CHAPTER 7 BANKRUPTCY
What is chapter 7 bankruptcy?
Can you summarize chapter 7?
How long does it take to file a chapter 7 bankruptcy?
What happens legally when i file chapter 7?
Bankruptcy is a business decision
Bankruptcy does not make you a “bad” person
Why do we refer to chapter 7 as a liquidation bankruptcy?
What debts can a chapter 7 eliminate?
Will i be able to keep my belongings in chapter 7?
Examples of common exemptions
How much equity in my home does a chapter 7 protect?
Does filing chapter 7 make sense?
What debts are not dischargeable?
What is debt ranking?
What if a creditor serves me with a lawsuit?
Can a small business file a chapter 7 bankruptcy?
Will chapter 7 eliminate enough debt?
Does Grant Phillips Law fight credit card debt?
How much property will i lose in chapter 7?
What is an asset versus non-asset chapter 7?
What happens to my property in a chapter7 asset case?
Is an asset chapter 7 common?
What is an example of an asset based chapter 7?
What happens to a personal guarantee in chapter 7?
What if I have a cosigner who is not filing chapter 7?
What does it mean to have equity? ?
How does chapter 7 affect my credit?
Will I be able to obtain credit again?
What auxiliary papers are filed with my chapter 7?
What is a joint petition?
WHAT IS CHAPTER 7 BANKRUPTCY?
Chapter 7 bankruptcy is the most common form of bankruptcy. Its underlying purpose is to allow a debtor to discharge a variety of debts. It begins with the filing of legal papers that document the debtor’s entire financial situation in detail. The papers tell the trustee, based on the numbers and corresponding law, if the debtor qualifies to file Chapter 7, what the debtor can keep, what is exempt from the trustee’s grasp and it provides the trustee with notice of which debts the debtor seeks to discharge. One may look at a Chapter 7 as a legal process for eliminating certain debt.
CAN YOU SUMMARIZE CHAPTER 7?
A chapter 7 bankruptcy case does not involve a “plan of repayment” as in chapter 13. Instead, in a Chapter 7 the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. In addition, a Chapter 7 will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets, if any exist. It is important to work with an attorney to maximize exemptions and prevent loss of property.
HOW LONG DOES IT TAKE TO FILE A CHAPTER 7 BANKRUPTCY?
You can file a Chapter 7 case as quickly as you can gather the information to prepare the Chapter 7 paperwork. At Grant Phillips Law, PLLC, we use cutting edge technology whereby we provide easy to use, cloud based software to our clients, to help them gather the necessary information to be used by our law firm for filing the Chapter 7 bankruptcy. The software is available in English and Spanish and is available online 24/7, allowing our clients to work at a speed that is comfortable for them. When the information required is complete, GPL requires 24 to 48 hours to review and complete the paperwork in order to file the bankruptcy. A GPL client is free to call or email anytime, with questions or comments pertaining to the gathering of information.
WHAT HAPPENS LEGALLY WHEN I FILE CHAPTER 7?
When a Chapter 7 case is filed, all of the debtor’s property is temporarily under supervision of the bankruptcy court and case trustee. Property that is considered “exempt” is retained by the debtor; conversely, property that is “nonexempt” is subject to sale by the bankruptcy trustee with the proceeds distributed to creditors.
Here are some of the things you should be prepared to do during a Chapter 7 bankruptcy.
- Complete bankruptcy counseling. A requirement since 2005. This counselling course on finances and budgeting can be taken online or over the phone 24/7 and the certificate must be filed with the bankruptcy or the filing is at risk of being dismissed.
- Pass a “means test.” The test is whether your income exceeds a certain amount. This requires you to show that you are eligible to file for Chapter 7 bankruptcy based on your state’s income standards. This test is one of the first things your attorney will perform.
- File a petition with your local bankruptcy court. A debtor and their attorney will prepare the documents and legal papers in the format expected by the courts. The majority of information provided is about your income and expenses. A copy of your most recent tax returns is necessary for the trustee not the actual court filing.
- Attend a creditor meeting (known as the 341 Meeting of Creditors) with the bankruptcy trustee and any of your creditors who choose to appear. Your bankruptcy trustee will be assigned to you. You’ll be required to answer questions about your debt, property and financial situation under oath. Grant Phillips Law, PLLC will be there with you.
- Complete a financial management course through an approved agency. You’ll need to complete the course and submit a form certifying you completed the course (Form 423) within 60 days of the first date set for the Meeting of Creditors. This too is another change from the bankruptcy reforms adopted in 2005. Your attorney will make certain you take this course and file it accordingly. Failure to take this course are grounds for dismissal of your bankruptcy filing. This course can be taken online or by phone.
