CHAPTER 7 BANKRUPTCY - Frequently Asked Questions:
Q: What is a Chapter 7 Bankruptcy?
A. A "Chapter 7 Bankruptcy" is often referred to as "straight" bankruptcy or as "liquidation" in bankruptcy. It is the most common form of bankruptcy filing. In many ways it offers a financial "fresh start" to the qualified debtor by giving the debtor a "discharge" or release from many of his or her debts.
Q: Who can file a Chapter 7 Bankruptcy?
A. Individuals and businesses can file a Chapter 7 Bankruptcy. Married couples can choose to file jointly (one bankruptcy case for both spouses), or either spouse can file an individual bankruptcy case without the other spouse filing. Corporations, limited liability companies and most other business entities can file a Chapter 7 case. In very rare situations, creditors may even file an "involuntary" Chapter 7 case against a debtor.
Q: What are the qualifications for filing Chapter 7 Bankruptcy?
A. To qualify to file a Chapter 7 Bankruptcy, you must not have filed a prior Chapter 7 Bankruptcy within eight (8) years of the date of filing a new bankruptcy, and, if a majority of your debts are consumer or non-business debts, you must have income to the household below certain levels (i.e. You must pass the "Mean's Test"). You must also complete a course or seminar on credit counseling prior to filing your bankruptcy petition.
Q: What is the "Means Test"?
A. The "Means Test" is the common name for a system used in bankruptcy to evaluate whether or not you have the potential ability to repay all or part of your debts, and therefore should be required to file a Chapter 13. The "Means Test" uses an average of your gross or total "household income" for the last six months to determine a "Current Monthly Income". It then checks to see if your Current Monthly Income (after some deductions for taxes, medical insurance payment, secured debt payment, and other items) is more or less than a national average needed for the basic support of a household of similar size. If your adjusted Current Monthly Income is below this national average, then you "pass the Means Test", and you qualify under that system to file a Chapter 7 Bankruptcy case.
Q: Will I lose all of my property if I file a Chapter 7 Bankruptcy?
A. No. In many instances, the debtor may be able to all or most of his/her property. The law allows the debtor to keep all of his/her property to the extent of the "exempt" value claimed in the property. Only the debtor's "non-exempt" assets can be taken by the bankruptcy trustee, and so that the property can be sold to pay as much of the unsecured debt as is possible. However, from the proceeds of any sale, the trustee must pay off any indebtedness secured by the property, must pay the expenses of the sale, and must pay the debtor for the value of any claim of exemption in the property. Household furniture, clothing, most other common items of personal property, many cars, and most real property does not have sufficient equity or value to justify a sale by the trustee, and the trustee will not claim it.
Q: What debts are discharged in a Chapter 7 Bankruptcy?
A. In some ways it is easier to describe what is not discharged in a Chapter 7 Bankruptcy than to state what is discharged. Basically, a discharge is the release of the debtor from the personal liability for the repayment of a debt. It does not release the debtor's property from the claim or right to possession of a valid security interest, lien or mortgage held by a creditor. Most common unsecured debts (credit card debt, medical bills, past due rent, personal loans, etc.) are discharged. The personal liability for repayment of most secured debts is discharged (but, again, not the lien or security interest in the property). Now, read "What debts are not discharged".
Q: What debts are not discharged in a Chapter 7 Bankruptcy?
A. There are two primary classifications of debts which are not discharged in a bankruptcy case. First, debts which are not discharged, and the creditor does not have to do anything to protect its interest. Second, debts which are discharged unless the creditor takes action(s) in the bankruptcy case to assert that the debt should not be discharged.
i. Non-dischargeable Debts (Automatically are not discharged). The most common of these types of debts are child support and other domestic support obligations, student loans, and taxes for recent years. Debts which are not listed in the bankruptcy documents are also not discharged. (Note: You should consult an attorney concerning the potential for the discharge of tax debts.)
ii. Debts that are discharged unless the creditor takes Court action. If the creditor is notified, and does nothing, then the debt is included in the discharge of the debtor. The most common of these types of debt are:
•a. Debts incurred by fraud, false pretenses or false representation debtors' financial condition;
•b. Debts for the aggregate purchase of "luxury goods or services" from one creditor in excess of $500.00 within 90 days before filing;
•c. Debts cash advances or loans for more than $750.00 within 70 days before filing; and,
•d. Debts for willful or malicious acts.
NOTICE: The services or benefits offered are bankruptcy relief under the provisions of the U.S. Bankruptcy Code. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
