Attorney Susan Browning
This blog addresses the basics of a Chapter 7 bankruptcy filing. It is the first in a four-part series covering Chapter 7, Chapter 13, Chapter 11 and Subchapter V.
In today’s economic climate, you may find yourself experiencing a financial downturn, whether it stems from the COVID-19 crisis, the current political unrest or is something you have been struggling with for some time. The bills are stacking up, late fees are being assessed, minimum payments are increasing, and you can no longer keep up. In addition, creditors are contacting you constantly and possibly lawsuits are being filed. You need to take some action, but where do you begin? This blog series is designed to give you some preliminary information regarding the different types of bankruptcy. You can stop the harassing phone calls and letters by contacting a bankruptcy attorney at Finney Law Firm.
Part One: Basics of Chapter 7
Chapter 7 bankruptcy can eliminate or “discharge” most, if not all, of your unsecured debt and put you back on the track to financial stability. Although some exceptions exist, generally you can get rid of credit card debt, unsecured loans, medical debt, overdue utility bills, as well as contractual obligations. There are certain debts that cannot be discharged in bankruptcy including recent taxes, student loans and domestic support obligations.
Most importantly, the bankruptcy court puts in place an “automatic stay” that prevents creditors from contacting you or taking any action to collect from you.
Upon filing bankruptcy, you must list all your assets, all your unsecured and secured debts, as well as all your monthly income and expenses.
Chapter 7 bankruptcy is a “liquidation”. As frightening as that term sounds, most clients escape a chapter 7 without any assets being collected and sold. The first step is to assess what assets you own and determine their value. If there is a lien on the property, we would examine if there is any value above and beyond the amount that you owe. This figure would be your equity. Pursuant to state law, certain types of assets are protected or “exempt” up to an allowed amount. If your equity does not exceed that amount, that asset is exempt property and is safe from liquidation. To the extent the equity exceeds the state law exemption the asset would be nonexempt property and subject to turnover to the bankruptcy trustee
When filing Chapter 7 bankruptcy, a debtor must qualify financially. You must be below a certain income level for your household size as provided by the Census Bureau and IRS . This is calculated using the last six months of income to average your monthly income. Even if you exceed this income level, the court will take into account your necessary and reasonable monthly expenses to determine if the income is offset to the extent that there is very little left over to pay your unsecured creditors. If your income exceeds your reasonable expenses you may examine filing a chapter 13 bankruptcy which is a repaint plan over a period of time.
In addition to this preliminary income requirement, there will be an inquiry into your recent financial history. You will disclose certain transactions that have occurred over the last several years. You will provide information including, but not limited to, income, transfers of property, payments made to creditors and family members, and association with any businesses.
How to move forward
If you have made a decision to move forward, I will conduct an initial consultation to determine if you are a candidate for bankruptcy, a follow-up meeting for document and information gathering, as well as an appointment to review and sign the bankruptcy forms included in the voluntary petition. You will also attend a brief hearing with me by your side in front of a bankruptcy trustee. The trustee’s role is to review your petition to determine if you have any unprotected, non-exempt property to distribute to creditors. If so, the trustee will collect and sell the asset and distribute proceeds to the creditors. If no assets are available for distribution the trustee will note it on the docket. The creditors will then have 60 days to object to discharge of your debts. If no creditors object in that timeframe, you will receive a discharge by mail and the case closes a short time after.
Of course, there are many more facets to Chapter 7, but this covers the topic with very broad strokes. Future blogs will delve deeper into individual issues. Part 2 of this blog series will cover the Basics of Chapter 13 and will be released soon.
Please contact Susan Browning at Finney Law Firm, 513.943.6650, to determine if bankruptcy is the right option for you. Remember, the initial consultation is free.