- Receive your discharge. This permanently stops creditors from collecting on any of the specific debts that were discharged in the bankruptcy. Remember, not all your debts are dischargeable in bankruptcy.
BANKRUPTCY IS A BUSINESS DECISION
It is important to remember that bankruptcy is not something to be ashamed of. Literally millions of Americans have filed and everyday thousands more seek the relief as provided by congress through the Bankruptcy Code. No one intentionally goes into debt only to seek a bankruptcy. Rather, we are human beings. Life has ups and downs and no one can predict their fiscal future. When debt outweighs income and no other solutions present themselves, bankruptcy is a logical business decision that eliminates most debt for good.
BANKRUPTCY DOES NOT MAKE YOU A “BAD” PERSON
Many of the greatest entrepreneurs have filed bankruptcy. It does not make you “bad” or “irresponsible.” Perhaps you tried a business venture of your own. Maybe you were hit with a sizable medical bill out of the blue. Others may have credit cards that have spiraled out of control. The reality is that you have done your absolute best to keep your head above water and Grant Phillips Law, PLLC will provide you with the opportunity to start over and begin again.
WHY DO WE REFER TO CHAPTER 7 AS A LIQUIDATION BANKRUPTCY?
Chapter 7 bankruptcy is often referred to as the “liquidation” form of bankruptcy. This is because the debtor is telling the trustee and court that after exhausting all available exemptions, any remaining assets or money can be liquidated among the creditors in return for eliminating those debts in Chapter 7, through receipt of the discharge.
WILL I BE ABLE TO KEEP MY BELONGINGS IN CHAPTER 7?
It is important to note that as a practical matter, most people are able to shed their unsecured debts through Chapter 7 without losing any property. The bankruptcy laws provide exemptions on certain assets in order to allow a debtor to keep some of their most basic property. An experienced attorney will know all the exemptions available, making certain you eliminate as much debt as legally allowed and keep as many assets as the law allows.
EXAMPLES OF COMMON EXEMPTIONS
There are exemptions for retirement accounts, pensions, college savings accounts (529 plans), Social Security Income, government provided benefits, most workers compensation and even a dollar amount provided for a car as well as personal belongings such as clothes, kitchenware and linen. There is also an exemption that covers cash in the bank and as discussed above, there is a homestead exemption that allows for an exemption of equity in a primary residence up to a certain dollar cap. More on exemptions later in this tutorial.
HOW MUCH EQUITY IN MY HOME DOES A CHAPTER 7 PROTECT?
The exemption amount for equity in a primary residence in New York is as follows: up to $170,825 if the property is in the counties of Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester, or Putnam. $142,350 if the property is in the counties of Dutchess, Albany, Columbia, Orange, Saratoga or Ulster and $85,400 if the property is in any other county in the state. The homestead exemption applies to equity in a house, a condo, a co-op, or a mobile home
DOES FILING CHAPTER 7 MAKE SENSE?
Before you file Chapter 7 bankruptcy, you’ll want to decide if it makes financial sense. You can determine if Chapter 7 bankruptcy is right for you by asking yourself the following questions:
– Can your creditors get to your property or income if you don’t file for Chapter 7 bankruptcy?
– Will Chapter 7 bankruptcy discharge enough debt to make it worthwhile?
– Will you have to give up property you want to keep?
– Are you charging one credit card to pay off another?
– Are you receiving phone calls and letters from your creditors?
– Are you able to sleep at night, or are you up and worrying about your debts?
– If you do nothing and your creditor(s) obtain a judgment, can your wages be garnished?
WHAT DEBTS ARE NOT DISCHARGEABLE?
Certain debts are considered Priority Debts. This means that they remain even after filing a Chapter 7. These include taxes, child support, and government issued student loans. These types of Priority Debts not only remain after bankruptcy, but do not require the creditor to sue you in court first. The debt is owed irrespective of court. Thus, debts like this can force wage garnishments as well as the right to claim a debtor’s property.
WHAT IS DEBT RANKING?
As stated above, for Chapter 7 purposes, debt is ranked and while Priority Claims cannot be discharged in Chapter 7, Secured and Unsecured Debts can. Examples of secured debt includes a mortgage, home equity line of credit or car financing. Examples of unsecured debt include those with credit card balances, medical bills, utility balances and personal lines of credit without underlying collateral. These creditors must first sue you in court and obtain a court judgment before they can start collection procedures, such as a wage garnishment or seizure of personal property.
