Chapter 7 Bankruptcy
A Chapter 7 bankruptcy case is the most common type of bankruptcy filed. Chapter 7 is referred to as liquidation case and is a court-supervised process during which a Trustee collects assets, reduces those assets to cash and distributes the money to creditors. Debtors have the right to exempt certain types of assets and a certain dollar value of other assets.
Most Chapter 7 cases are referred to as “no-asset” cases because many debtors have little to no non-exempt property to liquidate. In a no-asset case, debtors keep the assets they want without making any payments to creditors at all.
Below is a general description of the framework of a Chapter 7 case. If you want to find out about your specific situation and whether Chapter 7 may be right for you, call Robert Tardif at Bankruptcy Bodyguard.
Eligibility for Chapter 7 Bankruptcy
Although other factors may come into play, in most cases, an individual may file Chapter 7 bankruptcy unless he or she
- Has received a discharge within 6-8 years, depending on the Chapter under which the previous bankruptcy was filed; or
- Has the ability to repay some money to creditor, in which event filing Chapter 13 may be required; or
- Has failed the means test, which is a formal income and debt formula added to the Bankruptcy Code in 2005.
Chapter 7 Process
The first step in a Chapter 7 case is the filing of the petition, schedules, statements and related documents. In addition to listing the names and addresses of creditors, the debtor lists all assets he or she owns and places values on each asset. On another schedule, the debtor lists the assets the debtor seeks to exempt, or protect from creditors.
About 30 days after the case is filed, a creditors’ meeting will be held. Generally, no creditors actually appear. The meeting is an opportunity for the Chapter 7 Trustee to ask the debtor questions under oath. The meeting generally lasts between 5 and 10 minutes. The Trustee represents the interests of the creditors and is trying to determine whether any money can be produced to pay to creditors.
The most common way money is produced to pay creditors is when the value of the debtor’s assets is more than the amount that can be exempted. For example, if the value of the debtor’s assets is $7,500.00, but only $5,000.00 can be exempted (protected), then the value of the debtor’s assets exceeds available exemptions by $2,500.00. This is called the non-exempt “overage”. When an overage exists, normally the Trustee will allow the debtor to pay the overage over 12 months. This is referred to as a repurchase because the debtor is basically buying their assets back. Alternatively, if the debtor cannot pay the overage or simply does not want to pay, the debtor must be willing to surrender assets valued in the amount of the overage. This is where liquidation comes in.
In a Chapter 7 case, the entry of a discharge is automatic as long as no creditor objects to entry of the discharge. Creditors must file objections within 60 days after the creditors’ meeting is initially scheduled. Generally, objections to discharge are associated with bad or questionable conduct of behalf of the debtor before filing.
Entry of the discharge means that the debtor is no longer personally obligated to pay dischargeable debts. Some debts are deemed to be non-dischargeable, including recent income taxes, student loans and support obligations. Entry of a discharge, however, does not eliminate valid liens against a debtor’s assets.
If you would like to learn more about Chapter 7 bankruptcy, give us a call at (239) 362-2755 to set up a free consultation where we will outline how we can help get your financial life back on track.