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What Is Chapter 7 Bankruptcy?
When you file a Chapter 7 bankruptcy case, the bankruptcy court puts a “wall” between you and your creditors that protects you from (1) collection calls at your home, work or to relatives; (2) lawsuits; and (3) garnishments. Chapter 7 bankruptcy is quick, inexpensive and very effective at permanently getting rid of credit card, signature loan and medical debts. Chapter 7 bankruptcy doesn’t stop forclosures or repossessions by a lender that has a lien or mortgage on a car, truck or house, but it will allow you to “walk away” from a house or car, and the debt associated with those assets.
Filing for bankruptcy is an opportunity for a debtor to emerge out of a financial crisis and start fresh. Chapter 7 of the Bankruptcy Code is the quickest way to achieve this end. Under Chapter 7 of the Bankruptcy Code, all non-exempt property of the debtor is sold and the proceeds are distributed to the creditors. In most cases where Chapter 7 is brought into force, the debtor has no assets to lose; therefore the fresh start takes place relatively faster.
The following is a summary of the Chapter 7 bankruptcy process.
Reason to File for Chapter 7 Bankruptcy: Discharge of all permissible debts without any repayment plan.Although commonly believed to be a total liquidation or disposal of all non-exempt assets, this may not however be the case. Typically, individuals and companies that file Chapter 7 bankruptcy do not have assets that would be sold to satisfy outstanding debts, or they would not be forced to liquidate. Certain exemptions are provided, and there are income guidelines that restrict who can file.
Eligibility Requirements for Chapter 7 Bankruptcy:
- Must not have gotten a discharge in a bankruptcy case filed within the past eight years.
- Must have completed compulsory credit counseling 180 days before filing a bankruptcy.
- Must satisfactorily complete the "Means Test".
- Must present Statement of Financial Affairs & Schedules: These are the schedules, which include a list of the amounts owed to each creditor, petitioner(s) income verification, itemized monthly living expenses (in detail).
- Schedule of Exempt Property: Property protected under federal statutes from seizure.
- Must have filed all required income tax returns.
Timeframe:
- Meeting of Creditors: 6 weeks after filing.
- Discharge of Allowable Debts: 90 days after the meeting of creditors.
- Entire process should be completed within 120-150 days from the date of filing, provided none of the creditors contest (adversarial case) your claims.
The answer to this question lies in the answer to a broader question: "What is the ultimate aim of filing for bankruptcy?"
What Can I Keep?
If you are current on a car or house loan, then you are allowed to keep it, so long as you make the payments and state your intention to do so in the bankruptcy petition. As far as credit card debt, you may keep one or two cards, but your attorney must state that he has reviewed your finances and that keeping such debt is in your best interest and imposes no undue hardship upon you.
We usually recommend that you do keep at least one credit card (hopefully one with a low or zero balance) so that you can book airline tickets or rent a car in case of an emergency.
What Are Exempt Assets?
Exempt assets are those that you can exempt or protect from creditors when you file bankruptcy in Florida. You may exempt any property that falls into one of the exemptions categories listed in the How We Can Help section of this website up to the dollar amount listed.
How Does Chapter 7 Bankruptcy Work?
A trustee is appointed who collects all non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors. Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee. Even though, in some cases, this would mean that you will lose all your assets, this will not always be the case. It is strongly recommended that if you are apprehensive and feel you will lose your assets, discuss the matter with your Bankruptcy Attorney. Under Chapter 7 Bankruptcy, the debtor receives a discharge on all dischargeable debts. There are 19 general classes of debt that can be are discharged under Chapter 7 Bankruptcy. There are also debts that can not be discharged, such as child support obligations.
An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home. This agreement is in place because as per the US Government Bankruptcy Code a debtor could be allowed to retain some or all of his property.
The Means Test
The Means Test was added to the bankruptcy code with the intention to remove the excessive abuses of the bankruptcy protections. The Internal Revenue Service imposed this array of financial calculations thereby enabling the I.R.S. to establish who may or may not file for bankruptcy. The Means Test clearly dictates who may file a Chapter 7 bankruptcy and who may not. Basically, the test is designed to make sure that those who can afford to pay their debts don’t take advantage of the bankruptcy system to avoid their obligations.
The Means Test considers a petitioner's current monthly income and indicates if:
- The petitioner's current monthly income is greater than the state median income. The petitioner must have lived in the state for two years before filing for bankruptcy to use the median income for that specific state. If a petitioner fails to meet this condition, the courts will use the median income for the state in which the petitioner has lived the majority of time, for the past 180 days before filing for bankruptcy.
Now, find out how our Jacksonville Bankruptcy Attorneys can help you with your debt relief! Don't wait until it's too late, contact the Jacksonville bankruptcy lawyers you can trust. Contact Wilcox Law Firm today!
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