|
Chapter 7 - What is it?
Chapter 7 often means the liquidation of a persons non exempt property. Upon
the sale of this property, creditors get a distribution or share of the
proceeds. The assets which are covered under existing liens or mortgages are
already promised to the issuing creditor. This may sound like everything you
own is subject to sale or to be confiscated, but the court does protect the
individual as well. Only those assets that are deemed by the bankruptcy
court will be liquidated, the remaining assets will stay in the custody of
the bankruptcy filer.
If you've decided that Chapter 7 is the right course of action for you, then
you need to know if you qualify. In order to qualify you must be an
individual, a partnership or a corporation. The thing to know here is that
an individual is the only one who qualifies to be completely discharged of
all debt. Corporations and partnerships may receive partial discharge of
debt, but do fall under different bankruptcy codes which limit the amount of
discharge allowed.
At this point you
may have realized that you are and individual, therefore you qualify to file
for bankruptcy under Chapter 7. The nice thing is that there is no limit on
how much you can be in debt and whether or not you are insolvent.
Everything sounds good at this point, so what could prevent me from filing
Chapter 7?
One of the ways is if you read this article 180 days ago, filed for
bankruptcy under Chapter 7 and then dismissed the case or the court
dismissed. You may have failed to appear in court, failed to comply with
orders directed by the court or dismissed the case due to the impending loss
of lien held properties that the creditors are now seeking to recover.
To sum it all up, Chapter 7 allows an individual to file for bankruptcy in
order to wipe out any debt they may have. The down side is, they may also
lose assets that they are currently holding, in order to pay off some of
their creditors. The court does protect an individual to keep them from
having to live on the street, but you could potentially lose property that
have liens against them already or an asset you love but the court doesn't
deem as necessary.
Great, how does it work?
In order to get things started, you must file a petition with the bankruptcy
court. You must also supply the courts with the following.
1. A list of assets and Liabilities
2. Your current income and expenses
3. List of financial obligations, including any contracts and unexpired
leases.
4. A list of all creditors and the amounts owed.
5. Your current income source, and the frequency of pay.
6. A list of the properties you own.
7. A detailed list of monthly living expenses that include, food, clothing,
taxes, utilities etc.
OK, what a pain, but you know you can get all that, what next?
This may be uncomfortable, but you will now get to sit down with your legal
counsel and your creditors. They then get the opportunity to as you a number
of questions about your current situation and the need to file for
bankruptcy. You may decide after several discussions that there are other
alternatives for you rather than filing Chapter 7. You may choose to file a
Chapter 11 or Chapter 13 instead, of course you need to qualify for these
programs as well.
That's a lot, what has changed recently that will affect me?
Depending on your income you may have to use a combination of Chapter 7 and
Chapter 13 in order to make a bankruptcy claim. You must first measure your
current monthly income against the medium monthly income for a household of
a similar size, in your state. If you are under the medium, then you can
file Chapter 7, if you find yourself above the medium, then you will have to
file a combination of Chapter 7 and 13. Either way, you must first pass a
means test in order to file a Chapter 7.
The means test, what is that?
The reason for the means test is to determine if you will have enough
disposable income after subtracting allowed expenses and required debt
payments, in order to make payment on a chapter 13 plan. If the amount
remaining, after deducting the amounts from the expenses listed above, are
below a "state regulated income level", then you can file for Chapter 7.
As if this is not enough, you must have counseling.
Before filing for Chapter 7 or Chapter 13, you must first take a credit
counseling class at an approved United States Trustees office. This
counseling is to help determine if filing bankruptcy is needed or if a
re-payment plan would be in your best interest.
Counseling is required irregardless of the obviousness of your debt
situation or if you feel you have unfair debts against you. You must
participate in the counseling but are not required to follow the
recommendations from the counseling. If you are presented with a re-payment
plan, then you will have to submit that to the court as well as the
certificate showing you completed the course, then you can file for
bankruptcy.
You are still not in the clear at this point. You will then be required to
take another counseling session when you approach the end of the bankruptcy
case. This class is to teach you personal financial management. You must
present the certificate from this class to the courts before your bankruptcy
will be finalized and your debt eliminated.
Is that everything?
This is not everything, but should give you a good idea of what is needed in
order to file bankruptcy under Chapter 7. You should always seek legal
counsel when making a decision to file for bankruptcy. This information is
to help give you an idea of what is available to help relieve your financial
burden, but should never be taken as legal advice.
|
Other related articles...
Life
after bankruptcy
Plunge into bankruptcy
Mandatory credit counseling
Chapter 7
|
