Chapter 7 bankruptcy (Title 11 of the United States Bankruptcy Code) is commonly known as a liquidating bankruptcy (liquidation), personal bankruptcy, or just plain “bankruptcy.”
What happens To Your Assets in a Chapter 7?
An asset (property) is anything you own or may have a right to own at some future date (for example, if you are in someone’s will). In Chapter 7 in most cases all of your assets will be exempt. California law provides two separate sets of exemptions from which to choose.
Essentially, you can exempt any items normally used for your support and maintenance, such as clothing, furniture, household goods, and so forth. After you file your case, a Trustee is appointed. He (or she) will liquidate (sell) all of your non-exempt assets and pay your creditors according to the priority afforded to them by the Bankruptcy Code.
You may voluntarily repay any debt upon agreement with the creditor after the Chapter 7 case is completed. Whether this is ever advisable is questionable and is an issue to be discussed with your attorney or lawyer.
Should you file Chapter 7 Bankruptcy in California?
The goal of most any personal bankruptcy attorney is to obtain a discharge or “bankrupt” their client’s existing debts and to allow them a *fresh start* on their finances. In other words, once your discharge is granted, you no longer need to repay the debts that were incurred before you filed your bankruptcy. Your creditors are entitled to share in the proceeds obtained from the liquidation of your non-exempt assets. Under Chapter 7, the amount your creditors will get is fixed by the value of your non-exempt assets.
Technically, the word “bankrupt” is not the correct terminology when referring to getting rid of debts, but most people (even many attorneys) use that phrase. “I want to bankrupt my credit cards or bankrupt my student loan debts”. The correct legal term is “discharge”. You discharge your obligation to pay on debts.
Certain debts are non-dischargeable in Chapter 7
Examples of these are alimony and child support obligations, taxes less than three (3) years old, student loans (with the sole exception listed below), and any debts procured by fraud, incurring debt without a reasonably certain ability to repay the debt, and so forth. Certain debts related to a divorce proceeding, such as attorney’s fees, may be dischargeable in a Chapter 13, but not in a Chapter 7.
Assuming you need to file a bankruptcy, the only way to determine which Chapter to file under is to first compare your options under the other available Chapters (with the assistance of a bankruptcy attorney). Generally, Chapter 7 is the cheapest, quickest and least burdensome of the three major Chapters (the others being 11 and 13) of bankruptcy law. Costs and fees vary depending on the number of creditors you have, complexity of your case, and other factors.
If you reside in California, contact one of our attorneys here at ABA Family Law Group to set up a free consultation. If you are an individual and meet the requirements, Chapter 7 allows you to discharge most or all of your debts. It allows you to do this regardless of how many assets you have or how much your creditors ultimately receive. It basically allows you to walk away from your debts and start over.
What are some of the disadvantages of Chapter 7?
You are only able to receive a discharge after eight (8) years have passed since the commencement of the last case in which you received a discharge, although you can file another Chapter 13 case sooner (usually 4 years). Thus, you should not file a bankruptcy if you need the option of doing it again in the next eight years.
What about your credit after a Chapter 7 case?
The bankruptcy will appear on your credit report for up to ten (10) years after you file. Other accurate negative reports on your credit must be removed after seven (7) years (like late payments on credit cards, foreclosures, etc).
However, credit lending agencies know you are unable to file for Chapter 7 bankruptcy again for at least 8 years, and therefore, they don’t have that risk to bear.
A word about credit cards and cash advances
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 implemented a “means test” in order to qualify for a Chapter 7 Bankruptcy. This “means test” was the government’s way of keeping people honest when choosing to file for bankruptcy. Those that do not qualify for a Chapter 7 filing seek a Chapter 13 filing to take advantage of its options.
Contact one of our attorneys here at ABA Family Law Group for a free consultation to examine your current situation. Having an experienced professional assess your case before you make the decision to file for bankruptcy can be critical. It is extremely vital that you get experienced and knowledgeable help before you file for bankruptcy in a federal court.