Chapter 7 Bankruptcy
Reduce or Eliminate Dischargeable Debts
Chapter 7 bankruptcy is the most common form of bankruptcy filed in the United States. Depending on the facts of your case, a Chapter 7 bankruptcy may be able to help you to:
*Eliminate or reduce debts (e.g. credit cards, medical debts, other debts)
* Stop creditor harassment and annoying collection calls
* Stop a home foreclosure
* Stop a wage garnishment
* Stop a car repossession or asset/property repossession
* Stop troublesome lawsuits
What is a discharge?
A Chapter 7 discharge is an order signed by the bankruptcy judge declaring all of your eligible debt to be discharged. The Order of Discharge creates a permanent injunction against a creditor whose debt is discharged from attempting to collect the debt from you. The Order of Discharge is normally entered about 110 days after the Chapter 7 case is filed. Your attorney should discuss with you what debts cannot be discharged.
What is a Chapter 7 trustee?
It is a blind draw as to which trustee from the panel will be assigned to any given case. Each Chapter 7 trustee has significant experience in bankruptcy law. It is the trustee’s responsibility to examine the debtor under oath and to review the paperwork filed with the court. It is the Chapter 7 trustee’s responsibility to convert into money the non-exempt assets of the debtor. After administrative expenses are paid, the remaining money is distributed to the creditors according to the Bankruptcy Code. Your attorney will explain your exemptions to you.
What is a meeting of creditors and what happens there?
The meeting of creditors is conducted by the Chapter 7 trustee. The debtor is examined under oath concerning his assets and debts. Creditors who choose to attend the meeting, either in person or through their attorney, can ask questions relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about three to five minutes and is held approximately 30 days after the Chapter 7 bankruptcy petition is filed. It is mandatory for all debtors to attend the meeting of creditors. Your attorney will accompany you to the meeting.
What is a reaffirmation agreement?
To avoid debt discharge in a bankruptcy action, mortgage companies and car, furniture, and appliance financers typically want the debtor to sign a document known as a reaffirmation agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and agreeing to continue to make payments as called for by the original loan documents.
This allows the debtor to keep his home, car or furniture. The decision whether or not to reaffirm a debt is a serious one and needs to be discussed with your attorney so that all options are understood. If the debtor stops paying on the asset after a reaffirmation agreement is signed, then the asset can be foreclosed or repossessed and a deficiency judgment obtained for the difference. If a debtor changes his mind and wishes to terminate or rescind a reaffirmation agreement, then the debtor has 60 days to file a rescission agreement after a Chapter 7 reaffirmation is fully executed and filed with the bankruptcy clerk’s office.
You should consult your attorney before making any decisions regarding reaffirmation.
What are exemptions?
Certain assets owned by the debtor have what is known as an exempt status. This means the debtor can protect them from the reach of creditors and the Chapter 7 trustee. The exemption will not apply to a mortgage or lien voluntarily placed on the asset by the debtor. The availability of exemptions and how to properly and effectively claim them should be discussed with your attorney.
What is a redemption?
In Chapter 7, if an asset is exempt, it can be purchased or redeemed from the creditor by paying its present market value in a lump sum. The balance of the debt will be discharged. An example would be furniture that has a depreciated value at the time of bankruptcy of $700 and the balance of the debt on the furniture is $2,000. The furniture can be redeemed for $700 and the $1,300 difference is discharged. The process of redeeming assets should be discussed with your attorney.
Can creditors ask to have their debt held non-dischargeable?
Yes. Creditors have approximately 100 days after the filing of the Chapter 7 bankruptcy case to file a lawsuit asking that the debt be held non-dischargeable. Certain debt has no such time limitation.
Can the trustee or a creditor object to my Chapter 7 discharge?
Yes. Objection to discharge is controlled by federal law. If an objection is made and the court sustains the objection, all of the debts owed by the debtor can never be discharged in bankruptcy. This issue generally comes into play where the debtor has transferred an asset within two years (and in some cases four or ten years) of filing bankruptcy with the intent to hinder, delay or defraud creditors or the Chapter 7 trustee. This can also happen if the debtor is unable to give a reasonable explanation for the reduction in assets occurring shortly prior to bankruptcy. Not having sufficient records to satisfactorily explain the debtor’s financial position or change in position can also serve as a basis to object to discharge.
What is involved in a buy-back from the Chapter 7 trustee?
In some of the cases involving assets, the trustee will hire an appraiser to appraise the debtor’s assets. A copy of the appraisal will be provided to the debtor and the debtor’s counsel. Negotiations will follow concerning whether the value of the assets have exceeded the exemptions allowed by state and federal law. Depending on which trustee is assigned to your case, the approach on the buy-back may differ somewhat. Other differences may involve the length of time for the buy-back to be paid and how the buy-back amount is calculated. Your attorney will negotiate the buy-back for you.
Can one spouse file for Chapter 7 bankruptcy without the other spouse filing?
Yes. For example, our firm makes it a practice to pull three-way merged credit bureau reports on both husband and wife in order to advise our clients as to who should or should not file in the bankruptcy court. Your attorney will explain your options.
What happens if I inherit something after filing for a Chapter 7 bankruptcy?
If there is a death within 180 days of you filing a Chapter 7 bankruptcy, any inheritance or life insurance that you receive will come under the control of the Chapter 7 trustee and will be used to pay your creditors. If you anticipate a death within this period, you should discuss the situation with your attorney.
If I filed a Chapter 7 in the past, how long before I am eligible to file another Chapter 7?
Under the law that went into effect in October 2005, a debtor who previously received a Chapter 7 discharge is not eligible to receive another Chapter 7 discharge until eight years have passed from the date of the discharge of the previous case.