Chapter 7 of Title 11 of the United States Bankruptcy Code governs the process of liquidation under the U.S. Bankruptcy Laws. Chapter 7 is the most widespread method of bankruptcy filing in the US.
In a Chapter 7 bankruptcy, the court appointed trustee may cancel many or all of your debts. However, he can also sell (liquidate) some of your assets to make payments toward your creditors. Below provided is an outline of Chapter 7 bankruptcy filing - the eligibility criteria, the various forms needed, the complete filing procedure, and the most importantly - the bankruptcy law amendment in 2005.
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Chapter 7 bankruptcy filing is relatively not that much expensive. It takes around four to six months for the whole Chapter 7 process to complete, costs $306 for filing (as of November 1, 2011) and administrative fees. There are also some other costs associated, including appraisal fees if you own real estate, title search charges, pre-filing credit counseling and post-filing course on financial management.
If you have already received a bankruptcy discharge in the last six to eight years (depends on the type of bankruptcy you filed), if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days, if you have enough income to feasibly satisfy a Chapter 13 plan, or if the bankruptcy court finds that you have tried to cheat your creditors or concealed your assets, then you wonât be able to file for Chapter 7 bankruptcy discharge.
In order to file Chapter 7 bankruptcy, you need to fill out a petition and a number of other forms. The forms basically ask you to describe:
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 or current account, go after your house, car or other property.
In Chapter 7 bankruptcy cases, the bankruptcy court exercises its complete authority over the cases through a person called the âbankruptcy trusteeâ. A bankruptcy trusteeâs primary duty is to make sure that the creditorsâ interest is taken care of. The trustee works hard in order to pay back the creditors as much as possible by liquidating your assets, and the more assets the trustee recovers from you, the more the trustee is paid.
The bankruptcy trustee or the associates examine your papers to make sure nothing is wrong with them and look for nonexempt property in order to sell them and pay off your creditors. The trustee also goes through the financial transactions that you made during the previous years. The purpose of doing this is to free up assets and distribute the valuation among your creditors by liquidating them.
One or two weeks after the filing, you and your creditors receive a notice from the bankruptcy court stating that a âcreditors meetingâ has been scheduled. The bankruptcy trustee solely 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 things like copies of your mortgage papers, car titles, latest bank statements, property deeds, tax returns and paychecks. In the vast majority of Chapter 7 bankruptcy cases, this is perhaps the only visit to the courthouse that a debtorâs make.
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 value of the property is not enough to pay off the debt or 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. However, list of exempt and nonexempt property varies from state to state. Find details of exempt and nonexempt property in the US State Bankruptcy Laws.
If you have some secured debts (those which you have obtained by placing collaterals), and if you are behind on your bills, the creditor may ask the court to raise the âautomatic stayâ in order to repossess or foreclose on your property. On the contrary, if you are paying your bills on time, you can keep your property and go on making the bills as before.
Again, if a creditor has imposed a lien in your property as of the debt, which you havenât paid yet, the debt will be taken as secured. However, if you file for Chapter 7, you may be able to remove the lien.
Once all the bankruptcy procedures are complete, the court wipes out all your debts, except:
Read on to find out the advantages associated with filing a Chapter 7 bankruptcy:
On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) came into effect. After the legislation of 1978, this was the biggest amendment to the US Bankruptcy Code. One of the major purposes of this amendment was to prevent abuses of the bankruptcy laws. Some of major changes that took place are as followed:
The main purpose of âmeans testâ is to determine whether or not your income is low enough for you to file Chapter 7 bankruptcy. Means test is nothing but a formula designed to keep filers with high income from filing Chapter 7 bankruptcy. However, this in anyway, does not mean that you have to be bankrupt in order to qualify for Chapter 7. Rather, you can have significant monthly income and still pass the âmeans testâ if you have high expenses, such as huge mortgage payments.
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