Chapter 7 Bankruptcy Frequently Asked Questions
Written by: HFM
If you have questions about how Chapter 7 bankruptcy works in San Diego, you are not alone. The attorneys at Higgs Fletcher & Mack have put together this list of frequently asked questions to help guide you through the entire process.
What is Chapter 7 Bankruptcy
The three primary bankruptcy Chapters are Chapter 7, Chapter 11 and Chapter 13. Chapter 13 is an individual consumer reorganization that requires payment to creditors through a payment plan over a three to five year period. Chapter 11 is a larger scale reorganization for business that also requires payment to creditors through a payment plan. Unlike Chapter 13 and 11, Chapter 7 is a liquidation proceeding whereby Debtors that qualify liquidate there non-exempt assets in exchange for a discharge of most types of debt.
Who Qualifies for Chapter 7 Bankruptcy Discharge
A Chapter 7 discharge is a court order that excuses a debtor from having to pay most types of debt. A Chapter 7 discharge is only for qualifying individuals who no longer have the ability to pay their bills and are in need of a fresh start.
Can Businesses Discharge their Debt with Chapter 7
How does Chapter 7 Bankruptcy in San Diego Work
Bankruptcy under Chapter 7 for individuals and businesses alike starts with the filing of a bankruptcy petition with the court. The debtor must also file the required paperwork including:
- schedules of assets and liabilities
- monthly income
- monthly expenses
- a statement of financial affairs
Should I File Chapter 7 Bankruptcy Right Now
Some signs that you may be a good fit for filing bankruptcy now:
You have more than $10,000 of dischargeable debt
Your credit score is already low
You donât own expensive property
Keeping up with payments is making it impossible to make ends meet every month
Youâre worried about wage garnishment or being sued for your debt
You pass the means test because you earn under the median income in your state
You donât see a way of being able to pay back your debt over the next 5 years
If these apply, right now may be the right time to file for bankruptcy.
Chapter 7 Bankruptcy Explained
The Balance / Adrian Mangel
Chapter 7 bankruptcy eliminates most debt through the liquidation of assets. The court appoints atrustee to oversee your case, and part of the trustee’s job is to take ownership of your assets, sell them, and distribute that money to your creditors.
Eliminating debt is an important step toward achieving financial freedom. If you are considering filing for Chapter 7 bankruptcy, find out what you need to know.
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Jul Business Bankruptcy: The Basic Chapter 7 Process
1. Once you decide that a business bankruptcy is the appropriate remedy for your failing business, you must prepare a corporate resolution.
2. The bankruptcy petition is then prepared listing all of the assets and liabilities.
3. The business is closed. Employees are terminated, paid their final wages, all taxes are paid, and the doors are closed.
4. The bankruptcy petition is signed, filed and a trustee is appointed to administer the estate.
5. All assets are turned over to the trustee, including equipment, inventory, and receivables.
6. The trusteeâs job is to return any secured property to the secured party and then sell or liquidate the rest of the assets for cash. Generally this is done at an auction or internet sale.
7. If there is a buyer for all of the assets, the trustee will, rather than hire an auctioneer to sell things on a piecemeal basis, consider such an offer. This is generally an as-is sale of everything. But it must be court approved, so a hearing will be held after notice to all interested persons. The judge will then take bids and sell the assets to the highest bidder.
8. The time between filing the bankruptcy and the appointment of a trustee is, generally, only a day.
9. The time between the trustee gathering the assets and getting everything sold depends on the extent of the property and the ease of a sale. It can take a week or several months.
11. The bankruptcy is then closed after distribution.
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.
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Why Do I Want A Bankruptcy Discharge
Your bankruptcy discharge eliminates your legal obligation to repay a discharged debt. In other words, creditors who debts are discharged in Chapter 7 canât take any collection action against you. Not all types of debt are dischargeable. Things like student loans and recent tax debts canât be discharged and youâll continue to be obligated to pay them. Make sure you stay current with these obligations, as theyâll help you rebuild your credit score by reporting favorably on your credit report.
If you donât receive your bankruptcy discharge because you did not meet all of the requirements after filing your case, you continue to owe all the debts you had before filing bankruptcy. For your creditors, it will be as if you have never filed for Chapter 7 debt relief and once your case is closed without a discharge, the collection actions can start all over again.
How Long Does Filing A Chapter 7 Bankruptcy Take
Generally, the entire Chapter 7 process from the initial credit counseling to the point when the court discharges your remaining debts takes about four to six months.
Your case could take longer, however, such as when the trustee asks you to submit additional documents or if they have to sell your property to repay creditors. Or, perhaps you want to try to get your student loans discharged in bankruptcy. It’s possible, but difficult, and can require a lengthy trial.
