What is Chapter 7?
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What is a Chapter 7?
Chapter 7 is "liquidation". This is commonly misinterpreted to mean if you file, you are going to lose everything. This is NOT true. Your not going to lose "EVERYTHING". However, that does not mean there is no "risk". In some cases it is possible you could lose something that is important to you personally. (like the $10,000 antique hutch you inherited from grandma.) So, to try and explain it simply, what you are saying when you file Chapter 7 is this:
I cannot afford to pay my bills. So, what I am willing to do is take everything I own and throw it into a pot. I will then give that pot to the Chapter 7 Trustee. Once I do that, the Trustee will have my permission to take anything out of that pot that is NOT EXEMPT, (those are the key words) then sell that property, and give the money to my creditors. While this is where many people get the idea that they are going to "lose everything", most people do not have much in the way of "non-exempt" property. In most cases we throw it all into the pot, then use the exemptions to take it back, and end up giving the Trustee an empty pot.
An EXPERIENCED bankruptcy attorney should be able to tell you if you have any exemption problems BEFORE YOU FILE. This is why you want to make sure you hire someone experienced in bankruptcy, because once you file you cannot change your mind and back out. You want to KNOW if you have any problems BEFORE YOU FILE.
California exemptions are reasonably generious compared to many other states.
Below you will find some more specific questions and answers on Chapter 7. As always, if you have more specific questions, you should consult with an experienced attorney in your area.
Chapter 7 FAQs.
How do I qualify for Chapter 7?
Your income is a factor that must be looked at. If you make too much money, (based upon a formula congress created in 2005) then you are not allowed to do Chapter 7. It is simply a fairness argument. If you can afford to pay SOMETHING (Based upon that formula mentioned) then they will not let you simply walk away from your debts. However that does not necessarily mean you have to pay ALL of it back. You pay back based upon the formula. Contact us for an appointment and we will help you figure out exactly what YOUR situation is, and what you qualify for.
What is a discharge?
A Chapter 7 discharge is an order signed by the bankruptcy judge which wipes out most unsecured debt. This keeps those creditors from attempting to collect the debt from you. You will normally receive your Discharge about 4 months after the Chapter 7 case is filed. There are some exceptions to discharge, (like most student loans). If you are not sure, ask us.
What is a Chapter 7 trustee?
The Trustee is the one who administers your case. It is their duty to look for things to sell and pay the creditors. However, most Chapter 7 cases do not have any property that can be taken and sold.
What is the meeting of creditors and what happens there?
The meeting of creditors is conducted by the Chapter 7 trustee. The debtor(s) are examined under oath concerning their assets and debts. It is the creditor's "opportunity" to question you while you are there and under oath. Creditors who choose to attend the meeting, either in person or through their attorney, can ask questions about the case. Normally creditors do not come. The average meeting of creditors lasts about three to five minutes and is held approximately 30 days after the Chapter 7 bankruptcy is filed. You MUST appear at the meeting of creditors. Your attorney will appear with you at the meeting.
Can creditors ask to have their debt held non-dischargeable?
Yes. Creditors have a right to complain if they believe there is a good reason. (Example: getting a large cash advance on a credit card the day before filing would likely be deemed non-dischargeable, and maybe even fraud)
What is a Reaffirmation Agreement?
If you are making payments on items, (like a car, furniture, computer) these are considered "secured" by that property. This simply means they can come and take it if you don't pay them. The new Bankruptcy law requires you to basically sign a new contract with the creditor you are making the installment payments to. This is called a "Reaffirmation Agreement". The problem with Reaffirmation Agreements is that you are putting yourself back on the hook for the full amount of the amount owed. Example: you owe $20,000.00 on a car that is now worth $10,000.00. If you reaffirm, and later can't make the payments, they would repossess the car and you will be on the hook for the remaining balance.
To avoid debt discharge in a bankruptcy action, mortgage companies and car, furniture, and appliance financers typically want the debtor to sign a document known as a Reaffirmation Agreement. Signing this agreement results in the debtor waiving his Chapter 7 discharge and agreeing to continue to make payments as called for by the original loan documents.
You should consult your attorney before making any decisions regarding reaffirmation.
What are exemptions?
The word exempt means: "released from, or not subject to, an obligation, liability, etc." (Ref: Dictionary.com) When you file Chapter 7 you are giving permission to the Trustee to sell things that you can NOT exempt. (Examples are: the new Jaguar that is paid for, the Lear jet, or the $10,000.00 antique hutch you inherited from grandma). For most debtors in California the exemptions cover everything, so there is nothing left for the Trustee to take and sell.
If you are concerned about your assets, and what CAN be exempted, call for an appointment with one of our attorneys to determine your rights.
What is redemption?
In Chapter 7, if an asset is exempt, it can be purchased from the creditor by paying what it is worth NOW in a lump sum (not payments). The balance of the debt will be discharged. An example would be a computer that has gone down in value at the time of bankruptcy to $700 and the balance of the debt owed on the computer is $2,000. The computer can be redeemed for $700 and the $1,300 difference is discharged. The process requires filing a motion with the court, and should be discussed with your attorney.
Can the trustee or a creditor object to my Chapter 7 discharge?
Yes. Objection to discharge comes under federal law. If someone with standing objects and the court sustains the objection, all of the debts owed by the debtor can never be discharged in bankruptcy. This issue generally comes into play where the debtor has transferred an asset within two years (or 4 years under California Law) of filing bankruptcy with the intent to hinder, delay or defraud creditors or hide it from the Chapter 7 trustee. This can also happen if the debtor is unable to explain a reduction in assets just prior to bankruptcy.
If you are concerned about this you should discuss it with a competent Bankruptcy Attorney prior to filing.
If the Trustee does take something, is it possible to buy it back?
The Trustee's job is to turn non-exempt property into cash, which is then distributed to the creditors that file claims. Normally a value will be placed upon the property, or can be negotiated with the Trustee. If you can come up with an amount that is reasonable it IS possible to buy the item back from the Trustee.
Can one spouse file for Chapter 7 bankruptcy without the other spouse filing?
Yes. Sometimes it is a good idea because one spouse can then maintain their good credit score. All of these possibilities can be explored in the initial consultation. When your ready, make an appointment.
What happens if I come into a lot of money after filing for a Chapter 7 bankruptcy?
If there is a windfall of income, (you win the lottery, or your rich uncle dies and leaves you his fortune) within 180 days of filing your case you MUST inform the Trustee and it may be made available to creditors. If you anticipate an inheritance in the near future, you should discuss the situation with your attorney.
If I filed a Chapter 7 in the past, how long before I am eligible to file another Chapter 7?
You can not file again and receive a discharge for 8 years and a day.
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Central California bankruptcy attorney Timothy C. Springer is a Debt Relief Agency and helps people get debt relief through Chapter 7 and Chapter 13 bankruptcy. We serve communities throughout Central California in Tulare County, Fresno County, Madera County, Mariposa County, Kings County, Merced County, in communities including Fresno, Fowler, Selma, Sanger, Kingsburg, Visalia, Hanford, Madera, Merced, LeMoore Naval Air Station, Los Banos, Oakhurst, Coursegold, and Mariposa.
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