If you are considering filing bankruptcy, the Law Office of Brian R. Lewis understands your questions and we can help you navigate your way through this very confusing process.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the most common type of personal bankruptcy because it allows for the liquidation of assets to satisfy an individual’s debt. However, the overwhelming majority of bankruptcy filers keep their home, automobiles, as well as their belongings. Once your Chapter 7 bankruptcy proceedings are complete, your debts that are not accepted from discharge are eliminated, and you no longer owe your creditors money for those debts.
There is a limit in terms of household income in order to qualify for a Chapter 7 bankruptcy. In some instances, filing a Chapter 13 bankruptcy may the only possible bankruptcy alternative. Because every situation is different, it is important that you consult with a Massachusetts Bankruptcy Attorney to discuss your individual circumstances before making the decision to file for Chapter 7 bankruptcy.
Who Should File for Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is commonly filed in situations in which an individual owes a large amount of debt, but does not have sufficient assets or income to repay any of the debt.
Examples of circumstances where Chapter 7 bankruptcy may be appropriate:
- • An individual has a large amount of credit card debt and medical bills that cannot be repaid within a reasonable period of time.
- • You earn just enough income to cover living expenses, with no money left to pay off any outstanding debts.
- • You were unemployed for a period of time and cannot catch up on your debt.
- • You have a home or vehicle but there is no equity in that home or vehicle after you take your exemption entitlement.
- • Individuals
- • Partnerships
- • Sole proprietorships
- • Corporations
- • You must reside or have a place of business in the state where you file.
- • You must have had no prior bankruptcy filing dismissed for cause within the federally mandated time file.
- • You must have had no prior discharge under Chapter 7 bankruptcy within the past eight years.
- • Your income must be below certain state median level. This will vary depending on the size of your household. (However, having income that exceeds the median does not always make one ineligible to file a chapter 7.)
- • Schedule of assets and liabilities
- • Statement of financial affairs
- • Schedule of income and expenditures
- • Schedule of executor contracts and unexpired leases
- • Schedule of exempt property
- • Student loans
- • Most federal, state, and local tax deficiencies
- • Government fines and penalties
- • Criminal restitution
- • Alimony and child support payments
- Debt incurred by fraud or misrepresentation
Who is Eligible for Chapter 7 Bankruptcy?
Each of these mentioned above are all eligible to file for Chapter 7 bankruptcyprotection. However, it is important to note that this form of bankruptcy is most commonly a personal bankruptcy.
Generally, to be eligible for Chapter 7 bankruptcy, you must meet the following requirements:
For an individual to be eligible for Chapter 7 bankruptcy, he or she must pass the "Means Test," one of the new bankruptcy rules passed in 2005. This test first determines if the debtor’s average monthly income is at or less than the median family income for a family of comparable size in Massachusetts for the six month period prior to filing for bankruptcy. If your income meets this requirement, then you may be eligible to file for Chapter 7 bankruptcy.
If your household income exceeds the relevant median family income, a more complicated analysis must be completed to determine eligibility. This analysis involves incorporating living expenses to determine whether the debtor’s disposable income is low enough to qualify for Chapter 7 bankruptcy.
If a particular debtor does not qualify for Chapter 7 bankruptcy under the “Means Test”, he or she may still file for Chapter 13 bankruptcy.
How Does Chapter 7 Bankruptcy Work?
Filing the Chapter 7 Bankruptcy Petition
The Chapter 7 bankruptcy case begins with the filing of a petition with the court. The Chapter 7 bankruptcy petition must include a list of all creditors and the amount due to each creditor. In addition, debtors must also provide the following to the court: >
Debt Counseling and Additional Requirements in Consumer Bankruptcy Cases
Consumer debtors have additional filing requirements. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), consumers facing Chapter 7 bankruptcy must complete a one-session credit counseling program in order to qualify for filing for bankruptcy. This credit counseling is not difficult and it is done to assist you in making good decisions regarding your debt solution.
While the bankruptcy case is pending, you must also complete an approved financial management course. This also must also be filed with the bankruptcy court in order to get your final discharge.
Automatic Stay
An "automatic stay" is the legal term for the end of debt collection actions against an individual during a bankruptcy. This stay is what will end all of those awful, relentless and harassing collection calls you might now be enduring. This is the first sign of debt relief you will see during the process. Also, during this period, creditors may not initiate or continue lawsuits against you, garnish your wages, take your property, or other such actions without permission of the court. The stay is put into effect as soon as the bankruptcy petition is filed.
Providing Notice to Creditors
Once the bankruptcy petition is filed, notice will be sent to all creditors listed in the Chapter 7 bankruptcy petition. Twenty to forty days after the petition is filed, a meeting of the creditors will be held. During this time you and your Massachusetts Bankruptcy Attorney will meet with a Court-appointed trustee. You will be asked questions under oath about your financials as listed in your petition. The creditor’s meeting typically lasts no longer than 5 to 10 minutes and does not take place in a courtroom.
Appointing a Trustee
Immediately after the bankruptcy petition is filed, the bankruptcy court appoints a trustee to oversee the case to determine if there are any non-exempt assets. The trustee has a duty to sell the debtor’s non-exempt property in order to increase the amount paid to the creditors or, in the alternative, to request an equal sum of money from the debtor. If the debtor has no assets to liquidate, the trustee files a "no asset" report with the court requesting that any the debtor’s unsecured debts be forgiven.
The Discharge of Debt
After the trustee liquidates all non-exempt assets, or files a "no asset" report with the court, the trustee distributes the sale proceeds to the creditors - if there has been a liquidation of any assets.
Creditors have 60 days following the creditors meeting to challenge the debtor’s right to discharge that creditor’s particular debt. As your bankruptcy attorney will advise you, there are very specific and limited circumstances under which an unsecured creditor can challenge a discharge of the debt owed to them. If no such challenges are made, you should receive a discharge approximately four months after the bankruptcy petition was filed. The "discharge" is the court’s order which forever extinguishes your debts which are dischargeable.
What Debts are Not Dischargeable through Chapter 7 Bankruptcy?
Most debts are dischargeable in bankruptcy. However, certain debts are not dischargeable in Chapter 7 bankruptcy. These debts typically include:
Filing Chapter 7 Bankruptcy with a Bankruptcy Attorney
Bankruptcy can be a difficult decision as well as a difficult process if you don’t have the proper representation to help you through this process. We, the Law Office of Brian R. Lewis, are here to guide you through this confusing situation. By contacting us for assistance, we will provide you with a free initial consultation during which time we will discuss your circumstances and recommend a course of action. If you are considering bankruptcy, call the Law Office of Brian R. Lewis today!