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Types Of Bankruptcy Filings
Bankruptcy filings in the United States fall under one of several chapters of the Bankruptcy Code, including Chapter 7, which involves the liquidation of assets Chapter 11, which deals with company or individual reorganizations and Chapter 13, which arranges for debt repayment with lowered debt covenants or specific payment plans. Bankruptcy filing costs vary, depending on the type of bankruptcy, the complexity of the case, and other factors.
The Cost Of Applying For Bankruptcy Is Often Prohibitive But There Is A Gamut Of Options To Explore Having An Apt Knowledge Of The Difference Between Chapter 7 And Chapter 13 Bankruptcy Can Protect You From Making Mistakes
Imagine having just $100 left in your checking account with $300 in utility bills due a week before you get paid next. You realize that filing bankruptcy may be a good option for you, but whats the cost? Now imagine meeting with a bankruptcy attorney and hearing that the cost of attorney fees is $1,500, while the filing fee is $350.
The question on your mind here will undoubtedly be How can I afford to file for bankruptcy? I cant even afford my utility bill.
This is a prominent question many people have before filing bankruptcy. The cost of filing for bankruptcy can be pretty prohibitive, but lets cover some tricks to make this a reality.
Chapter 7 vs. Chapter 13 Bankruptcy and Costs
Seeking a bankruptcy discharge is often the last option folks utilize when facing financial hardship. There are numerous undesirable impacts and potentially other demerits to consider before you apply for a discharge. There are also numerous types of bankruptcy, but the most common are Chapter 7 bankruptcy and Chapter 13 bankruptcy. We will cover both of these in detail.
Chapter 7 Bankruptcy Costs for Beginners
Many people file a Chapter 7 bankruptcy because it is less expensive and fast. You can receive your bankruptcy discharge in as little as 120 days. Furthermore, the main costs are the bankruptcy attorney fees and the bankruptcy filing fee.
The Chapter 7 bankruptcy filing fee is $338.
Pro Se Chapter 7 Bankruptcy Filing
Chapter 13 Bankruptcy Costs for Beginners
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The Meeting Of Creditors
When a Chapter 7 bankruptcy is filed, the court will issue notice of a debtor’s “meeting of creditors,” often referred to as the “341 meeting” after the bankruptcy code that provides for it. This notice is also sent to all the creditors that are listed in the bankruptcy documents.
As the name suggests, any creditor can appear at this meeting and ask the debtor questions about their bankruptcy and their finances. In reality, the only creditors who typically may appear are auto lenders to ask what you intend to do about your car payments, if you have them.
Alternatives To Chapter 7 Bankruptcy
Alternatives to bankruptcy may be able to help you get the fresh start you need. The one that’s right for you will depend on your financial situation and the types of debts you owe. Let’s go over each option.
Debt Settlement:You can negotiate with your creditors. If you’ve fallen behind on payments or are about to, you can contact your creditor to discuss the issue. You may be able to work out an affordable payment plan or negotiate a debt settlement for less than the full amount owed. This is especially true with credit card debt. Typically, a settlement needs to be paid in a lump sum.
Repayment Plan: Entering into a debt management plan with an agency is another option. Unlike in debt settlement, a debt management plan involves paying back your debt over time on more doable terms than you have now. Typically only unsecured debts can be included in a debt management plan.
Debt Consolidation: Taking out a debt consolidation loan to pay off your debts is another debt relief option. You would then have only one monthly payment to make to the new creditor. These loans often offer lower interest rates than what you’re already paying.
Another option is selling your valuable property to pay back creditors. But be careful. The money you get for your property may not be enough to pay off or settle all of your debts. You may end up having to file for bankruptcy anyway.
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Advantages Of Chapter 7 Bankruptcy
Chapter 7 bankruptcy is an efficient way to get out of debt quickly, and most people would prefer to file this chapter, if possible. Heres how it works:
Its relatively quick: A typical Chapter 7 bankruptcy case takes three to six months to complete. No payment plan: Unlike Chapter 13 bankruptcy, a filer doesnt pay into a three- to five-year repayment plan. Many, but not all debts get wiped out: The person filing emerges debt-free except for particular types of debts, such as student loans, recent taxes, and unpaid child support. You can protect property: Although you can lose property in Chapter 7 bankruptcy, many filers can keep everything that they own. Bankruptcy lets you keep most necessities, and, if you dont have much in the way of luxury goods, the chances are that youll be able to exempt all or most of your property. You can keep a house or car in some situations. You can also keep your house or car as long as youre current on the payments, can continue making payments after the bankruptcy case, and can exempt the amount of equity you have in the property.