WHAT IF A CREDITOR SERVES ME WITH A LAWSUIT?If a creditor serves you with a lawsuit, you’ll want to speak with a bankruptcy attorney as soon as possible. Filing a bankruptcy case before the creditor receives a judgment will help avoid liens being placed on your property (Liens do not always go away in a bankruptcy) thereby giving the creditor a permanent right to your assets. Even if the creditor already has a judgment against you, however, filing for bankruptcy can often provide needed relief.
CAN A SMALL BUSINESS FILE A CHAPTER 7 BANKRUPTCY?
Yes, while not very common, a small business that has no assets and has more debt and liability than income, may avail itself of a Chapter 7 bankruptcy. Again, these are very complex areas within the law and a debtor is best advised to seek the assistance of a bankruptcy attorney.
WILL CHAPTER 7 ELIMINATE ENOUGH DEBT?
If the bulk of your indebtedness is from debts that cannot be discharged, you won’t want to move forward with your case without speaking with a knowledgeable bankruptcy attorney.
The main non-dischargeable debts are:
– child support and alimony obligations
– student loans,
– income taxes past due
– recent debts for luxuries, and
– debts incurred by fraud, such as lying on a credit application or writing a bad check
– debts from willful or malicious injury to another or another’s property
– debts from larceny (theft), breach of trust, or embezzlement, or
DOES GRANT PHILLIPS LAW FIGHT CREDIT CARD DEBT?
Yes, along with any type of medical debt, personal guarantees, leases, garnishments and bank levies, GPL defends our clients against every type of credit card debt and credit card issuer, including: American Express, Visa, MasterCard, Barclay’s, Discover, Capital One, Chase, Citi, Bank of America, Well Fargo, US Bank, USAA and Synchrony Financial. Together these banks issue 90% of all credit cards in the United States. Grant Phillips Law, PLLC will fight the credit card lawyers until a settlement is reached or until our client is ready to file a bankruptcy and eliminate the credit card for good.
HOW MUCH PROPERTY WILL I LOSE IN CHAPTER 7?
Whether or not you decide to file for Chapter 7 bankruptcy might depend on what property of yours will be taken to pay your creditors (“nonexempt” property) and what property you get to keep (“exempt” property). The following is listed as examples only. Every case and client is unique. Thus, there is no cookie cutter approach. At Grant Phillips Law, we do not try to fit a square peg into a round hole. Rather every case is viewed as its own. Each solution tailor made.
Examples of items you can typically keep (exempt property):
- motor vehicles, up to a certain dollar value
- reasonable clothing (no mink coats)
- reasonably needed household furnishings and goods.
- household appliances
- jewelry, up to a certain value
- life insurance (cash or loan value, or the proceeds of life insurance), up to a certain value
- part of the equity in your home (Homestead)
- tools of your trade or profession, up to a certain value
- a portion of unpaid but earned wages, and
- public benefits (welfare, Social Security, unemployment compensation)
Items you might have to give up (nonexempt property) include:
- expensive musical instruments (unless you’re a professional musician)
- stamp, coin, and other collections
- family heirlooms
- cash, bank accounts, stocks, bonds, and other investments
- a second car or truck, and
- a second or vacation home.
In New York State, one is allowed to choose whether to use the Federal Exemptions or the New York State Exemptions. Your Attorney will view your assets, income and liabilities and decide which exemptions will preserve the most assets and eliminate the maximum debt.
WHAT IS AN ASSET VERSUS NON-ASSET CHAPTER 7?
Together with your attorney, you will determine which assets you will keep and those you may have to eliminate. If you can exempt all of your property, nothing will be available for creditors, the court will label your case a “no asset case.” By contrast, your case will be an asset case if you own more property than you can protect in bankruptcy
WHAT HAPPENS TO MY PROPERTY IN A CHAPTER 7 ASSET CASE?
You’ll keep your exempt property. The bankruptcy trustee—the official tasked with managing your case—will sell the remaining property, called “nonexempt property,” for the benefit of your creditors. The trustee will distribute the funds according to the creditor’s debt ranking (Discussed above). Debts that rank higher in priority get paid in full before lower priority debts. For instance, child support and taxes rank higher than credit card balances.
IS AN ASSET CHAPTER 7 COMMON?
The vast majority of Chapter 7 cases, are non-asset cases. This is because the exemptions may protect all assets, assets may have already been sold, or the debt to income ratio means an asset Chapter 7 is worthwhile or perhaps a wage garnishment exists and Chapter 7 will stop it.
