Bankruptcy under Chapter 7

A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Accordingly, anyone considering filing for Chapter 7 relief must realize that they may lose valuable rights in real and personal property and should consult with an attorney to see whether particular property that they own is "exempt" from liquidation.

The law provides a broad range of exemptions which define the types of property that cannot be liquidated in the Chapter 7 proceeding.

In addition, part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. If a lien or mortgage exists on the property, only the equity in the property above and beyond any applicable exemptions in bankruptcy may be within the reach of the Chapter 7 bankruptcy trustee. If what is left over, after deducting applicable liens and exemptions is not of significant value to creditors, the trustee will often abandon the bankruptcy estates interest in debtors remaining non-exempt assets, resulting in the Chapter 7 bankruptcy debtor keeping everything.

A Fresh Start

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual chapter 7 bankruptcy case usually results in a discharge of debts, the right to a bankruptcy discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien resulting from a mortgage or financing to purchase the lien property, although judicial liens which impair a debtors exemptions in property that are not purchase money in nature may be avoided through a special procedure. Chapter 7 bankruptcy also does not allow for the bifurcation of purchase money liens as does Chapter 13 bankruptcy.

Chapter 7 Discharge

A bankruptcy 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 bankruptcy discharge is subject to many exceptions, though, 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 bankruptcy 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. 

Chapter 7 Means Test

The Chapter 7 means test is a two-step process which begins with a median income comparison. Explaining this first step of the Chapter 7 bankruptcy means test in more detail, your monthly income is compared to the median income in your state for a family that is the same size as yours. If your income is at or below the median income, you qualify for Chapter 7 bankruptcy. If your income is higher than the median income, it doesn’t mean that you can’t file for Chapter 7 bankruptcy, but rather triggers the second step of the Chapter 7 bankruptcy means test.

Calculating disposable income and unsecured debts is the second step of the Chapter 7 means test. If your disposable income over the next five years is less than $6,000 ($100/month), you "pass" the Chapter 7 bankruptcy means test and can thus file for Chapter 7. A local bankruptcy attorney can further explain how disposable income is calculated. If your disposable income during that five year period is greater than $6,000 but less than $10,000, you may still be able to file for Chapter 7 bankruptcy protection, depending upon your allowed expenses. 

California Bankruptcy Lawyer in San Diego

If you are facing foreclosures, repossessions, wage garnishments, liens, and constant calls and letters from creditors and collection agencies, we are ready to assist you. The Pacific Bankruptcy Center is a debt relief agency, aiding clients in filing for bankruptcy relief under the Bankruptcy Code. Contact a bankruptcy lawyer at our firm today to learn more through an honest assessment of your situation

Filing Chapter 7 will:

Wipe out most of your unsecured debt (credit card bills) or loans, civil lawsuits and or medical bills

Stop harassment by credit card companies

Stop any collection efforts by most creditors

Protect your home and personal property

Stop any attempt to garnish wages

 

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