How does it work?
Chapter 7 bankruptcy is also often referred to as liquidation. It is a process where a person files a case before the bankruptcy court seeking relief from their debts because they are unable to discharge them for one reason or another. In the process, a person turns over his “non-exempt” assets to a trustee who will sell them and use the proceeds to pay creditors.
How do I know if I am eligible for Chapter 7 bankruptcy?
There are some requirements to note before you commence filing for Chapter 7. First of all, you are barred from filing, if within the last 180 days, you had a bankruptcy petition dismissed. Furthermore, your application will be rejected if within 180 preceding filings, you fail to get duly recognized credit counseling. The rules are designed to stop people applying for bankruptcy repeatedly after being rejected by a court and to ensure that people seek expert advice before making the decision to apply.
Another thing to consider is income rule and the means test. The law believes there are people with a certain income range who should be capable of paying off their debt. This figure can vary based on certain factors and you should consult a bankruptcy lawyer to ascertain the exact figure which applies to you. Lastly, if you’ve had a discharge within a period of eight years under this same chapter, you are ineligible to file.
What documents are needed for filing?
The following documents are to be attached to the bankruptcy forms:
- An inventory of all your property, (including deeds for landed property where available)
- A list of your monthly expenses such as clothing, taxes, utility, food, transportation, etc
- A statement disclosing expected future incomes, their source, and frequency.
- The names of all your creditors, the amount owed to each, and a summary of each claim.
Do I need a lawyer for this process?
By law, it is not a necessity to have a lawyer. You can decide to go all the way on your own. However, given the technical nature of the laws involved, it is advised that you seek the services of an experienced bankruptcy lawyer. Not having proper legal advice before commencing can be bad for you. Nine times out of ten, your creditors will be sending their lawyers to handle the case on their behalf and there’s a reason for that. It is always better you consult an experienced bankruptcy attorney to guide you through the process because an attorney with experience in bankruptcy matters will be better equipped to present your case before the bankruptcy court and get you the best deal possible.
What is the cost of filing under Chapter 7?
Presently, filing costs around $335 depending on your exact location. However, if payment would be difficult, there are some palliative measures available. You can ask to pay in installments for a maximum period of 180 days but you must have a valid reason for this request. In some cases, the court may waive the payment of this fee altogether. A typical example is where the filer proves extreme financial difficulty to the satisfaction of the court.
How do I know the right time to file for Chapter 7 bankruptcy?
Deciding whether or not to file for Chapter 7 bankruptcy hinges on the peculiarity of your financial situation and the nature of your assets. Most bankruptcy experts will tell you not to file if you are expecting to incur a significant amount of fresh debt in a few months or years since the law bars you from filing another bankruptcy within the next eight years. That means filing and then incurring significant debt which you cannot repay soon afterward will leave you in a lurch with very limited options. As a general rule, it’s more prudent to wait so you can include the new debt.
Do I lose all of my property under Chapter 7?
The law draws a distinction between exempt assets and non-exempt assets. Exempt assets are assets that are used to secure a loan or mortgage or which are exempt as a result of being deemed by the court to be essential to your survival or protected with the bankruptcy exemptions. Nonexempt assets are not tied to any such obligation and will be given over to the trustee. Under Chapter 7, the trustee appointed by the court is allowed to auction or sell the non-exempt assets and pay the monies realized from such sales to the unsecured creditors. If you are not sure of the assets which are exempt or nonexempt, you should consult a bankruptcy attorney to evaluate your situation.
Does filing under Chapter 7 protect me from lawsuits and harassment by creditors?
Once you have filed for bankruptcy, the court notifies the creditors named in your application. Following this notification, these creditors are to refrain from contacting you on any issue regarding the bankruptcy and your loans. Doing this may render them liable to pay damages at your instance. Also, ongoing lawsuits against you are expected to be put on hold. However criminal matters and alimony proceedings are not affected.
Can I file together with my spouse?
Yes, absolutely. A married couple can file for Chapter 7 bankruptcy. They would each fill their respective forms and attach copies of the required documents. The case is then consolidated and just one filing fee will be charged.
What happens if my spouse doesn’t file?
Should your spouse opt not to file with you, he/she will not be able to enjoy the benefits and protection that comes with Chapter 7 bankruptcy. For instance, if there are court proceedings against both of you, the stay of proceedings granted after the filing only applies to you. It would not include your spouse.
When will I be discharged?
As soon as the trustee appointed by the court is able to sell off all of your nonexempt assets, and the proceeds paid to your creditors, you will be discharged. If there are no assets to administer your case will be discharged 60 days after your 341 meetings of creditors.
What happens after I am discharged?
Following a discharge by the court, you’ll become free from further liability on the discharged debts. Legally, your creditors won’t be able to bring any action to recover those debts in the future. However, note that there are certain debts that won’t be covered by this protection the law affords. Examples are student loans, alimony & child support debts, and certain taxes.
Can I convert from my bankruptcy from Chapter 7 to Chapter 13
Yes, with court approval. While the process is ongoing, you can apply to court through your lawyer for the case to be converted to one under Chapter 13. This could be for instance when you’ve just gotten a new raise or a better paying job. Instead of losing your valued assets to the trustee’s sales, you could convert your case to Chapter 13 and start paying off your debts from your income in accordance with a payment plan you submit to the court. You need to consult a bankruptcy attorney to make sure you do not have unexempt property because the court may not grant leave to covert the case to simply avoid the sale of an asset by the Chapter 7 Trustee.
About the Author: Roxane Kaye, has been practicing law since 2002. She is admitted to practice law in Michigan state courts and before the Federal Bankruptcy Court of Eastern Michigan, Southern Division, as well as the Federal District Court of the Eastern District of Michigan. Roxane covers cities such as Burton, MI, Flint, MI, Fenton, MI, Beecher, MI, Lapeer, MI, Waterford, MI, Auburn Hills, MI, Pontiac, MI, Howell, MI, Owosso, MI, Wixom, MI, Rochester, MI, Rochester Hills, MI, Novi, MI, and South Lyon, MI.
You may contact Roxane below:
Roxane M. Kaye
Kaye Law Office, PLLC
8161 S Saginaw St
Grand Blanc, MI 48439