WHAT IS AN EXAMPLE OF AN ASSET BASED CHAPTER 7?
Steve owes $80,000 in credit card debt and $40,000 in unpaid taxes. He also owns a sailboat worth $20,000. Even though he may lose the boat, he decides to file for Chapter 7 bankruptcy. He knows that because his taxes are his highest priority debt, all of the money from the boat sale will go toward paying down his non-dischargeable tax debt, while all of the credit card debt will get wiped out
Therefore, even though Steve will likely lose his boat, he’ll still be in a better financial position after filing Chapter 7 bankruptcy, because instead of being in the red by $100,000 ($120,000 debt – $20,000 boat value = $100,000), he’ll reduce his total debt down to a $20,000 in non-dischargeable tax debt. He owed a total of $120,000 made up of $80,000 credit card debt and $40,000 back taxes. He cannot eliminate the taxes in bankruptcy, but the sale of the boat by the trustee will yield $20,000 which will go to paying down his tax bill by half and despite losing the boat, the Chapter 7 eliminates the entire $80,000 of credit card debt, thus, Steve is left owing $20,000 in tax debt and eliminate all else, which yields a $120,000 savings.
WHAT HAPPENS TO A PERSONAL GUARANTEE IN CHAPTER 7?
Personal guarantees are complex when it comes to filing a Chapter 7 bankruptcy. It is possible to eliminate a personal guarantee in a Chapter 7 bankruptcy, but you will need to discuss the details with a debt relief and bankruptcy lawyer. Please note there are differences in the law between a personal guarantee on corporate or business debt and a personal guarantee on consumer debt.
WHAT IF I HAVE A COSIGNER WHO IS NOT FILING CHAPTER 7?
If someone cosigned for one of your debts and therefore is also responsible, for example a relative or business partner who cosigned for a car or corporate equipment, that person will still be on the hook if you file for Chapter 7 bankruptcy. The bankruptcy case wipes out the obligation of the filing debtor only. So if the debt is of a type that you can discharge in Chapter 7 bankruptcy, you will no longer be legally responsible for paying it, but the other person is still obligated to pay the debt. In order to protect a cosigner speak with a bankruptcy attorney.
WHAT DOES IT MEAN TO HAVE EQUITY?
If you have equity in an asset, like a house or a car, it is worth more than what you owe for it. An easy way to think about it is if the asset is sold, would you end up with cash left over once you pay the remainder of what you owe? If the answer is yes, that generally means you have equity in that asset.
HOW DOES CHAPTER 7 AFFECT MY CREDIT?
A Chapter 7 bankruptcy will remain on your credit reports for ten (10) years. The number of points a debtor may lose by filing a Chapter 7 bankruptcy is unknown but it will make a difference if you eliminate all outstanding or delinquent debts. Overtime your score will increase and many clients of Grant Phillips Law have been able to lease a car within 2 years of filing.
WILL I BE ABLE TO OBTAIN CREDIT AGAIN?
Rebuilding your credit is not excessively difficult. There are many secured cards available for situations like a Chapter 7 filing. Moreover, we have found that the credit bureau’s (Experian, Equifax and Transunion) use an algorithm and computer program which rewards debtors who take responsibility for lingering and delinquent debt and punish those that keep past due debt lingering. Bankruptcy is the ultimate form of taking fiscal responsibility and thus it has been our experience with multiple clients that their credit scores have in fact risen. Finally, while the rates may be a little higher because of your credit, the bankruptcy filing does not preclude you from a mortgage. No matter what the impact, your credit can be improved with time and effort. By practicing healthy financial habits, such as paying bills on time, keeping credit card balances low, and trying not to apply for multiple new loans or credit in a short period of time.
WHAT AUXILLARY PAPERS ARE FILED WITH MY CHAPTER 7?
Together with the bankruptcy petition, schedules and means test, a typical Chapter 7, also requires the credit counselling certificate and pay stubs for the 60 days leading up to the filing. Not including these supplemental documents are grounds for the filing to be dismissed with a time-barred penalty. For example not allowing the debtor to file bankruptcy for 1 year.
WHAT IS A JOINT PETITION?
A single petition filed by an individual and the individual’s spouse is called a ‘joint petition.’ Only people who are married on the date they file may file a joint petition. Unmarried persons, corporations, and partnerships must each file a separate case. If you are an individual and are also a sole proprietorship business (not a partnership, LLC or corporation), you should list the name of the sole proprietorship business on your individual petition. A petition filed in this manner, however, will not be considered a joint petition because a sole proprietorship business is not an independently recognized legal entity.