Chapter 7 Frequently Asked Questions (Chapter 7 FAQs)
What is a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is a procedure under the federal bankruptcy code that provides debt relief for consumers. A Chapter 7 bankruptcy is a liquidation bankruptcy and involves extinguishing a debtors unsecured debt. In theory, a bankruptcy trustee oversees the liquidation of a debtor's non-exempt property with the proceeds then distributed to the petitioner's debtors according to certain priority rules. As a practical matter, the majority of consumer Chapter 7 bankruptcies involve little if any non-exempt property that cannot be protected by an experienced bankruptcy lawyer. Many of our clients at Shakoori Law Group keep all of their property when they go through the Chapter 7 bankruptcy process.
How long does it typically take to complete a Chapter 7 bankruptcy?
Most Chapter 7 bankruptcy cases close shortly after the trustee grants a discharge. The typical Chapter 7 bankruptcy where there is no non-exempt property is completed within six months of filing. If there are non-exempt assets, the case can take longer because the property must be distributed. When our attorneys meet with you, we can typically give you a fairly good idea of how long your bankruptcy will take because we can determine whether you have any issues including non-exempt property that might make your Chapter 7 bankruptcy last longer.
What is a Chapter 7 bankruptcy discharge?
A Chapter 7 bankruptcy discharge involves the cancellation of unsecured debt at the end of a Chapter 7 bankruptcy. While not all types of debt are dischargeable, those that are dischargeable will be eliminated by a Chapter 7 bankruptcy discharge. It is important to consult with a Chapter 7 bankruptcy lawyer to determine whether your debts are dischargeable making you a good candidate for a Chapter 7 bankruptcy.
Is everyone eligible for a Chapter 7 bankruptcy discharge?
A means test is use to determine if a person is eligible for a Chapter 7 bankruptcy discharge. A person whose current monthly income from all sources multiplied by 12 does not exceed the median California income for the size of one's family qualify under the means test. If a person's income exceeds this threshold, then further analysis of one's current disposable monthly income, which is your current income from all sources less certain monthly expenses, is required to determine eligibility. If a person cannot satisfy the means test, the case may be converted to a Chapter 13 or dismissed. Our attorneys can conduct this analysis for you to determine if you qualify for a Chapter 7 discharge. A person also must not have received a Chapter 7 discharge within the last 8 years or intentionally dismissed a Chapter 7 bankruptcy within 180 days of filing a new Chapter 7 to qualify.
Are all debts dischargeable in a Chapter 7 bankruptcy?
There are types of debts that are generally not dischargeable in bankruptcy including the following:
Most tax debts
Debts for alimony, maintenance, or support, and certain other divorce-related debts, including property settlement debts
Debts for certain penalties and fines
This is only a few examples of non-dischargeable debts and there are exceptions, which may mean even these debts are dischargeable. A qualified California bankruptcy lawyer can let you know if you have any assets that are not dischargeable or whether exceptions apply in your case.
What is the automatic stay?
The automatic stay takes effect by operation of law upon filing of a Chapter 7 bankruptcy and suspends all attempts to enforce a debt against a person who files a bankruptcy. The automatic stay will prevent or suspend debt collection and enforcement efforts including but not limited to wage garnishments, bank levies, repossessions, court proceedings to enforce a debt, foreclosure (unless relief from stay is formally requested and granted) and creditor calls and letters.
Will I lose my property and possessions if I file a Chapter 7 bankruptcy?
The bankruptcy code provides for many types of property that are exempt and may be maintained by a debtor. Our office routinely handles Chapter 7 bankruptcies where our client does not surrender any property because we are able to find exemptions to cover all of our client's property. Property that is not exempt but secured by a vehicle or home can often be retained by reaffirming the debt and continuing to make the payments.
When will I have to appear before the trustee and what happens?
The hearing where you appear before the trustee is called the "meeting of creditors," which is usually held about a month after the case is filed. You must bring photo identification, social security card, most recent pay stub and bank and investment account statements to this hearing. At this hearing, the person is put under oath and may be questioned about debts, assets, income and expenses by the trustee. Creditors rarely appear at the hearing with the exception of a mortgage holder if the debtor owns a home. In most Chapter 7 bankruptcies, this will be the only hearing, but if the bankruptcy court decides not to grant the person a discharge or if the person wishes to reaffirm a debt, there may be another hearing about three months later.
Can I transfer property to family that I want to keep if it is non-exempt?
The trustee can scrutinize transactions that occur within six months before and after the bankruptcy for fraud. A transaction that occurs during this timeframe that involves a transfer to a close family member, friend of business that the debtor has an interest in may be deemed a fraudulent transaction. The trustee may reverse the transaction or take other actions detrimental to the debtor. Our qualified bankruptcy attorneys can advise you on how to do some estate planning to protect your assets. Our bankruptcy attorneys may advise you regarding the timing of the transaction, the timing of filing your Chapter 7 bankruptcy or converting non-exempt assets into exempt assets.
What if I want to repay a debt?
Sometimes a person wishes to keep property that is subject to a secured obligation (i.e. family car). A debtor may enter into a reaffirmation agreement wherein you agree to remain obligated under the debt following the bankruptcy. A reaffirmation agreement permits you to keep the asset, which is subject to a secured debt as long as you continue to make the payments on the asset according to the terms of the reaffirmation agreement.