Chapter 7 Bankruptcy
If you are considering filing for Chapter 7 Bankruptcy protection, please call my office for a free consultation.
Chapter 7, sometimes referred to as “straight”, or “liquidation” bankruptcy, is designed for debtors (individuals like you) in financial difficulty who do not have the ability to pay their existing debts. The main purpose of bankruptcy law is, in fact, to give to a person who is hopelessly burdened with debt a ‘fresh start’ by wiping out his or her debts.
Debtors whose debts are primarily consumer debts and whose income is greater than the median income for their state of residence and family size are subject to a “means test”. This is to determine whether the case should be permitted to proceed under chapter 7. Under the “means test”, your disposable income is calculated by subtracting from your gross income certain statutorily allowable deductions. These allowable deductions are based on regularly inflation-adjusted IRS standards, such as the standard $517 deduction allowed for the debtor’s car payment expense.
If that disposable income exceeds a certain amount, the case trustee (that is, the official who is appointed by the court to oversee your case) might decide to file a motion requesting that the court dismiss your case under § 707(b) of the Code. It would then be up to the court to decide whether the case should be dismissed, or even converted a Chapter 13 case. Conversion to Chapter 13 would mean that a portion of the debts, typically 20-40%, would have to be repaid over a 3-5 year period.
Under chapter 7, you may claim certain of your property as exempt under federal law (for example the $12,625 exemption limit for household goods, furnishings, and appliances, and the $1,600 exemption limit for jewelry). A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. In the vast majority of cases, however, the debtor has no assets above these statutory exemption limits, meaning that the debtor may “exempt”, and therefore keep, all of his assets.
With respect to “secured” assets, such as a house (real estate) or a vehicle, the debtor will in most cases be able to keep the asset so long as he or she is willing to “reaffirm” the debt and keep current on the payments. “Reaffirming” simply means that the debtor signs a written contract agreeing to continue to be liable for the reaffirmed debt – for example the mortgage or car loan – even after receiving a discharge of all other debts.
The purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code (such as having obtained credit by fraud, or the purchase of large luxury items just before filing), the court may deny your discharge and, if it does, the purpose for which you filed the bankruptcy petition will be defeated.
Contact my office today for a consultation. I can help you decide if Bankruptcy is the right choice for you, and you can rest assured that your case will be handled the right way.