CHAPTER 7


Liquidation Under the Bankruptcy Code

Chapter 7 of the Bankruptcy code allows for "liquidation," ( i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)

    a. Alternatives to Chapter 7
    b. Background
    c. Chapter 7 Eligibility
    d. How Chapter 7 Works
    e. Role of the Case Trustee
    f. The Chapter 7 Discharge

Background

Chapter 7 bankruptcy does not involve the filing of a repayment plan. Instead, the your nonexempt assets are sold and the proceeds are used to pay your creditors. Part of the your property may be subject to liens and mortgages that pledge the property to other creditors. Additionly, the Bankruptcy Code allows you to keep certain "exempt" property. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

Chapter 7 Eligibility

To qualify for a Chapter 7 Bankruptcy, the debtor may be an individual, a partnership, or a corporation or other business entity. Chapter 7 offers relief regardless of the amount of the your debts or whether you are solvent or insolvent, you will be subject to the means test described below. You cannot file a Chapter 7 Bankruptcy or any other type of Bankruptcy if you filed a Bankruptcy less then 180 days prior and that Bankruptcy was dismissed for failure to comply or you voluntarily dismissed the previous Bankruptcy. Additionally, you must receive credit counselling from an approved credit agency within 180 days prior to filing to be eligible for relief under Chapter 7 or any chapter of the Bankruptcy Code. There may be exceptions to this rule in the event of emergency or where the U.S. trustee determines there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

The primary purposes of Bankruptcy is to discharge certain debts to give you, the honest individual debtor, a "fresh start." As a result, you have no liability for discharged debts. In a Chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

How Chapter 7 Works

Chapter 7 Bankruptcy begins when you file a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. Additionally you must also file the following with the court:

(1) schedules of assets and liabilities;
(2) a schedule of current income and expenditures;
(3) a statement of financial affairs;
(4) a schedule of executory contracts and unexpired leases.

You must also provide the trustee with a copy of tax returns for the most recent tax year as well as any tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). If your debts are primarily consumer debts you may also be required to file the following:

(1) a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling;
(2) evidence of payment from employers, if any, received 60 days before filing;
(3) a statement of monthly net income and any anticipated increase in income or expenses after filing; 
(4) record of any interest the debtor has in federal or state qualified education or tuition accounts.


A husband and wife may file a joint petition or individual petitions. If a joint petition is filed, you and your spouse are subject to all the document filing requirements of individual debtors.

Chapter 7 filing fees  include: 
(1)
$245 case filing fee; 
(2) $39 miscellaneous administrative fee;
(3) $15 trustee surcharge.

Fees are due upon filing, however, individual debtors may be allowed to pay in installments in certain situations. A joint petition includes only one filing fee, one administrative fee, and one trustee surcharge. You must be aware that failure to pay these fees may result in dismissal of the case.

If your income is less than 150% of the poverty level and you are unable to pay the Chapter 7 fees even in installments, the court may waive the fee requirements.

Completion of the Official Bankruptcy Petition, statement of financial affairs, and schedules, requires that you provide the following information:

1. A list of all creditors and the amount and nature of their claims;
2. The source, amount, and frequency of the debtor's income;
3. A list of all of the debtor's property;
4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

This information, along with your spouse's is required for married couples that decide to file individual petitions. When only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

You are also required to file a schedule of "exempt" property. You may be alloowed to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor's home state. Call our firm immediately to determine the exemptions available to you.

Filing a petition under Chapter 7 stops ("automatically stays") most bill collectors and collection agenicies from attempting to collect the debt you may owe. The filing of the Chapter 7 should stop most bill collectors from harassing you day and night. As long as the stay is in effect you should be protected from all attempts at debt collection. Notice of your Chapter 7 is given to all creditors whose names and addresses are provided by the debtor.

A meeting of creditors on your case is typically held 20-40 days after your petition is filed. During this meeting, you are placed under oath and asked questions by the trustee and your creditors attorneys. This can be a duanting proposition for any consumer to approach without the representation of an experienced lawyer. During joint filings with your spouse, you are both required to attend this creditors' meeting and answer questions under oath. Within 10 days of the creditors' meeting, the U.S. trustee will report to the court whether the case should be presumed to be an abuse under the means test.

You are required to cooperate with the trustee and provide financial records or documents requested. The Bankruptcy Code requires the trustee to ask you questions at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect of reaffirming a debt.

The Chapter 7 Discharge

A discharge releases you from personal liability for most of your debts and prevents unscrupulous creditors from taking any collection actions against you. A Chapter 7 discharge is subject to many exceptions that may prove too difficult for consumers to navigate through. Call our firm today for your FREE consultation. Our firm offers over 60 years of legal and bankruptcy experience to help you during these times.

You may be denied a discharge in your Chapter 7 case for the following reasons:

(1) failed to keep or produce adequate books or financial records;
(2) failed to explain satisfactorily any loss of assets;
(3)
committed a bankruptcy crime such as perjury;
(4) failed to obey a lawful order of the bankruptcy court;
(5) fraudulently transferred, concealed, or destroyed property that would have become property of the estate;
(5) failed to complete an approved instructional course concerning financial management.

If you wish to keep certain secured property (such as an automobile), you may decide to "reaffirm" the debt. A reaffirmation is an agreement between you and the creditor that you will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as you continue to pay the debt.

If you decide to reaffirm a debt, you must do so before the discharge is entered. You must sign a written reaffirmation agreement and file it with the court. In some instances the court may decide not to approve the reaffirmation agreement. Call our law firm today for your FREE consultation regarding your rights buring a bankrutpcy.

You will receive a discharge for most your debts in a chapter 7 bankruptcy case. Upon disharge, creditors may no longer initiate or continue any legal or other action against you to collect a discharged debt. Unfortunately, not all of your debts are discharged in Chapter 7. Debts not discharged include:

(1) debts for alimony and child support;
(2) certain taxes;
(3) debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit;
(4) debts for willful and malicious injury by the debtor to another entity or to the property of another entity;
(5) debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances;
(6) debts for certain criminal restitution orders.

 You will continue to be liable for these types of debts to the extent that they are not paid in the Chapter 7 case. Call our law firm today for your FREE consultation. We have more then 60 years of legal and bankruptcy experience to offer you during these troubling times. 

Alternatives to Chapter 7

You should be aware that there are several alternatives to c|Chapter 7 relief. If you are engaged in business, including corporations, partnerships, and sole proprietorships and prefer to remain in business and avoid liquidation you should consider filing a petition under Chapter 11 of the Bankruptcy Code. Under Chapter 11, you may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under Chapter 13 of the Bankruptcy Code. Call our firm today for your FREE consultation regarding your CHapter 11 or Chapter 13 Bankruptcy. 

Additionally, you may be seeking an adjustment of debts under Chapter 13 of the Bankruptcy Code. A particular advantage of Chapter 13 is that it provides you with an opportunity to save your home from foreclosure by allowing you to "catch up" past due payments through a payment plan.

The Means Test

If your "current monthly income"
is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the Chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $10,000, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,000. You may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless you overcome the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's consent) or will be dismissed. 

As you see, the Bankruptcy process is very complicated and provided numerous challenges to consumers not represented by experienced lawyers. Call our firm today for your FREE consultation. Stamatakis & Thalji, P.L. has more the 60 years of combined legal and Bankruptcy experience to offer you. Call today.

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