What Is An Automatic Stay
After you file for bankruptcy, you have the protection of an immediate, but temporary, automatic stay. The automatic stay can, for example, immediately stop a foreclosure, an eviction, car repossession, or wage garnishment. It can also stop debt collection, harassment, and disconnection of utilities.
The automatic stay may provide a powerful reason for filing for bankruptcy. In most of the situations listed above, the automatic stay can buy you a few days or weeks in which to figure out your next move. If your primary motivation in filing bankruptcy is to gain the benefits of the automatic stay, you donât need to file all of your papers at once. You just need to file the three-page petition, a signature declaration, and a listing of your creditors. In addition, within 180 days prior to filing, you will have to visit an approved credit counseling agency for advice and budget analysis. You will have to file a certification of such counseling when you file your petition. You have 15 days in which to file the rest of your papers. If you donât, your case will be dismissed.
How Long Does Chapter 7 Bankruptcy Take
Most people can file their bankruptcy forms within one week if theyâre organized. The 341 meeting with the trustee who oversees your case takes place about one to two months after you file.
If all goes well, two to three months after your meeting with your trustee, youâll get a letter in the mail that your debt is officially discharged. This means that that Chapter 7 bankruptcy from beginning to the discharge of your debts takes about 3-5 months.
Extent Of Customer Claims
If, after the date of the filing of the petition, an entity enters into a transaction with the debtor, in a manner that would have made such entity a customer had such transaction occurred before the date of the filing of the petition, and such transaction was entered into by such entity in good faith and before the qualification under section 322 of this title of a trustee, such entity shall be deemed a customer, and the date of such transaction shall be deemed to be the date of the filing of the petition for the purpose of determining such entity’s net equity.
An entity does not have a claim as a customer to the extent that such entity transferred to the debtor cash or a security that, by contract, agreement, understanding, or operation of law, is
part of the capital of the debtor or
subordinated to the claims of any or all creditors.
Historical and Revision Notes
senate report no. 95989
Section 746 protects entities who deal in good faith with the debtor after the filing of the petition and before a trustee is appointed by deeming such entities to be customers. The principal application of this section will be in an involuntary case before the order for relief, because §701 requires prompt appointment of an interim trustee after the order for relief.
§12, substituted “claims” for “claim” in section catchline.
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Who Can File Chapter 7 Bankruptcy
Not everyone qualifies for a Chapter 7 discharge. Youâll qualify if your gross income is lower than your stateâs median income. If itâs higher, youâll still qualify if, after paying allowed monthly debts, you donât have enough left over to feasibly complete a Chapter 13 repayment plan.
Other requirements exist, too. For instance, you wonât be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years . And where you can file will depend on how long youâve lived in the state.
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Nonexempt Property Under Chapter 7
Most people who file for bankruptcy do not lose any assets in liquidation because so many types of property are considered exempt. However, some property cannot be protected from creditors during the bankruptcy process. This is known as nonexempt property.
Property that is nonexempt may include:
- Expensive musical instruments
- Collections of stamps, coins, and other valuable items
- Family heirlooms
- Cash, bank accounts, stocks, bonds, and other investments
- A second car or truck
Chapter 7 Bankruptcy Meaning
Chapter 7 bankruptcy is a complete liquidation of a companyâs assets to pay off debts and cancel remaining unsecured debts. At the end of the bankruptcy, the company goes out of business as it has conceded to the courts that it is unable to maintain its operations. The proceeds from the liquidation are used to pay off creditors in a specific order, meaning those who took on the least amount of risk get paid first.
Bankruptcy Definition: What Exactly Is It
Bankruptcy defined as generalized term for a federal court procedure that helps consumers and businesses get rid of their debts and repay their creditors. If you can prove that you are entitled to it, the bankruptcy court will protect you during your bankruptcy proceeding. In general, bankruptcies can be categorized into two types:
Among the different types of bankruptcies, Chapter 7 and Chapter 13 proceedings are the most common for individuals and businesses. Chapter 7 bankruptcies normally fall in the liquidation category, meaning your property could be sold in order to pay back your debts.
