Chapter 7 Bankruptcy
What is Chapter 7?
Chapter 7 Bankruptcy is typically referred to as liquidation bankruptcy, even though most individuals that file Chapter 7 don’t even end up losing anything. Individuals and companies are eligible to file a Chapter 7 Bankruptcy. In the course of filing, you list all of your assets and all of your debts. A Trustee is appointed to your case and is in charge of collecting assets and selling them for the benefit of creditors.
In addition to listing all your assets, you can declare certain property as “exempt” from collection (commonly referred to as your exemptions). Exemptions are dollar amounts of value in things that the trustee can’t take. Exemptions are not available to business entities, so anything they own in a Chapter 7 is available to creditors. The actual exemptions and how they apply varies, but typically people are able to claim most of the things they own as exempt, depending on the amount of equity you hold in it. This may includes:
- Your House
- Your Car
- Your Household Furnishings
- Retirement Accounts
- A Wild Card
The Wild Card can apply to anything else you own, such as bank accounts. Since most individuals don’t own anything beyond their exemptions, they are coded as a “no asset case” and the trustee doesn’t collect anything from them.
A Typical Filing Process
Below is an outline of what a typical filing process for Chapter 7 Bankruptcy would look like. Keep in mind that this is only a broad overview, and may differ from your own experience.
What Can It Do For Me?
The goal of Chapter 7 is to get your discharge, or your “get out of jail free card.” If you comply with the provisions of the Bankruptcy Code, a few months after you file bankruptcy the Court mails an Order that says creditors are not allowed to collect any debts from you. This is your “clean slate” and the fresh start most people look for when pursuing bankruptcy.
What It Can't Do
Not all debt is discharged in a Chapter 7. Student loans, some tax debts, and a list of other less common situations including debts incurred through fraud and debts resulting from drunk driving accidents will not be discharged.
While Chapter 7 will discharge most of your unsecured debts (credit card and medical bills, for example) as well as let you walk away from secured debts you no longer wish to keep (surrendering a car and walking away from the debt), Chapter 7 will not be able to help you with some tax debts or help you keep property that you have loans on that you aren’t up to date on payments for. For these kinds of debts you will need to look for relief under either Chapter 13 or Chapter 11, which are both forms of reorganization rather than liquidation.
How Do I Qualify?
In order to qualify to file a Chapter 7, you must satisfy the Means Test. The Means Test is a very long and complicated formula, but in short, it says that if you made too much money in the past 6 months, you won’t be allowed to file a Chapter 7.
In those situations, the Bankruptcy Code states that you can afford to pay back some of your debts, and in the interests of fairness, will require you to file a Chapter 13 instead and repay some of your debts. While the Means Test is very complicated, Ivey, McClellan, Gatton & Siegmund, LLP has a long history of working through the Means Test, and is familiar with the forms and processes.
While we can’t guarantee everyone will qualify to be a Chapter 7 debtor, we know enough of the pitfalls and loopholes in the forms to get most people to qualify. Contact us today to arrange a confidential consultation with our bankruptcy attorneys.
100 South Elm Street Suite 500
Greensboro, NC 27401
551 Monroe Street
Eden, NC 27288
Phone: (336) 623-4600