Chapter 7
Chapter 7 of the United States Bankruptcy Code is a provision under federal law that relieves an individual or business from most debt obligations. The filing is designed to give the filer control over his or her financial situation to promote economic stability and success. In a Chapter 7 Bankruptcy, also known as “liquidation bankruptcy,” a debtor’s non-exempt assets are sold by the bankruptcy trustee, and the proceeds are distributed among creditors. Most debts in a Chapter 7 Bankruptcy are completely discharged, allowing the filer the ability to start over with a clean slate, as the debtor is not required to repay creditors. Once a Chapter 7 bankruptcy petition is filed in court, all creditors are put on notice of the filing and an automatic stay is issued, preventing creditors from proceeding with foreclosures, evictions, utility shutoffs, repossessions and wage garnishments.
The Law
- Federalbankruptcy law is contained in Title 11 of the S. Code. Congress passed the Bankruptcy Code under its constitutional grant of authority to “establish… uniform laws on the subject of Bankruptcy throughout the United States.”
- Bankruptcy proceedingsare supervised by and litigated in Bankruptcy Court, which is part of the Federal District Court system. Congress established the S. Trustee Program to oversee the administration of bankruptcy proceedings, and authorized the U.S. Supreme Court to promulgate the Federal Rules of Bankruptcy Procedure.
- The Chapter 7 filing frees an individual from having to pay dischargeable debts. These include credit card balances, bank loans, personal loans, court judgments, and medical bills. Note, however, that there are certain non-dischargeabledebts that typically must be paid. These generally include tax debts, student loans, government fines, court fines, as well as child and spousal support.
- A person who successfully files Chapter 7 bankruptcy can retain all property categorized as exempt. Commonly exempted property includes:
(1) a certain amount of equity in your home;
(2) a certain amount of equity in a motor vehicle;
(3) most household items and personal property such as clothing, a wedding ring, or the tools of your trade;
(4) most public benefits such as social security, disability, veterans’ benefits and worker’s compensation;
(5) alimony (spousal support) and/or child support;
(6) qualifying retirement accounts, pensions, and life insurance;
(7) a limited amount of cash.
Eligibility Requirements
- Your eligibility depends on your financial means versus your debt obligations.
- A two-step income and expense analysis, the means testis used to determine if you qualify. Our attorneys can guide you through the means test and help you to determine if you are an eligible candidate for Chapter 7 bankruptcy.
- In the event you are not eligible, we can help you to explore other options such as Chapter 13 bankruptcy.
Benefits of the Law
- Once the collection agencies are notified of the bankruptcy filing, they are required by law to stop contacting you.
- You are relieved of most financial obligations and given a “fresh start.”
- Debts can be discharged in as little as three months.
- In some instances, declaring bankruptcy can stop home foreclosure proceedings as well as deter the repossession of property.
- You may be able to keep your property through legal exemptions
