Chapter 7

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes called the “liquidation” bankruptcy. It discharges (i.e. eliminates your obligation to pay) most types of debt, but you must let the bankruptcy trustee sell your nonexempt property for the benefit of your creditors. In most cases, an experienced bankruptcy attorney can protect most or all of your assets from being sold by the Trustee. It would be our job as your attorney to use applicable exemption laws to protect your property.

Eligibility

Before 2005, most bankruptcy filers were free to choose between Chapter 7 and Chapter 13. The new bankruptcy laws attempt to force people who could afford to pay back some of their debts over time to file under Chapter 13.

If the Trustee determine that, based on your income, that you could afford a Chapter 13 plan, the U.S. Trustee will file a motion to have your case dismissed. If your currently monthly income is no more than the state’s median income for a household of your size, your Chapter 7 bankruptcy case will most likely not be dismissed.

If your income exceeds the state median income, you will have to take what’s called the “Means Test” to determine whether or not you qualify. If you cannot pass the Means Test, you might consider filing for Chapter 13.

Contact our offices for a free case evaluation to discuss whether or not you can pass the Means Test, thus qualifying you for Chapter 7 bankruptcy.

While the decision to file for bankruptcy may be a difficult one, there are many immediate and long term benefits to filing a Chapter 7 bankruptcy. These benefits include:

  • Most importantly, Chapter 7 will result in a discharge of all or most of your debt (credit cards, medical bills, lawsuit judgements, lease obligations, personal loans, etc.);
  • Filing for bankrutpcy provides you with the protection of the bankruptcy court. You can immediately stop harassing creditor phone calls.
  • Similarly, upon filing you can stop a collections lawsuit from continuing.
  • Chapter 7 will stop wage garnishment (also, you can recover any amounts that have been garnished in the previous 90 days);
  • Filing under Chapter 7 will temporarily stop a car from being repossessed or stop a home foreclosure;
  • After receiving a discharge you can start to rebuild your credit. Most of my clients see a credit score increase of 100 points within one year of receiving a discharge.

A Chapter 7 bankruptcy will allow you to move forward with your life, free of debt. Do not hesitate to contact our offices if you have additional questions about the benefits of bankruptcy.

The Chapter 7 Process

  1. Goodman & Dicus LLP will schedule a consultation to review your case.
  2. Prior to filing, you will need to complete an online credit counseling course.
  3. After reviewing your information, an attorney will prepare your bankruptcy petition.
  4. We will schedule an appointment to review the bankruptcy petition, answering any questions, and sign all required documents.
  5. We will file the complete petition with the court and pay all court fees.
  6. The court will schedule a “meeting of the creditors.” This meeting with the Trustee is mandatory, but an attorney will attend with you. This hearing is typically scheduled about one month after the petition is filed.
  7. Sometime after filing, you will be required to complete an online financial management course. This course is mandatory, and must be completed before the case is closed.
  8. After the meeting of creditors, nothing can happen for 60 days.
  9. Sometime after the 60 day period, the judge may order a discharge of your debt.
  10. The case is typically closed within one week of the judge ordering the discharge.

What will happen to my home if I file for bankruptcy? 

If you have non-exempt equity in your home, Chapter 7 bankruptcy may not be the best strategy to deal with your debts. If that is the case, the Trustee may have the power to sell your home. If you do not have non-exempt equity, you must keep making your payments before, during and after bankruptcy. If you have already missed payments, you’ll have to make them up to avoid foreclosure. Chapter 13 (link) provides many opportunities for saving a home that are unavailable in Chapter 7 (link).

What will happen to my car if I file for bankruptcy? 

There are ways to protect your car when you file for bankruptcy. If you still owe money on the car, your lender will typically not repossess the vehicle if you continue to make your regular monthly payments. If your car is paid off, then you will need to protect it from the Bankruptcy Court by using the applicable bankruptcy exemption laws.

How long does a Chapter 7 take? 

From the date of filing until discharge (forgiveness of debt) usually takes about 3 – 4 months. Chapter 7 is probably one of the quickest ways to get out of debt once and for all.

Can I avoid being evicted by filing for bankruptcy? 

If the landlord does not already have a judgment when you file, and he or she wants to evict you based on your failure to pay rent or violation of another lease provision, the automatic stay will prevent the landlord from beginning or continuing with the eviction proceedings. However, the landlord can request that the judge lift the automatic stay, and judges tend to grant these requests. If your landlord has already obtained a judgment of possession against you when you file for bankruptcy, the automatic stay won’t help you (with some exceptions). The landlord may proceed with the eviction just as if you had never filed for bankruptcy.

Will I lose my retirement account or pension? 

Not likely. When it passed the new bankruptcy law in 2005, Congress created a broad exemption for all types of tax-exempt retirement accounts, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs, and defined benefit plans.

Can I get my student loans cancelled or reduced in bankruptcy? 

Any “qualified educational loan” will not be discharged in bankruptcy unless the debtor shows “undue hardship.” Undue hardship is defined by the Internet Revenue Code, and is very difficult to prove. Suffice to say, it is extremely difficult to get student loans discharged in bankruptcy.

Should I sign a reaffirmation agreement after I file for bankruptcy?

When you reaffirm a debt, both the creditor’s lien on the collateral and your personal liability survive bankruptcy without a discharge, just as if you never filed for bankruptcy. If you default, you can be held liable for the difference between what the property is resold for and what you still owe under the agreement. Reaffirmation can provide a way to keep certain property, as long as you abide by the terms of the reaffirmation agreement and can be a good way to reestablish your credit. However, you will be legally bound to pay the agreed-upon amount even if the property is damaged or destroyed. And since you cannot file for Chapter 7 again until 8 years have passed since your earlier bankruptcy discharge, you will be stuck with the debt.

Can I be fired because I file for bankruptcy? 

Private employers may not fire you or otherwise discriminate against you solely because you filed for bankruptcy (11 U.S.C. §525(b)).

Chapter 7 – Discharge – Los Angeles

August 2013

Client’s second bankruptcy in just over eight years. All debt discharged and client was able to get out of a vehicle lease that they no longer wanted pay for. All savings and personal property protected with no money going to creditors.

Chapter 7 – Discharge – Riverside

August 2013

All debts discharged and client was able to keep all personal property, including vehicles, business assets, and valuable real estate. Approximately $110,000 was discharged.

Chapter 7 Discharge – Santa Ana

August 2013

Complete discharge of clients debts. Client retained car, savings, and full 401K account. No property of client was sold to pay creditors. Our firm was able to have all previously garnished wages returned through the Chapter 7 Trustee.

Call us directly at (877) 745-9091 for a free consultation with an attorney, or click “Get Started” to provide us with your contact information and we will contact you.