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Chapter 7 Bankruptcy

Chapter 7 is sometimes called straight or liquidation bankruptcy. Essentially, Chapter 7 is used to eliminate as much of your debt as possible while retaining all of your exempt assets such as your home and possibly, your car. While you keep all exempt assets, all of your non-exempt assets will be sold and used to pay off your creditors. At the conclusion of a Chapter 7 bankruptcy, you are left with no debt (there are a few exceptions) but you still have all of your exempt assets. This gives you a fresh start without losing your home and the opportunity to rebuild credit and new assets, unburdened by your prior debts.

To start a Chapter 7 bankruptcy case, you must first take a Credit Counseling Course. You must take the course within the six months prior to filing the case with the Bankruptcy Court. The course is mandatory and your case will be dismissed if you don't take it. There are several companies that offer credit counseling classes. Usually, you can take the course online or by telephone, and it only takes about an hour. We can recommend a course for you.

Next, you have to see if you qualify for Chapter 7 under what's called the means test. The means test analyzes your income, expenses, and the number of people in your household. Your income is compared with the median income of households in Texas with the same number of occupants. The purpose of the test is to determine whether you have the ability to pay back some of the debts you owe over time. The test is not simple. We usually use a computer program to help us in determining if a debtor qualifies for Chapter 7. Generally, if your gross income exceeds the median household income in your state, you do not qualify for Chapter 7. In that case, you should consider filing Chapter 13.

After completing the Credit Counseling Course, and the means test, we'll help you file your petition with the Bankruptcy Court. Along with the petition, you are required to file lists, called schedules, of your assets and liabilities, and a statement of your financial affairs. You must also file a schedule of exempt assets. Federal and state laws provide statutes allowing you to keep a certain amount of your property (exemptions), which cannot be used to satisfy any debts. Once your petition is filed, the court automatically files a stay that prevents most creditor actions to collect your debts. In other words, after the petition is filed, creditors must immediately cease any and all collection efforts, including telephone calls, letters, law suits, garnishments, foreclosures, and repossessions.

After your case is filed, notices are sent to all of your creditors and a bankruptcy trustee is appointed to you. The trustee will examine the petition and schedules you've filed to identify which of your assets are exempt and which are not. If you have any non-exempt assets, the trustee sells them and distributes the net proceeds to your creditors.

Approximately 30 days after your petition is filed, the trustee will conduct a meeting of creditors. We will attend this mandatory meeting together because you, the debtor, and we, as your attorney, are required to attend the meeting. Creditors also are allowed to attend and ask questions, but rarely do. At the meeting, we, as your attorney, in front of the trustee, will ask you some basic questions about your bankruptcy filing and your financial affairs. The trustee may also ask questions. If the trustee is satisfied with how we've identified all of your exempt and non-exempt assets, as well as the accuracy of your bankruptcy filing, your debts will scheduled for discharge. By law, no discharge can take place until 60 days after the meeting of creditors. During that time, your creditors have the opportunity to challenge the discharge of your debts. They do so by filing a complaint with the Bankruptcy Court. If there are no challenges, your discharge will usually be issued a few days after the 60 day time frame has expired. A copy of your discharge is mailed to you and all the creditors listed in your schedules.

A discharge means that your debt has been permanently extinguished and prevents the creditor from taking any action to collect on your debt. What's more, it also relieves you from any and all liability for your debt.

Under Chapter 7 all of your unsecured debts (with a few exceptions) will be discharged. This could include credit card debt, medical bills, pending lawsuits, unsecured loans and lines of credit, foreclosure and repossession deficiencies, judgments, and some taxes. The exceptions include most taxes and any child support or alimony obligations.

Secured debts can be handled a few different ways. You must decide whether you want to keep the secured asset that has gone into debt. Normally, secured creditors have the right to seize their loan collateral, such as a car or house. If you decide not to keep the asset, it is returned to the creditor and your debt on it is discharged. If you want to keep the asset, you may reaffirm the debt and keep the property. Under this scenario, you and the creditor enter into a reaffirmation agreement, where you agree to pay all or a portion of the money owed on the asset. If you continue to make timely payments for your asset, the creditor will not try to repossess or take possession of it. However, if you default on the payments by not making them, the creditor may repossess or take possession and sell your asset or the collateral you used to purchase it. If you wish to reaffirm a debt, our attorneys will negotiate with the creditor to get the best deal. This may include reducing the total amount owed against your asset, reducing the interest rate or extending the payment term.

The entire Chapter 7 process normally takes just over three months to complete. During that time, you are relieved of all payment obligations, pending determinations of exempt assets and secured assets. Usually, at the conclusion of a Chapter 7 bankruptcy, you are debt free and you keep all of your exempt assets. By the government's helpful design, you are left with a fresh start and can begin to rebuild credit, money. and other assets.