Chapter 7 is designed to erase consumer debts and bankruptcy statistics show is the quickest and most straightforward type of bankruptcy and works best for individuals with large credit card debts or medical bills. Gaining a better understanding of Chapter 7 bankruptcy will help you determine whether it is suitable for your circumstances.
Should You File For Chapter 7 Bankruptcy?
In determining whether to file for Chapter 7 an individual should evaluate their financial situation with an experienced bankruptcy lawyer. In assessing the viability of a Chapter 7 case, the amount of debt is not as important as the client’s inability to repay it. Whereas some debtors file for bankruptcy with a relatively small amount of debt, others wait until massive amounts of debt accumulate before filing. With the assistance of an experienced bankruptcy attorney, the client’s debt, income, expenses and assets will be examined to help determine whether Chapter 7 is advisable.
The Bankruptcy Code requires debtors to disclose all of their monthly income and expenses. In addition to wages earned, debtors must disclose all other sources of income and are subjected to a means test. If an individual passes the means test, they are presumed to qualify for Chapter 7. Debtors who do not qualify for Chapter 7 pursuant to the means test may still be able to file for a Chapter 13 bankruptcy.
How a Chapter 7 Bankruptcy Works
The bankruptcy process begins with a petition filed in bankruptcy court that triggers an automatic stay which prohibits further collection efforts of creditors.
While the court appoints a trustee to liquidate assets to pay existing creditors, most assets are subject to existing liens or are exempt from liquidation. Generally, things like household goods, clothing and personal items are fully exempt. Property which is particularly valuable, such as oil paintings, coin collections, or rare items may have higher value than what can be protected under the exemption rules. In those circumstances, the debtor could be required to turn over the property to the trustee or offer to buy the trustee out of his interest in the non-exempt property. Once the trustee collects any nonexempt assets and pays creditors from their proceeds, any remaining debt is discharged, subject to certain limitations such as secured debt, taxes, student loans, alimony and fraudulent acts.
If the debtor is concerned about losing certain assets in a Chapter 7 bankruptcy, he or she may be able to reaffirm certain assets, which permits them to keep the property outside of the bankruptcy by entering into a reaffirmation agreement if the debtor has sufficient disposable income and is relatively current on payments and the creditor agrees to reaffirm.
Making the Call
While filing for bankruptcy is often a difficult decision to make, debtors overwhelmingly feel relieved after they have filed for bankruptcy.
At the Southern California Legal Group, we are committed to providing personalized service and our team of professionals want to help you get a fresh start. Contact us today to arrange a free office consultation.