Conversely, Chapter 13 bankruptcies generally fall under the reorganization category, meaning that you will probably be able to keep your property, but you must submit and stick to a plan that will allow you to repay some or all of your debts within three to five years.
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The Chapter 7 Discharge
A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004.
The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records failed to explain satisfactorily any loss of assets committed a bankruptcy crime such as perjury failed to obey a lawful order of the bankruptcy court fraudulently transferred, concealed, or destroyed property that would have become property of the estate or failed to complete an approved instructional course concerning financial management. 11 U.S.C. § 727 Fed. R. Bankr. P. 4005.
Liquidation Vs Debt Repayment
A trustee takes over a debtor’s assets in a Chapter 7 filing. These assets are liquidated sold by the trustee in exchange for cash which is then distributed among creditors.
Restructured debt, as found in Chapter 11 bankruptcy, must be repaid according to the new terms agreed upon during the filing process usually over a period of three to five years.
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Section 362 Of This Title In This Subchapter
Notwithstanding section 362 of this title , SIPC may file an application for a protective decree under the Securities Investor Protection Act of 1970. The filing of such application stays all proceedings in the case under this title unless and until such application is dismissed. If SIPC completes the liquidation of the debtor, then the court shall dismiss the case.
Historical and Revision Notes
Section 742 of the House amendment deletes a sentence contained in the Senate amendment requiring the trustee in an interstate stock-brokerage liquidation to comply with the provisions of subchapter IV of chapter 7 if the debtor is also a commodity broker. The House amendment expands the requirement to require the SIPC trustee to perform such duties, if the debtor is a commodity broker, under section 7 of the Securities Investor Protection Act . The requirement is deleted from section 742 since the trustee of an intrastate stockbroker will be bound by the provisions of subchapter IV of chapter 7 if the debtor is also a commodity broker by reason of section 103 of title 11 .
senate report no. 95989
Section 742 indicates that the automatic stay does not prevent SIPC from filing an application for a protective decree under SIPA. If SIPA does file such an application, then all bankruptcy proceedings are suspended until the SIPC action is completed. If SIPC completes liquidation of the stockbroker then the bankruptcy case is dismissed.
How Chapter 7 Bankruptcy Can Affect Your Credit
Bankruptcy will no doubt hurt your credit score, but the extent of its impact depends on your overall credit profile.
In reality, if your debts are so overwhelming that you need to file for bankruptcy, chances are your score is already pretty low to begin with. If thats the case, your score may not see a huge drop at all. However, if you have good credit, you can definitely expect to see a significant dip.
A Chapter 7 bankruptcy can remain on your credit report for up to 10 years from the date filed. The negative impact of the bankruptcy on your credit score will lessen over time, meaning a bankruptcy that is only one year old will have a more significant impact than one that happened eight years ago.
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Reduction Of Securities To Money
As soon as practicable after the date of the order for relief, the trustee shall reduce to money, consistent with good market practice, all securities held as property of the estate, except for customer name securities delivered or reclaimed under section 751 of this title .
Historical and Revision Notes
senate report no. 95989
Section 748 requires the trustee to liquidate all securities, except for customer name securities, of the estate in a manner consistent with good market practice. The trustee should refrain from flooding a thin market with a large percentage of shares in any one issue. If the trustee holds restricted securities or securities in which trading has been suspended, then the trustee must arrange to liquidate such securities in accordance with the securities laws. A private placement may be the only exemption available with the customer of the debtor the best prospect for such a placement. The subsection does not permit such a customer to bid in his net equity as part of the purchase price a contrary result would permit a customer to receive a greater percentage on his net equity claim than other customers.
Chapter 7 Compared To Chapter 13
People who do not pass the Chapter 7 means test have the option to file for Chapter 13 bankruptcy instead. Chapter 13 requires you to pay back debt over time using a repayment plan under which installment payments are made to creditors over three to five years.
