What is Chapter 7 Bankruptcy?
Unlike its counterparts, Chapter 7 bankruptcy does not entail the filing of a repayment plan. Many people are leery of Chapter 7 bankruptcy because they think the trustee will sell all of the debtors property. In the vast majority of cases, no property has to be given up or sold. It is important to realize that Chapter 7 does not provide protection against foreclosure, however, so if one of your goals is to save your home through bankruptcy, a Chapter 13 bankruptcy might be more advantageous.
To be eligible for Chapter 7, the debtor must be a person, corporation, partnership, or other business entity. It does not matter how solvent the filer’s debts are. An individual, however, is generally not eligible to file for Chapter 7 protection if he or she has filed in the last 180 days. The filer must also attend a credit counseling course with an approved agency. There are sometimes exceptions in regards to eligibility as determined by the court.
The overall idea of Chapter 7 is to provide the debtor with a “fresh start.” Once the debts have been discharged through the protection plan, the debtor is no longer responsible for those debts. There are some forms of debts that are not dischargeable, such as student loans, child support or income taxes.
When a debtor files for Chapter 7 bankruptcy protection, there are a series of additional forms that must also be submitted. These forms include the following:
- A list of assets
- A list of liabilities
- An income report
- A list of current expenses
- A schedule of any executory contracts and leases
- A copy of the debtor’s most recently filed tax returns
- Proof of credit counseling
- A list of exempt property
Upon filing, the debtor is subjected to a case filing fee of $306. When a petition is filed, an automatic stay goes into effect stopping most, if not all, collection activity. The benefits of the stay, however, are subject to the bankruptcy code and in certain cases do not apply or are temporary.
Not long after the petition is filed, the court’s trustee will hold a meeting for the creditors at which time they can question the debtor under oath. Within 10 days of the meeting, the trustee must report to the court if he or she feels the petition is legitimate. From here, a petition is granted or denied.
Required Documents for Chapter 7
First, create an inventory of all your assets and their fair market value. If you have statements for these items, include the most up-to-date statement. These include:
- Any cash you own
- Annuities or CDs
- Checking and savings accounts
- Profit sharing accounts
- Pension, 401k, IRAs, or other retirement accounts
- Furniture, computer equipment, electronics and other household goods
- Deposits you’ve placed with landlords, utility companies, landlords and more
- Collectible items such as antiques, books, art, etc.
- Any other transport such as boats, airplanes, jet skis, etc.
- Jewelry and luxury clothing (such as furs)
- Sporting equipment, photographic equipment, firearms, etc.
- Insurance policies, stocks and corporate or government bonds
- Any money that is owed to you, such as tax refunds, outstanding personal loans, etc.
- Property settlement documents, such as alimony, support payments, etc.
- Any patents, copyrights, or trademarks you own outright.
- Office equipment and/or machinery
Real Property Information
You will also need to list any and all real property you own and the fair market value of that property. Make sure to include:
- Vacation Homes
- Parcels of land
What Kinds of Debts Are Not Written Off in Chapter 7?
Most debts are legally written off, or discharged under Chapter 7, the most common type of bankruptcy. In fact, bankruptcy law doesn’t tell us what kinds of debts are discharged, instead saying that all debts are discharged except a limited list of those that are not. So, the discharge of debts granted under Section 727 of the Bankruptcy Code applies to all debts except for those listed as exceptions to discharge in Section 523 of the Code.
These listed exceptions to discharge can be divided into two categories: 1) debts which are discharged as long as the creditor does not object, and 2) debts which are not discharged even if no objection is raised by the creditor.
Debts Discharged Unless Objection Raised
Creditors can challenge your ability to discharge three types of debt:
- Debts that arose by you making a false representation or committing fraud to get the loan or other form of credit. This can take the form of an intentional falsehood on a loan application, a cash advances or use of your credit card when you had no intention of paying back that credit, or any other way of deceitfully incurring a debt.
- Debts for theft or embezzlement, for fraud while in a trust relationship, including misappropriation of money or property while in that relationship. This can include stealing from one’s employer, cheating a business partner, or inducing an elderly relative to change his or her will in your favor.
