Chapter 7 Bankruptcy proceedings are for individuals who have personal liabilities that exceed their income and assets. If you qualify for a Chapter 7 liquidation, it offers the fastest form of bankruptcy to give you a fresh start, without relinquishing all property.
Requirements to File Chapter 7
There are income limits for eligibility for a Chapter 7 filing. This determination is made in a two-part “Means Test.” The Means Test first requires you to document your most recent six months of income from all sources. This data is then used to determine your average monthly income. If this income is less than the median monthly income for your state, then you presumptively qualify for Chapter 7.
If your income exceeds the median income for your state, you can proceed to the second part of the Means Test where you are given the opportunity to show that even though you do not presumptively qualify for a Chapter 7 liquidation, you have certain special circumstances which, when taken with your other allowable expenses—such as mortgage/rent, transportation, food, groceries, clothing and ordinary medical costs, and deducted from your income, show that your Chapter 7 case is not an abusive filing. Special circumstances that are deductible for Means Test purposes can include expenses such as extraordinary medical expenses or care of an elderly person.
Most of the time, however, if your income is above the median, you will have to file a Chapter 11 or Chapter 13 case and repay at least a portion of your debts over time.
Even if you do not have an excess of income or available cash to pay creditors, if you have assets with equity that can be converted into cash those assets – even your home, annuities, or your car in some cases – may be sold through your Chapter 7 case in order to pay creditors.
Many assets, like pensions, 401(k) plans, and a limited amount of the equity on your home, are protected and cannot be sold through a Chapter 7 process.
But, if you owe less on your mortgage or other liens than your house is worth, or if you have other assets that can be liquidated to pay creditors, you should consider a Chapter 11 or Chapter 13 proceeding instead.
In bankruptcy proceedings, debts are dischargeable or nondischargeable. If a debt is dischargeable, you are not required to pay back those debts, and creditors can no longer demand payment. Nondischargeable debts are those debts you’re still responsible for paying, even after the bankruptcy.
In a Chapter 7 filing, most unsecured debts are dischargeable. Therefore, any bills or loans you incurred without collateral are dischargeable – such as credit cards, medical bills, and pre-Chapter 7 homeowner’s association assessments. Some nondischargeable debts include child support, alimony, student loans, most taxes, legal fines, and fees.
You need to discuss the specifics of your case with your bankruptcy attorney to see whether your debts are dischargeable or not. In many cases, the existence of a high amount of nondischargeable debts will be a good reason to consider filing a Chapter 11 or Chapter 13 case and funding a repayment plan so that these debts are manageable even if they cannot be completely discharged.
Can You Retain Property In a Chapter 7 Filing?
Chapter 7 filings allow consumer debtors to keep real and personal property such as real estate, household furnishings, vehicles, equipment needed for the debtor(s)’ business, and even jewelry. There are limitations, however, and you must discuss the particulars of your real and personal property with your attorneys at before deciding whether you can file a Chapter 7 case without risking the loss of your property.
Nonexempt items can be sold by your Chapter 7 case trustee, and the money raised by the sale of your assets goes to pay off your creditors.
If you need to keep the nonexempt property, you may be able to buy it through a settlement or payment agreement with your Chapter 7 case trustee.
Your New Jersey chapter 7 bankruptcy attorney will help you understand whether your property is exempt or not and help you keep the property you need/want by helping you choose the debt relief process that is best for your personal and financial circumstances.
Key Steps In a Chapter 7 Bankruptcy
Meet with a New Jersey bankruptcy attorney to determine whether you are eligible for Chapter 7. If you qualify, then your attorney will help you prepare and file a petition for relief under Chapter 7 of the Bankruptcy Code. The filing of “petition for relief” (whether under Chapter 7, Chapter 11 or Chapter 13) triggers the imposition of the “Automatic Stay.” The Automatic Stay immediately stops almost all ongoing actions by creditors, from lawsuits to harassing phone calls. Matters NOT stopped by the Automatic Stay include child support proceedings, divorce proceedings, and other family law enforcement actions, criminal proceedings, and matters where the debtor(s) is the plaintiff.
As soon as your petition for relief is filed, a bankruptcy trustee is appointed to administer your case which includes determining all of your liabilities and examine your assets.
Next, there will be a Meeting of Creditors, which is required by Section 341(a) of the Bankruptcy Code, where creditors are permitted to be present evidence why they should be paid. Creditors rarely appear for or participate in the Meeting of Creditors, however, and the real purpose of this meeting is for the trustee to interview the debtor(s) and determine if further investigation of the debtor(s) assets and liabilities is necessary. A straight Chapter 7 case, where no nondischargeability complaints are filed and no assets are sold, is generally concluded in approximately 120 days.
Call Lucid Law to arrange an appointment for a free consultation to find out if Chapter 7 is right for you.