You can decide that Chapter 7 is not right for you at any time. Changing to Chapter 11, 12, or 13 filing is allowed as long as:
- You are eligible under the rules for those chapters
- Your case was not already converted to Chapter 7 bankruptcy from one of the other chapters
- You do not try to change the case repeatedly
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Chapter 7 Bankruptcy Petition
A debtor initiates a Chapter 7 bankruptcy by filing a Petition with the bankruptcy court. The bankruptcy petition is a standard federal form that covers substantial financial information about the debtor and their family. Debtors must sign their petitions under oath.
The bankruptcy petition requires the debtor to list all their unsecured debts separately from their secured debts. Unsecured debts include personal loans and credit cards issued by banks, such as Visa, MasterCard, American Express, or Discover, and other credit cards used to purchase consumable items. Vehicle leases, medical bills, and personal loans are also unsecured debts. Tax debt is also unsecured until the IRS issues a tax lien.
Secured debts include those debts where the creditor has a security interest in the debtors property to guarantee payment. Examples of secured debts include mortgages, car loans, and loans from finance companies . If a debtor has purchased goods using a store credit card, such as a card from Rooms to Go, Best Buy, etc., the store probably has a security interest in certain items purchased, making the store a secured creditor.
The Means Test Has A Few Steps If You Meet The Requirements For Any Step You Can File For Chapter 7
- Income level. First, the test compares your households current annual or monthly income against the median income of a household of identical size in Ohio. If your households income is less than the median income, you meet the means test.
- Expenses. If your household income exceeds the median income, you can proceed to the next step, in which you add up your average monthly expenses. Those may include mortgage or rent, utilities, food, vehicle or transportation costs, and health insurance or out-of-pocket medical expenses. Once you know your monthly expenses, you subtract those expenses from your households monthly income. This formula determines your disposable monthly income.
- If your disposable income falls below a certain threshold , you qualify to file for Chapter 7.
- If your disposable income falls above another threshold, you are automatically disqualified from filing for Chapter 7.
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Chapter 7 Bankruptcy 101
Both individuals and businesses are allowed to file for Chapter 7 bankruptcy. These proceedings typically last between three and six months.
In a Chapter 7 bankruptcy proceeding, some of your property may be seized and sold to pay off some or all of your debts. This is known as liquidation of property.
However, as a benefit of this type of bankruptcy proceeding, any unsecured debts will be wiped out. In addition, there are certain types of property that cannot be sold in order to pay off your debts, such as the furniture in your home, your car, and your clothes.
Secured debts are treated differently than unsecured debts in a Chapter 7 bankruptcy proceeding. In a Chapter 7 bankruptcy proceeding, you have to make a choice between allowing the creditor to repossess the property that secures the debt, continuing to make payments on your debt to the creditor, or paying the creditor a sum equal to the replacement value of the property that secures the debt. In addition, some types of secured debts can be wiped out during a Chapter 7 bankruptcy proceeding.
Before you can file for Chapter 7 bankruptcy, you must be able to show that you are eligible to file for Chapter 7. To be eligible for Chapter 7, you cannot make enough money to be able to fund a Chapter 13 bankruptcy repayment plan. There are other requirements to be eligible to file for Chapter7 bankruptcy.
Whats The Difference Between Chapter 13 And Chapter 7 Bankruptcy
If you cant qualify for Chapter 7 bankruptcy, Chapter 13 is an alternative. This is repayment bankruptcy for people who have enough income to make good on their debts. It involves setting up a three- to five-year payment plan and getting creditors to agree to it.
More types of debt can be discharged in a Chapter 13 bankruptcy than in a Chapter 7 filing. But Chapter 13 can be complex and requires the assistance of an experienced bankruptcy attorney.
If you fail the Chapter 7 means test, the court may convert the case to a Chapter 13 filing. Its considered the next best thing to a Chapter 7 filing, but it costs more: Though the court fees are slightly lower , youll need to pay the attorneyand youll be repaying most debts.
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Chapter 7 Bankruptcy Vs Chapter 13 Bankruptcy