- Obligations resulting from intentionally and maliciously harming a person or business, or its property. This includes bodily injuries and property damage caused intentionally, such as during a domestic disturbance or bar fight.
The person or business which has a claim against you for any of these types of debts must file a formal adversary proceeding within a rather short window of time—usually within 60 days of your meeting of creditors—or else that debt is discharged along with the rest of your debts.
Debts Not Discharged Even if No Objection Is Raised
The following types of debts are not discharged, regardless whether the creditor complains or not:
- Criminal fines, fees, and restitution
- Many, but not all, types of taxes
- Child support, spousal support and maintenance
- Most, but not all, student loans
- Claims for bodily injury or death from driving a vehicle, boat, or aircraft while intoxicated
- Debts not listed on your bankruptcy schedules
Secured Debts in Chapter 7
A secured debt is one in which your obligation to pay is secured by the creditor’s rights the collateral. If you do not stay current on the debt, that triggers the creditor’s ability to pursue that collateral, to repossess a vehicle, for example. Chapter 7, the most straightforward type of bankruptcy, gives you some important advantages in dealing with your secured debts.
The Reaffirmation Option
If you are current on your secured debt and want to keep the collateral, you can almost always do so. People are sometimes afraid that upon filing a bankruptcy they would not be allowed to keep making payments on a vehicle or home. But in fact one very legitimate reason to file a Chapter 7 case is to discharge (get rid of) unsecured debts in order to be able to afford your vehicle or home payments.
However, if you want to keep making payments on a secured debt, you may need to sign a reaffirmation agreement. Just like it sounds, through that agreement you are reaffirming the debt. Why do you need to sign a document agreeing to pay for a debt that you’d already agreed to pay originally? Because your bankruptcy discharge order, which legally writes off your debts, would otherwise write off this obligation as well. A reaffirmation agreement excludes the reaffirmed debt from that discharge. You are choosing to stay legally liable on that debt as if you had never filed the bankruptcy. You should always discuss this with your attorney, though, as there may be situations where this is not advisable.
The Surrender Option
Chapter 7 gives you the option of surrendering the collateral if you do not need or want it any longer, or just can’t afford to make the payments. Surrendering collateral usually doesn’t make sense outside bankruptcy, at least not with “recourse” debts secured by a vehicle or other personal property. That’s because after you surrender the collateral, the creditor will sell it at an auction, usually for less than the balance. Then after adding the auction costs and other fees to the balance, the creditor will come after you for this “deficiency balance.” But in a Chapter 7 case, that balance is discharged, making surrender a much more sensible option.
Top 4 Benefits of a Chapter 7 Bankruptcy
If you are wondering if Chapter 7 bankruptcy is the right choice for your family, you want all the information you can find. Filing for Chapter 7 can be a difficult choice but it does have the ability to change your life for the better.
1. Keep Your House
With Chapter 7 bankruptcy, it is a common misconception that you will lose your house. That is not always the case. If you are current on your house payments, or can soon get current, you can keep your home. Even if foreclosure has been initiated, there still is a possibility you can keep your home. Talk to an experienced debt attorney about the details of your specific case.
2. End Creditor Phone Calls
Those ominous phone calls stop when you file for Chapter 7. When you are struggling to pay your bills, creditors start calling. When you file for Chapter 7, an automatic stay is placed and it becomes illegal for creditors to call you to collect.
3. Get Rid of Unsecured Debt
When you owe massive credit card debt, you can wipe your unsecured debt by filing for Chapter 7 bankruptcy. The payment creditors receive is a portion of the value of seized property. There is often no seized property, but your unsecured debt is still discharged.
4. Quick and Easy
Chapter 7 can be a very quick process. A Chapter 7 bankruptcy case can be over in as little as four to six months. This is much shorter than a Chapter 13 bankruptcy, which can last three to five years.
If you have further questions about Chapter 7 Bankruptcy and what it can do for you, contact Leinart Law at 469-232-3328 today.