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Chapter 7 FAQ

Frequently Asked Questions About Chapter 7 Bankruptcy

What is a chapter 7 bankruptcy case and how does it work?

A Chapter 7 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under Chapter 7 of the U.S. Bankruptcy Code. In a Chapter 7 bankruptcy, a bankruptcy trustee collects the debtor's assets, sells or "liquidates" them, and uses the proceeds of the liquidation to pay creditors. However, in most cases, the debtor is allowed to keep "exempt" property, and, depending on the situation, permit you to keep your car and home, provided that your payments are current and there is no significant equity. Chapter 7 is generally the simplest and quickest form of bankruptcy, and typically eliminates most kinds of unsecured debt, such as credit cards, medical bills, and most personal loans.

What is a chapter 7 discharge?

It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor in the future. If you file a Chapter 7, the discharge will release you from liability for most of your debts and prevent creditors from taking actions to collect those debts. The vast majority of Chapter 7 cases result in discharge, but discharge is not guaranteed. The bankruptcy court may deny a discharge, for example, if it finds that you failed to keep or produce adequate financial records, failed to sufficiently explain any loss of assets, committed a bankruptcy crime such as perjury, failed to complete an approved course on financial management, failed to obey a court order, or fraudulently transferred or destroyed property that would have become part of the bankruptcy estate.

Also, a discharge will not necessarily eliminate all of your debt. Alimony and child support obligations, certain types of tort liability, student loans, and some tax liabilities, for example, will remain in place even after the Chapter 7 discharge is granted. To the extent that liquidation cannot satisfy these liabilities, you will remain liable for them after the bankruptcy case.

What is means testing?

Means testing is a method of determining a person's eligibility to maintain a chapter 7 case. A person whose annualized current monthly income from all sources exceeds the median annual income, as reported by the U.S. Census Bureau, for the person's state and family size, must show that he or she is not able to pay a minimum of approx. $195 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income, in order to be eligible to maintain a chapter 7 case.

What Effect Does Chapter 7 Have on Secured Debt?

Even if you file for Chapter 7 bankruptcy, secured creditors may retain some rights to seize parts of your property against which they hold a lien. If, for example, a creditor sold you a car on credit in exchange for a security interest in the car, the creditor may be able to seize the car even after a Chapter 7 discharge is granted. If you want to keep the car or other secured property, you must choose to "reaffirm" the debt by agreeing with the creditor that you will remain liable and pay all or a portion of the money owed. In exchange, the creditor will promise that it will not repossess the secured property as long as you continue to make payments.

IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER

If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.

The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.

Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a 'trustee' and by creditors.

If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.

If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge.

If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find out what should be done from someone familiar with that type of relief.

Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.

 

If you file for Chapter 7 bankruptcy, the discharge will release you from liability for most of your debts and prevent creditors from taking actions to collect those debts. The vast majority of Chapter 7 cases result in discharge, but discharge is not guaranteed. The bankruptcy court may deny a discharge, for example, if it finds that you failed to keep or produce adequate financial records, failed to sufficiently explain any loss of assets, committed a bankruptcy crime such as perjury, failed to complete an approved course on financial management, failed to obey a court order, or fraudulently transferred or destroyed property that would have become part of the bankruptcy estate.

A discharge, moreover, will not necessarily eliminate all of your debt. Alimony and child support obligations, certain types of tort liability, and some tax liabilities, for example, will remain in place even after the Chapter 7 discharge takes effect. To the extent that liquidation cannot satisfy these liabilities, you will remain liable for them after the bankruptcy case.

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Adam D. Decker, Attorney at Law, P.C.
10200 Broadway
Crown Point, IN 46307

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