Chapter 7
Chapter 7 is a bankruptcy “liquidation,” the simplest and quickest type of bankruptcy. The word “Liquidation” might sound scary, but in many cases there is nothing to fear.
In a Chapter 7 case, a Trustee is appointed. The Trustee has the duty to sell property to pay your creditors, but many cases are “no asset” cases, meaning that there isn’t any property that can be sold for more than you owe secured creditors (creditors who already have that property as collateral) or more than the amount of legal exemptions you can claim in property. That means you will not lose any of your property, and you will quickly receive a discharge of most of your debts. A “no asset” Chapter 7 case typically lasts 4 to 6 months.
ADVANTAGES OF CHAPTER 7
A Chapter 7 case offers many advantages:
As noted above, Chapter 7 cases tend to be over quickly, meaning you will have your discharge and “fresh start” in a matter of months, not years.
As with Chapter 13, the instant you file the case, the “automatic stay” goes into effect and bars most types of creditor activity. This means harassing phone calls, collection efforts, most lawsuits, evictions, foreclosures, garnishments and repossessions all come to a stop.
You can sometimes recover property or wages that were seized or garnished before you file for bankruptcy. This greatly depends on the specific circumstances and timing.
If you have this situation it’s best to seek advice immediately!
While Chapter 7 has less opportunity to deal with the debt you owe to secured creditors, the Bankruptcy Code does allow you to pay off the debt in a “lump sum” discounted to the current value of the property. Called “redemption,” this could benefit you if your property is worth less now than the amount you owe on it. However, you do need to be able to come up with the money to pay that lump sum all at once. That’s an impossibility for most people, though refinancing options are sometimes available and can make sense in the right situation.
This firm can assist clients with efforts to redeem property.
Sometimes the “fresh start” you need means letting go of burdensome property. Chapter 7 allows you to surrender that collateral to the creditor and move on with your life.
Chapter 7 also allows you to reject and get out from under most types of leases.
You can use Chapter 7 to avoid certain judgment liens, and certain liens secured by personal property.
This firm will file the necessary motions when a client needs to avoid these liens.
Unlike Chapter 13, in which you usually need to make monthly payments to a Trustee for 3 to 5 years, you can keep all your earnings after filing Chapter 7.
Although the attorney fee for Chapter 7 cases must be paid in advance, the amount of the fee for a simple Chapter 7 case is far less.
See the separate section on Costs & Fees.
DISADVANTAGES OF CHAPTER 7
There are several drawbacks to Chapter 7:
Unlike Chapter 13 “reorganizations,” there is no ability to catch up on missed payments on your home or car. In fact, secured creditors will often want you to “reaffirm” the debt with them, so that you will continue to be liable if you don’t pay, even after you receive your bankruptcy discharge.
This firm assists clients with reaffirmations when requested or required.
If you earn too much income according the “means test” in the Bankruptcy Code, you may not be allowed to continue in Chapter 7, because the means test will indicate (inaccurately, sometimes) that you have the ability to pay more to your creditors.
It’s only possible to receive a Chapter 7 discharge once every eight years, so you need to be careful how and when you use it.
In a Chapter 7 case, you have less control over your property. Unlike Chapter 13 it is possible that a Chapter 7 Trustee may try to sell property you want to keep. If the Trustee can find a buyer for the property for a price that is more than you owe on it and more than you can legally claim “exempt,” you could lose the property. The Trustee has the right to sell such property and use the proceeds to pay your creditors.
If you have valuable property that could be lost to a sale, Chapter 7 may not be the best option.
As with Chapter 13 cases, there are certain types of debts that are not erased by a Chapter 7 discharge. For example, student loans, many tax debts, and alimony or child support obligations will not be discharged.
For many, the biggest drawback to Chapter 7 relief is related to the way the Bankruptcy Code requires payment of legal fees. Unlike Chapter 13, the bankruptcy fee you pay your attorney must be paid up front. This seems like an obvious flaw: If most people had the cash on hand needed to pay a bankruptcy attorney, they would use that cash to pay their creditors!
Because Chapter 7 is often the best choice for people, I make every effort to charge a reasonable fee to file a simple “no asset” Chapter 7 case. See separate section on Costs & Fees.
Some Advantages & Disadvantages of Chapter 7
Positives:
Faster than Chapter 13
Cheaper than Chapter 13
Keep your wages after filing.
Surrender property to creditors that you no longer want.
“Reject” leases you no longer want.
Avoid certain judgment liens and liens on personal property.
Negatives:
You can’t use it to catch up on missed house or car payments.
Attorney fees must be paid up front.
You only get one every eight years.
Some people earn too much to qualify.
If your property has too much equity, it could be sold by the Trustee
Not all debts can be discharged.
You can learn more about the Chapter 7 process here
If you have additional questions, or if you are ready to schedule an appointment, please contact me.
There is never a charge for a first consultation.