A Chapter 7 bankruptcy is a liquidation bankruptcy that can help you keep your home and your car, stop creditor harassment and garnishments, but most of all, gives you a fresh start. Bankruptcy is a federal court process designed to help both consumers and businesses eliminate or repay their debts under the protection of bankruptcy court. The federal law in Title 11 of the United States Code governs bankruptcy. Bankruptcies are generally described as either liquidation or reorganization. Here we will discuss the liquidation, or Chapter 7 bankruptcy.
What is a Chapter 7 Bankruptcy?
In "straight bankruptcy" (Chapter 7 of the Bankruptcy Code), all non-exempt assets of an eligible debtor are liquidated. Creditors who file claims are then paid off with the proceeds on a pro rata basis. Generally, in Chapter 7 cases, the bankruptcy court will have no jurisdiction over debts incurred or property acquired subsequent to the day the petition was filed. As a practical matter, then, this means that the "fresh start" commences with the filing of the petition. When a petition is filed, the debtor submits a list of all assets and all creditors. The debtor may then elect his/her exemptions either under state law or the federal bankruptcy exemptions fund at 11 U.S.C. 522(d). The exemptions determine whether the debtor can protect his or her property because all non-exempt property is subject to liquidation by the bankruptcy trustee.
As explained under the bankruptcy exemption tab, the exemptions a debtor may take are usually expressed in maximum dollar amounts for particular types of property. The debtor seeks to exempt the value of the debtor's interest in the particular property. The debtor's interest in the property is measured by subtracting the amount any liens which have attached to the property from the value of the encumbered property. A lien should be conceptualized as a property interest of the creditor (usually in the form of a security interest, a judicial lien or a statutory lien) , which diminishes the debtor's interest in the encumbered property.
All property which is not exempt may be lost by the debtor because it may be taken by the trustee and sold so that the proceeds can be distributed to the debtors creditors. The debtor may also lose property if the debtor is unable to maintain payments on debts which are secured by the specific property, although in this situation, the property is lost to the secured creditor, not the bankruptcy trustee. Cases where the exemptions cover all of the debtor's property are called "no assets" cases, meaning that there are no assets to be ministered by the court or distribute creditors.
As explained under the bankruptcy exemption tab, the exemptions a debtor may take are usually expressed in maximum dollar amounts for particular types of property. The debtor seeks to exempt the value of the debtor's interest in the particular property. The debtor's interest in the property is measured by subtracting the amount any liens which have attached to the property from the value of the encumbered property. A lien should be conceptualized as a property interest of the creditor (usually in the form of a security interest, a judicial lien or a statutory lien) , which diminishes the debtor's interest in the encumbered property.
All property which is not exempt may be lost by the debtor because it may be taken by the trustee and sold so that the proceeds can be distributed to the debtors creditors. The debtor may also lose property if the debtor is unable to maintain payments on debts which are secured by the specific property, although in this situation, the property is lost to the secured creditor, not the bankruptcy trustee. Cases where the exemptions cover all of the debtor's property are called "no assets" cases, meaning that there are no assets to be ministered by the court or distribute creditors.
DISCHARGEABLE AND NON-DISCHARGEABLE DEBTS
In a Chapter 7 case, regardless whether any property of the debtor is liquidated by the bankruptcy trustee, the debtor's debts are discharged, and creditors are forbidden from attempting to collect on them under 524. However, if a debt falls under one of the categories of debt that are excepted from the Chapter 7 discharge by 523(a), the debt may not be discharge.
The most important categories of debts which are not dischargeable in a Chapter 7 bankruptcy are:
- recent taxes or taxes for which returns have not been filed or file less than two years before the bankruptcy, 523(a)(1);
- debts which they creditor can prove in a separate lawsuit filed during the bankruptcy case (called an adversary proceeding) were obtained through fraud (which, in most circumstances, may include "fraudulent" use of credit cards, 523(a)(2)(A);
- alimony or support obligations (" domestic support obligations") and property settlement obligations, 523(a)(5) and (a)(15);
- debts for willful and malicious injury to another person or property of another person, 523(a)(6);
- certain fines, penalties or forfeitures payable to the government, 523(a)(7);
- most educational loans, 523(a)(8).
DISCHARGE
The net result of the bankruptcy, whether a 7 or 13, is a discharge order, which is mailed to the debtors and all of the creditors. The order directs the creditors to make no further attempt to collect upon the obligations. Violations of the discharge order constitute contempt of court and are punishable by fine or imprisonment.
How can Chapter 7 Bankruptcy help you?
- Keep your Home and your Car
Besides eliminating your unsecured debt, you will, under most circumstances, keep your home, your car and your personal belongings. See the bankruptcy exemption tab for more information. Eliminating your unsecured debt will allow you to get a fresh start. - Stop Creditor Harassment
Are creditors calling you at home and at work? Are they contacting your friends and family members? Put an end to your creditor harassment by contacting the Law Office of Jonathan Stone. Once you retain our office, you will be able to refer your creditors to us. The creditor harassment will stop immediately. Under some circumstances, this creditor harassment may be in violation of the Fair Debt Collection Practices Act (FDCPA) and you may have cause for further action.
- Stop Garnishments
Are you currently experiencing garnishment of your wages? Have you been notified that garnishment may soon begin on your wages? A Chapter 7 bankruptcy may be one of the most effective ways to stop garnishments. By contacting the Law Office of Jonathan Stone, we can stop the garnishment so your income can be put to better use.
