In Chapter 7 bankruptcy cases, also known as liquidation bankruptcies, the court liquidates your nonexempt assets and distributes the proceeds to holders of claims in order to wipe out your debts. This article provides the basic information you need to know in filing for bankruptcy under Chapter 7.
Eligibility for Chapter 7 Bankruptcy
Individuals, partnerships, or corporations may be qualified to file for bankruptcy under the bankruptcy code, regardless of the amount owed or whether the debtor is solvent or insolvent. In addition, individual debtors are subject to a means test, to determine if their Chapter 7 filing is presumptively abusive.
However, you cannot file bankruptcy for Chapter 7 if you:
- had a bankruptcy petition dismissed in the last 180 days due to willfully failing to appear or comply with the court’s orders;
- voluntarily dismissed the previous case after lenders sought relief from stay to recover properties part of a lien; and
- have not received credit counseling from an approved credit counseling agency within 180 days prior to submitting the bankruptcy petition.
Bankruptcy Forms for Chapter 7
The bankruptcy process begins after a petition is filed at the bankruptcy court. The official bankruptcy forms include bankruptcy petitions, statement of financial affairs, and schedules, which require the petitioner to provide detailed information regarding:
- their assets and liabilities;
- their current income;
- their monthly living expenditures;
- properties they claim to be exempt; and
- their creditors and the amount and nature of their claims.
Consult with a local bankruptcy attorney to determine whether your properties may be exempt under your state’s law.
Additional filing requirements for those seeking debt-relief but have primarily consumer debts include submission of:
- a certificate of credit counseling and a copy of the developed repayment plan, if any;
- proof of payment from employers received 60 days prior to filing if any;
- a statement of monthly net income, including any anticipated increase in income or expenses after filing; and
- a record of any interest the debtor has in federal or state qualified education or tuition accounts;
- a copy of your most recently filed income tax returns must also be sent to the trustee assigned to your bankruptcy case
Costs of Filing Bankruptcy
Some of the costs for filing bankruptcy include case filing fees, miscellaneous administrative fees, and a trustee surcharge, which typically amounts to around $400. If you are given permission by the court, then you may pay in installments, where the final installment is made no later than 120 days after filing the petition.
A lender cannot collect from you or your property once the process of bankruptcy has begun due to an injunction called the automatic stay. The stay does not require a judicial order to be put in effect, and the bankruptcy clerk gives notice of the case to all creditors listed in your submitted forms.
Roles of the Bankruptcy Trustee
The case trustee reviews the petitioner’s paperwork, schedules a meeting of creditors where the borrower will be put under oath and asked questions regarding the property and financial situation. The trustee liquidates the borrower’s nonexempt property and assets in order to maximize the returns to the lender. The bankruptcy trustee is also granted powers which allow them to:
- set aside preferential transfers made to creditors within 90 days before the petition;
- undo improperly executed security interests and other pre-petition transfers of property; and
- pursue non-bankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law.
Moreover, if the debtors are business entities, the trustee may operate the business for a period of time if it is in the creditors’ interest, and the court grants permission.
Getting a bankruptcy discharge releases you from personal liabilities for your debts. Once a debt is discharged, lenders can no longer collect from you or initiate legal action. However, certain debts cannot be discharged by liquidation bankruptcy, including alimony, child support, fraudulent debts, specific taxes, and student loans.
Since Chapter 7 discharges are subject to many exceptions, you should consult competent legal counsel before filing to discuss the scope of the discharge. If you are considering filing bankruptcy, schedule a consultation with Pasadena Bankruptcy Attorney.