What Chapter 7 bankruptcy does for you

A Chapter 7 bankruptcy filing discharges your obligation to pay back your debts. Depending upon your financial situation, Chapter 7 is about liquidation of assets and cessation of debt payments whereas Chapters 11 and 13 focus on reorganization and repayment of debts.

Corporations that seek to reorganize would file under Chapter 11 but some businesses may benefit from Chapter 7. Corporations cannot receive a bankruptcy discharge under Chapter 7 but rather a dissolving of the company. In Chapter 7, the business, in its current state, ceases to exist and assets are sold off to pay creditors.

Is Chapter 7 the best choice? Steve Bryson can help you decide

Here are the components of Chapter 7 bankruptcy:

• Automatic Stay
• Exempt Property
• Chapter 7 Trustee
• Meeting of Creditors
• Chapter 7 Discharge
• Student Loans

Automatic Stay

Chapter 7 automatically stays or stops most actions against you and your property.

• Requires no judicial action
• Creditors cannot launch new lawsuits against you
• Creditors cannot continue lawsuits against you
• Creditors cannot pursue wage garnishment

No judicial action is required for a Chapter 7 petition. Creditors cannot launch or continue any lawsuits or wage garnishment. This bankruptcy filing also stops harassing telephone calls from creditors.

Exempt Property

Although Chapter 7 serves to liquidate assets to pay debts, bankruptcy law provides protection of some of your property, based upon its exemption status. Property can qualify as exempt under either federal or state law. Many states have taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law, in place of federal exemptions.

Chapter 7 Trustee

An impartial trustee is appointed by the United States Trustee to oversee and administer your bankruptcy case and liquidates your nonexempt assets. If your assets are exempt or subject to liens then no liquidation and no distribution to unsecured creditors will take place.

Most of the time, Chapter 7 cases for individuals are “no asset” cases. If no assets are liquidated then there is no need for creditors to file proofs of claim.

If there are assets, unsecured creditors who have claims against you must file with the clerk within 90 days after the first date set for the meeting of creditors. If the trustee recovers assets later, creditors will be given notice and additional time to file claims.

Secured creditors are not required to file proofs of claim under Chapter 7 to preserve their security interests or lien but there may be circumstances when they may do so.

Chapter 7 bankruptcy can give you a new start

Meeting of Creditors

You are required to meet with creditors between 20 and 40 days after filing the Chapter 7 bankruptcy petition. Creditors may appear and ask you questions about your finances and property. If you and a spouse are filing jointly, you both must appear at the creditors meeting.

The trustee will also attend this meeting and will question you. You will need to bring all of your latest financial data that the trustee may request. I can help you compile the required financial documents.

With some courts, the trustee may provide written material on these topics or in advance of the meeting. Judges, in the interest of preserving their independent view, are prohibited from attending the meeting of the creditors.

I will prepare you for this creditor’s meeting and you will have the peace of mind in knowing you are fully prepared.

Chapter 7 Discharge

A Chapter 7 bankruptcy discharge releases you from personal liability for discharged debts and prevents creditors from taking any action against you or your property to collect the debts. The benefits of a Chapter 7 discharge are sometimes confusing and you should consult a competent bankruptcy attorney to determine your rights.

Most of the time, individual debt is discharged in more than 99% of Chapter 7 bankruptcy cases. Unless there is an objection to the discharge or the debtor has filed a written waiver, Chapter 7 will usually be granted between 60 to 120 days after the first date for the meeting of the creditors.

Note: Chapter 7 is not simply about having an attorney file a document and all of your financial worries disappear. However, it can remain relatively stress free with an experienced bankruptcy attorney.

I actively prepare each and every form with you so that the information provided is accurate and responsive to the questions asked. Otherwise there is a risk that your bankruptcy filing will fail. This is why I do what I do with filing Chapter 7 on your behalf. You are made completely aware of every action and we work together to insure your success.

Student Loans

Usually, student loans are not discharged under a Chapter 7 bankruptcy unless the debtor can prove “undue hardship.” The Ninth Circuit, in the case of In re: Pena, has adopted the three-prong test used by the Second Circuit in the case of In re: Brunner. The three tests must all be met in order for the discharge of student loan debts.

Three tests to qualify for the discharge of student loan debt:

1. Based on current income and expenses for a minimal standard of living, the debtor cannot maintain loan payments.

2. Prolonged additional or extenuating circumstances make it difficult for the debtor to pay the loan.

3. The debtor has made good faith efforts to repay the loans.

Meeting the criteria may be difficult. That’s why I thoroughly review your student loan, your budget and your circumstances. The possibility of a loan discharge under Chapter 7 might be possible.

These are just a few of the main components regarding Chapter 7. Your specific situation could require more or less action for the process. Possibly, your financial situation may require Chapter 13 or other measures.

Call or email me today and let’s discuss whether Chapter 7 bankruptcy is for you. — Steven Bryson, Bankruptcy Attorney, Los Angeles