Chapter 7 of Title 11 of the United States Bankruptcy Code helps discharge debts through the liquidation process under the U.S. Bankruptcy Laws. It is the most widespread method of bankruptcy filing in the U.S.
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Chapter 7 bankruptcy (also known as straight bankruptcy) helps to discharge all your debts through a liquidation process. The court-appointed trustee may cancel many or all of your debts. However, they can also sell (liquidate) some of your assets to pay your creditors.
If you file Chapter 7 bankruptcy, it immediately puts into effect an Order for Relief—informally known as the automatic stay. Once you file for Chapter 7, this automatic stay immediately stops all collection activities on the accounts. So for the time being (until the judgment is made), creditors cannot garnish your wages, empty your savings account, or go after your house, car or other property.
The entire process takes around 3 to 4 months.
You can qualify for Chapter 7 bankruptcy when:
1. You have very low or no disposable income
2. Your monthly income is less than the state median income
3. You have consumer debts
4. You have completed credit counseling and a financial management course
You won’t be able to file for Chapter 7 bankruptcy if:
1. You have already received a bankruptcy discharge in the last six to eight years, depending on the type of bankruptcy you filed.
2. A previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days.
3. You have enough income to satisfy a Chapter 13 plan.
4. The bankruptcy court finds that you have tried to cheat your creditors or concealed your assets.
In Chapter 7 bankruptcy cases, the bankruptcy court exercises complete authority over its cases through a person called the ‘bankruptcy trustee.’ A bankruptcy trustee’s primary duty is to make sure that your creditors’ interests are protected. The trustee works hard to pay back the creditors as much as possible by liquidating your assets. The more assets the trustee recovers from you, the more the trustee is paid.
The bankruptcy trustee will examine your papers to make sure nothing is wrong with them and look for nonexempt property to sell for the purposes of paying off your creditors. The trustee also goes through your financial records from the previous several years to free up assets to liquidate and pay your creditors.
One or two weeks after you file, you and your creditors will receive a notice from the bankruptcy court stating that a creditors’ meeting has been scheduled. The bankruptcy trustee conducts the meeting and, once you swear in, may ask you questions regarding your assets and the papers you have filed. For the meeting, the trustee may ask you to bring copies of your mortgage papers, car titles, latest bank statements, property deeds, tax returns, and paychecks. In most Chapter 7 bankruptcy cases, this is perhaps the only visit to the courthouse that a debtor has to make.
Once you’ve finished all the required steps in the bankruptcy process, the court will wipe out your debt, except:
Filing for Chapter 7 bankruptcy is relatively inexpensive, with filing and administrative fees of $338. There are a few other costs associated with filing Chapter 7, including possible fees like appraisal fees, title search charges, required pre-filing credit counseling, and a post-filing course on financial management.
The bankruptcy trustee charges a fee for monitoring your case that may range between $15 and $20, which may increase the cost to file Chapter 7. If you can’t afford the cost of filing Chapter 7, then you can ask the court to allow you to pay the filing fee in installments.
A Chapter 7 bankruptcy attorney typically charges a fee between $500 and $3500. So, the cost goes up even further.
If the bankruptcy trustee determines that you have some nonexempt property, you are required to either yield that property or provide the trustee with its equal value in cash. However, if the property’s value is not enough to pay off the debt, or is troublesome for the trustee to sell, the trustee may abandon the property. This means that even though the property is nonexempt, you can keep it.
The list of exempt and nonexempt property varies from state to state. You can find out the details of exempt and nonexempt property in the bankruptcy laws of your state.
If you have secured debt, which are debts you incurred by providing collateral, and if you are behind on your bills, the creditor may ask the court to raise the automatic stay to repossess or foreclose on your property. However, if you are paying your bills on time, you can keep your property and make the payments as before.
Again, if a creditor has imposed a lien on your property on an unpaid debt, the debt will be considered secured. However, if you file for Chapter 7, you may be able to remove the lien.
Yes. Chapter 7 bankruptcy laws allow you to file bankruptcy without your spouse. However, it may affect your spouse, depending on:
1. Whether or not you have joint assets or debts with your spouse
2. The property and bankruptcy laws in your state
3. Whether you’re filing Chapter 7 or Chapter 13 bankruptcy
If you file bankruptcy without your spouse, remember that discharged joint debts will be reported on your spouse’s credit report as well as yours. Also, creditors can still come after your spouse for payments since the automatic stay will not be imposed on them because they are not under Chapter 7 bankruptcy protection.
1. You have committed bankruptcy fraud
2. You don’t pass the means test
3. You don’t complete the compulsory education course
4. You don’t pay your Chapter 7 bankruptcy filing fees
5. You don’t submit the necessary bankruptcy forms and documents
6. You don’t attend the 341 meeting
Good news! You can.
Usually, filing Chapter 7 involves three steps.
You can do the first two steps online, but you have to attend the 341 meeting in person. It’s best to consult an attorney before filing for Chapter 7 bankruptcy online because an experienced bankruptcy attorney will know the steps and laws.
It stays on your credit report for ten years.
On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) came into effect - the biggest amendment to the US Bankruptcy Code since 1978. One of the major stated purposes of this amendment was to prevent abuses of bankruptcy laws. These are some of the new requirements that came into effect as the result of BAPCPA.
Debtors filing for Chapter 7 bankruptcy are now required to fill out the Official Bankruptcy Form, 22A. This form is meant explicitly for means test debtors’ eligibility to file bankruptcy by requiring them to disclose their monthly income and expenses.
The means test is used to determine whether your income is low enough for you to file Chapter 7 bankruptcy. The means test is essentially a formula designed to keep filers above a certain income level from filing Chapter 7 bankruptcy. This doesn’t mean that you have to be broke to qualify. You can have significant monthly income and still pass the means test if you have high expenses, such as huge mortgage payments.
Eligibility to file is another section of the law that BAPCPA changed drastically. In the changed legislation, no debtor is eligible to file for Chapter 7 unless the debtor receives an individual or group briefing from a nonprofit credit counseling agency approved by the US Department of Justice within 180 days of filing. The debtor should also complete an instructional course concerning personal financial management. Not doing this may compromise the bankruptcy.