BANKRUPTCY CHAPTER 7

BANKRUPTCY FOR LESS Call (619) 285-1992

CHAPTER 7 - THE LIQUIDATION

In a Chapter 7, also known as liquidation, a bankruptcy trustee will supervise your case and administer any nonexempt property. Most Chapter 7 cases have little or no non-exempt property.

Exemptions: Bankruptcy Code allows debtors to keep certain “exempt” property from the claims of your creditors. Exempting home equity, equity in your car, pension or insurance benefits, and certain household property is an important part of bankruptcy. Your attorney can ensure that you make best use of the available exemptions to your particular circumstances.

Generally, unsecured debts such as credit cards, medical, and legal debts may be discharged. While other debts such as student loans are generally not dischargeable unless special circumstances exist. Debts such as child support, alimony, court-imposed fines, and most taxes are not dischargeable. You should discuss with your attorney all of your debts and understand what can and what should not be expected to be dischargeable in your particular case.

The 2005 Bankruptcy law changes, set parameters determining whether the individual's filing under Chapter 7 raises a presumption of fraud, thereby giving creditors opportunity to object to discharge.

The first question is whether the debtor's "current monthly gross income", considering the household size, is above the state's median income. If it is, the next question becomes if the debtor's circumstances can pass what is known as the “means test”.

You would think that the "current monthly income" means what it says, your current monthly income. Not so, it is a calculated average of the income in the six months prior to filing. The CMI is calculated by adding the gross income over the previous 6 months just before filing, then dividing that total by 6, to get the monthly average. That number is then multiplied by 12 to get the annual number. It is this number that is compared to the published state's median figures.

If the income is above the median AND the debtor fails the means test, the presumption of fraud is raised. It is very difficult at that point to succeed in a Chapter 7, without special circumstances. In effect, the debtor is forced into a repayment plan, under Chapter 13.

However, beware that certain circumstances make Chapter 13 the only viable option. Examples include: when the debtor is behind on secured debts such as: mortgage, automobiles, items the debtor does not want to surrender.

CALIFORNIA MEDIAN INCOME

For cases filed after 11/01/09

* Add $6,900 for each individual in excess of 4.

Even if your income is above the median, you can succeed under Chapter 7 if you can pass the "means" test. A link below discusses this test in more detail. The basic idea in the calculation is to subtract allowable living expenses from your income and determine if your disposable income is above or below the qualifying amount. Note however, that your actual expenses and income may be different from that used to do the calculation since your income is calculated as described above and many of your expenses are based on the allowable living expenses numbers, not your actual expenses.

Objections to Discharge:

Creditors or the Trustee may object to discharge of debts. Objections can be raised based on incomplete or inaccurate information provided in the filing, fraud or presumption of abuse.

It is important to be thorough and completely honest in your filing. Innocent mistakes, such as forgetting to list creditor(s) or asset(s) can be costly. Dismissal of your case as well as criminal penalties can result. The attorney's job is to ensure that your application is not just accurate but complete. Should an objection arise, the attorney can advise and represent you in a hearing before the judge.

WHAT IS THE PROCESS?

1. CONSULTATION: A THOROUGH EVALUATION OF YOUR FINANCIAL CIRCUMSTANCES

The first and critical step is to take stock and evaluate the financial situation. Your attorney will want to know information as it pertains to your

- Debts

- Income

- Expenses

- Property

2. DOCUMENT GATHERING AND PREPARATION OF THE PETITION

Once a decision has been made that Bankruptcy is the best alternative, your attorney will want to gather additional information and documentation necessary in preparing a bankruptcy petition, which includes forms, also known as schedules.

It is important to be accurate and forthcoming with the information required, not to omit, or make mistakes in calculations. Certain required documents supporting the information provided within the petition must be timely submitted to the Trustee for review. This includes: financial statements, copies of deeds, pay stubs, profit & loss statements, security agreements, valuations of property, and others.

3. CREDIT COUNSELING

The new Bankruptcy rules require that the petitioner attend a credit counseling course. No petition can be filed without a certificate evidencing completion of the course. The counseling is provided through approved credit counseling agencies and may be obtained in person, over the phone, or through the internet.

Bankruptcy Credit Counseling and Debtor Education

4. FILING OF YOUR PETITION

Once the necessary documents are delivered to your attorney, the petition can generally be prepared within 24 hours. Emergency situations could warrant a faster filing.

Your Attorney will meet with you to review the contents of the petition, get all the necessary documents signed and ready for filing.

The filing is completed electronically and a confirmation is usually received instantly. Within a day or two, the case is assigned to a Trustee and a date and time for the Creditor's Meeting is scheduled (usually 30 days after filing).

Your attorney will notify you immediately of the appointed day and time to ensure that you are available to attend this meeting.

The bankruptcy court mails out notices to your creditors and as a result within 2-3 days all contact from creditors and collection agencies is strictly forbidden. Communication with regards to your case can be made by the creditors to your attorney.

5. CREDITOR'S MEETING

Your attorney will attend the creditor's meeting with you. This meeting is handled by the Trustee, who is assigned by the United States Trustee Office with the Department of Justice. The Trustee's job is to review your petition and the supporting documents for accuracy, to administer any assets that may be available for the benefit of the creditors.

6. DEBTOR'S EDUCATION COURSE

After the creditor's meeting, a period of 60 days must pass, allowing any creditors to object to discharge. This is what is commonly known as "scream or die". If the time period lapses and the creditors fail to object any valid claim they may have, it is lost once the 60 day period passes.

The law requires that in order to receive a discharge, a petitioner must complete a Debtor's Education Course. Similar to the Credit Counseling Course, the course can be completed online. A certificate is issued and an additional form must be filed with the court confirming the completion of this course. Failure to complete the course can result in your case being closed, without discharge.

6. ADDITIONAL PROCEDURES/CONSIDERATIONS

Other considerations may include dealing with reaffirmation agreements. Secured lenders, such as those that provide money to purchase cars, may require that you sign a new agreement, post filing, with same or sometimes better terms in order to keep the vehicle(s). Your attorney will discuss your loan(s) with the lenders and obtain the necessary documents for your signature.