an experienced bankruptcy attorney.

THE NEW BANKRUPTCY LAWS

The bankruptcy laws have changed but many debtors will still be able to get relief under the Bankruptcy Code. There are additional rules and requirements for both the debtor and their attorneys. Every debtor filing for bankruptcy must receive credit counseling from an “approved nonprofit budget and credit counseling agency” before filing a bankruptcy as well as additional counseling on budget and debt management before they can receive a discharge. Additionally, debtors are subject to a means test to determine if they have any disposable income.

In order to file for a bankruptcy, a debtor must receive credit counseling from an “approved nonprofit budget and credit counseling agency” within 180 days prior to filing the bankruptcy petition. The counseling agency must be approved by the trustee. If a debt-management plan is developed between the debtor and the agency, it must be filed with the bankruptcy court. There is an exception to getting credit counseling where there is an emergency and the debtor is not able to receive credit counseling from the approved agency within five (5) days of filing of the bankruptcy petition. In addition, to get your discharge you must attend money management classes after your case is filed.

In order to determine eligibility for bankruptcy, the debtor is subject to a means test. The purpose of the means test is to keep debtors from abusing the bankruptcy system. The means test is a two-part test:

Test 1: “Median Income”

Your average income for the last six (6) months is compared to the median income for your state. If your income is below the median income for your state then you qualify for Chapter 7 bankruptcy. If your income is above your states median income then you must pass test 2.

Test 2: “Disposable Income”

This test deducts expenses from your income expenses to determine how much you can pay your unsecured creditors over five (5) years.

• If you can pay at least $10,000.00 over five (5) years then you can’t file a Chapter 7.
• If you are able to pay at least $6,000.00 over five (5) years and that is at least 25% of what you owe your unsecured debtors, then you can’t file a Chapter 7.
• If you have a disposable income of $100 or less per month then you can file a Chapter 7.

ROLE OF CHAPTER 7 TRUSTEE

The role of a bankruptcy trustee is to oversee the case of a debtor who has filed for bankruptcy. The trustee will review all the documents in your bankruptcy petition. In a Chapter 7 bankruptcy, the trustee’s role is to gather the debtor’s nonexempt property, liquidate it and distribute it to their creditors. If the debt has no nonexempt property, the trustee will usually find a “no assets” case, which means there are no assets to sell from the debtor’s estate and distribute to the creditors.