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The purpose of a Chapter 7 bankruptcy is to eliminate many or all of your debts.  If there are any assets, they may have to be liquidated (or sold) to pay your creditors.  Chapter 7 bankruptcy, also called "straight" or "liquidation" bankruptcy, is so named because the law is contained in Chapter 7 of the Federal Bankruptcy Code.

Eligibility for Chapter 7 Relief

You will not be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. PLS attorneys will work with you to determine your eligibility prior to the Chapter 7 filing.

Chapter 7 Bankruptcy Process and Timeline

The whole Chapter 7 bankruptcy process takes about four to six months and commonly requires only one trip to the Trustee’s office (explained below).  Typically, you will not be required to go before a bankruptcy judge.  PLS attorneys will work with you to determine your eligibility for Chapter  7 and will evaluate alternate solutions such as a bankruptcy filing under Chapter 13 or Chapter 11 of the Bankruptcy Code or, in the alternative, an out of court restructuring.  If you are eligible to file for Chapter 7 and it is determined that it will meet your goals, PLS attorneys will work with you to prepare documents necessary for the Chapter 7 Filing.  PLS will then file all necessary documentation with the Court and will work with the Trustee’s Office.  Although, a court appearance is typically not necessary, you will have to appear for a Meeting of the Creditors.  A PLS attorney will be with you every step of the way, including attendance at the Creditors’ Meeting. 

You must also complete an online credit counseling course with an agency approved by the United States Trustee prior to the beginning of your case as well as at its completion. (For a list of approved agencies in each state, go to the Trustee's website, www.usdoj.gov/ust, and click "Credit Counseling and Debtor Education.")

The Creditors’ Meeting

A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a "creditors meeting" has been scheduled. The bankruptcy Trustee runs the meeting and, after swearing you in, typically asks questions about your bankruptcy, including how your debt was obtained. In the vast majority of Chapter 7 bankruptcies, this is the debtor's only visit to the Trustee’s Office.

The Magic Wand -- Automatic Stay

Immediately upon filing a Chapter 7 bankruptcy petition, what is commonly referred to as the Automatic Stay prevents most creditors from trying to collect what you owe them.  Hence, at least temporarily, creditors cannot legally grab ("garnish") your wages, arrest your bank account, go after your car, house, or other property, or cut off your utility service.

The Bankruptcy Trustee for Chapter 7 Bankruptcy

The court exercises control over your bankruptcy case through a court-appointed person called a "bankruptcy trustee." The Trustee's primary duty is to see that your creditors are paid as much as possible on what you owe them.  In fact, the more assets the Trustee recovers for creditors, the more the Trustee is paid.

The Trustee (or the Trustee's staff) will examine the Chapter 7 Petition and accompanying documents to make sure they are complete and to look for nonexempt property to sell for the benefit of creditors. The Trustee will also look at your financial transactions during the previous year to see if any can be undone to free up assets to distribute to your creditors. In many Chapter 7 bankruptcies, there is no property of value to be sold for the benefit of the creditors.

Your Property

If, after the Creditors’ Meeting, the Trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the Trustee with its equivalent value in cash. If the property isn't worth very much or would be cumbersome for the Trustee to sell, the trustee may "abandon" the property -- which means that you get to keep it, even though it is nonexempt. The PLS team will gladly explain what properly may and may not be exempt.  

Frequently, property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt (see below).

Secured Debts

If you've pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses (in case of a home mortgage) and automobiles (in case of a car loan). If you are behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments as before -- unless you have enough equity in the property to justify its sale by the trustee.

If a creditor has recorded a lien against your property because of a debt you failed to pay (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy.

The Chapter 7 Bankruptcy Discharge

The goal of a Chapter 7 bankruptcy is to wipe out (discharge) all of your debts with the exception of the following:

• debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
• debts that the court has declared non dischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).

 

PLS attorneys will be with you every step of the way, from the evaluation of your case and determination of the best course of action to preparing your documents and representing you before the Trustee

(or the court if necessary).