Chapter 7 Bankruptcy
How Chapter 7 bankruptcy works.
Chapter 7 bankruptcy is sometimes called "straight" or "liquidation" bankruptcy -- it cancels your debts, but you might have to let the bankruptcy court sell some of your property for the benefit of your creditors.
Chapter 7 Bankruptcy Costs in Time and Money
The whole Chapter 7 bankruptcy process takes about four to six months, costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.
You must also complete credit counseling with an agency approved by the United States Trustee. (For a list of approved agencies in each state, go to the Trustee's website, www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education.")
Who Can File
You can only file Chapter 7 bankruptcy if you didn't already receive a bankruptcy discharge in the last 6-8 years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. We can quickly tell you whether you meet the criteria in a quick and free consultation.
The Automatic Stay
Filing for Chapter 7 bankruptcy puts into effect an "Order for Relief" also called "automatic stay." The automatic stay immediately stops most creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally garnish (get hold of) your wages, your money in a bank account, your car, house, or other property, or even cut off your utility service or welfare benefits.
The Bankruptcy Trustee for Chapter 7 Bankruptcy
The court exercises its control through a court-appointed person called a "bankruptcy trustee." The trustee's primary duty is to see that your creditors are paid as much as possible on what you owe them.The trustee (or the trustee's staff) will examine your papers to make sure they are complete and to look for nonexempt property to sell for the benefit of creditors. The trustee will also look at your financial transactions during the previous year to see if any can be undone to free up assets to distribute to your creditors. In most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell. Again, we will guide you carefully through this process.
The Creditors Meeting
A few weeks after you file, you will receive a notice that a "creditors meeting" has been scheduled. The bankruptcy trustee runs the meeting and, after swearing you in, may ask you questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 bankruptcies, this will be your only visit to the courthouse.
What Happens to Your Property
If, after the creditors meeting, the trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the trustee with its equivalent value in cash. If the property isn't worth very much or would be cumbersome for the trustee to sell, the trustee may "abandon" the property -- which means that you get to keep it, even though it is nonexempt. We can tell you more on whether your property will be considered exempt or not.
Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property.
The Chapter 7 Bankruptcy Discharge
At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except:
- debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
- debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).
I know you have many questions. Please don't hesitate to give us a call anytime! The initial consultation will be free.