How Long Does It Take To Complete A Chapter 7 Vs Chapter 11 Case
The time to complete a Chapter 7 vs. Chapter 11 bankruptcy case is very different.
A Chapter 7 case for individuals can be completed in four to six months. Chapter 11 cases for individuals can last several years.
A business that files under Chapter 11 is in bankruptcy for several years in most cases. A Chapter 7 for a business could be completed in a year or two, depending on the size of the business.
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What Happens After Filing Chapter 7 Bankruptcy
Once you file Chapter 7 bankruptcy, what happens next? It will include your business and personal debts as well.
The bankruptcy court will appoint a trustee who will analyze your debts along with your assets. Based on that, the trustee will look after the liquidation of your non-exempt assets.
The proceeds will then distribute among your creditors. In turn, that likely discharges you of the existing debts.
How Does Chapter 7 Bankruptcy Work
When you file for Chapter 7 bankruptcy, the court places an automatic temporary stay on your current debts. This stops creditors from collecting payments, garnishing your wages, foreclosing on your home, repossessing property, evicting you or turning off your utilities. The court will take legal possession of your property and appoint a bankruptcy trustee to your case.
The trustee’s job is to review your finances and assets and oversee your Chapter 7 bankruptcy. They will sell certain property the bankruptcy won’t let you keep and use the proceeds to repay your creditors. The trustee will also arrange and run a meeting between you and your creditorscalled a creditor meetingwhere you’ll go to a courthouse and answer questions about your filing.
The list of property you don’t have to sell or turn over to creditors , and the total value that you can exempt, varies by state. Some states let you choose between their exemption list and the federal exemptions. But most Chapter 7 bankruptcy cases are “no asset” cases, meaning all of the person’s property is either exempt or there’s a valid lien against the property.
At the end of the process, approximately four to six months from your initial filing, the court will discharge your remaining debts . However, some types of debts generally aren’t dischargeable through bankruptcy, including child support, alimony, court fees, some tax debts and most student loans.
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Small Business Reorganization Act Of 2019
In August 2019, the Small Business Reorganization Act of 2019 was passed by the U.S. Congress and signed into law by the President. It enacted a new subchapter V of Chapter 11. The act is in effect as of Feb. 20, 2020. This subchapter of Chapter 11 seems to favor the side of the applicant for business bankruptcy. It only applies if the applicant wants it to apply.
For example, subchapter V does not require that a committee of creditors is appointed or that creditors have to approve a court plan.
Sole proprietorships or incorporated entities should consult with a good business bankruptcy attorney before deciding on which type of bankruptcy you will file or whether you need to file bankruptcy at all. There may be other options that can be explored.
What Debts Are Discharged When I File A Chapter 7 Bankruptcy For My Business Debts
Though Chapter 7 is a viable option for many small business owners, you should be aware that it does not clear your business of all its outstanding debts. Instead, Chapter 7 removes the personal liability for the debt from the business owner. If your business is figured into a corporation structure, creditors can still seek repayment from your business itself. For this reason, Chapter 7 tends to be a preferred alternative for smaller businesses.
Indiana Business owners filing for Chapter 7 business bankruptcy can usually have the following type of debt cleared:
- Personal credit card debt
- Unsecured debts owed to creditors
- Lease obligations
- Personal loans and personal guaranties
Similar to Chapter 7 filed by individual consumers, there are certain types of debt that will not be cleared by filing Chapter 7. These include:
- Child support and alimony
- Large cash advances made 70 days or fewer before filing
- Loans borrowed from pension or 401
- Student loans
These lists are not exhaustive, and any type of business bankruptcy filing requires careful attention to determine which options offer the best possible outcome. Our bankruptcy attorneys provide a powerful ally and advocate for you as you as you go through the stages of the filing process.
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What Is Chapter 7 Bankruptcy & Should I File
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In a Nutshell
Chapter 7 bankruptcy is a common legal process to clear your debt, but itâs not right for everyone. Letâs take a look at some bankruptcy basics to help you learn about it and decide whether it’s right for you.
Chapter 7 bankruptcy is a powerful legal tool in the United States that allows you to totally erase many debts, including credit card debt, medical debt, car loans, and payday loans. Experts estimate that over 39 million Americans have filed for bankruptcy. Itâs more common than most people think.
One good question to ask yourself if youâre considering Chapter 7 bankruptcy: Do I have more debt than Iâll ever be able to pay back, given my current income and property? If the answer is “yes,” then Chapter 7 bankruptcy may be the right option.