Chapter 7
Chapter 7 is what most people think of when they think of bankruptcy. Chapter 7 has often been referred to as a "fresh start" offering an honest individual debtor the opportunity to proceed in life without the burden of debts that he or she is unable to pay. A debtor has no liability for discharged debts. Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged (domestic support obligations, recent taxes, and student loans are important examples).
To be eligible for Chapter 7 relief, you must first complete a process known as "means testing". The means test is a formula designed to prevent bankruptcy abuse. If your debt is primarily consumer (i.e. credit cards, bank loans, etc.) then you must pass through the gauntlet of the means test. First, if your income level is below the median income for your State then you are not subject to the means test. If it is above the median income then you must see what exemptions apply for your situation. Do you have medical expenses? Child support payments? High monthly secured debt payments? All of these factors can tip the scale in your favor. We have several examples of six-figure-a-year clients that have easily passed the means test. If you seek a Chapter 7 discharge you need an aggressive attorney to enforce all of your rights.
A Chapter 7 starts when your petition is filed with the U.S. Bankruptcy Court. Documents relating to income and expenses, debts, property (real property as well as personal property) and other financial disclosures must be prepared and filed. You are also required to obtain a pre-filing credit counseling certification from an approved credit counselor.
Filing a Chapter 7 case stops all collection actions. This is known as an automatic stay. This means that foreclosures, garnishments, attachments, lawsuits, collection calls and letters, and most regular monthly bills are stopped. About five weeks after the petition is filed, the case trustee will hold a meeting of creditors.
The discharge, which will typically be handed down about four months after the case is filed, will release you from personal liability for most debts and prevent the creditors owed those debts from taking any collection actions against you.
For information or counsel on your bankruptcy needs, please contact us.
