Chapter 7 Bankruptcy
Riverside Bankruptcy Attorney
What is a Chapter 7 Bankruptcy?
A Chapter 7 Bankruptcy is a legal action making your possessions (called assets) available to creditors (to whom you owe money) in exchange for eliminating your debts. The action takes place in federal court and is started by filing a petition by you (the debtor) listing all of the things you own and ALL of the debts you owe.
When your petition is filed, the court notifies all creditors within 20 days. Once notified, creditors cannot legally continue collection, foreclosure, repossession, garnishments or lawsuits against you. You are required to attend a court hearing called the first meeting of creditors. This hearing is held about five weeks after you file.
At the court hearing, a trustee, who represents all of the creditors, may question you regarding your financial affairs. The trustee may be a lawyer. No judge will be present. There is no certain amount that a person must owe to file bankruptcy. The trustee’s job is to ensure that you don’t have extra money or property that may be sold or given to creditors. You are usually able to protect most property.
The final discharge in bankruptcy is usually entered between one and three months following the court hearing. Discharge means that you are no longer required to pay the bills you owe. You may, at your option, pay some bills and property.
What is a Discharge and How Does it Work?
Debts that are discharged are no longer legally required to be paid by the debtor. Individual debtors are released from personal liability for the debt. Discharge also prevents creditors from taking collection actions against the debtor. A valid lien that has not been avoided in the bankruptcy case will remain even though the debtor is not personally liable for the discharged debt.
Therefore, recovering the property secured by the lien may be allowed by a secured creditor. Chapter 7 cases filers automatically receive a discharge at the end of their case. This would mean that about four months after filing your Chapter 7 petition you will obtain a discharge.
Alternatives to Chapter 7
Debtors who would rather remain in business and avoid liquidation should consider filing a petition under Chapter 11 of the Bankruptcy Code. Under Chapter 11, the debtor can seek a modification of debts, either by extending the time for repayment or by debt reduction.
An individual debtor with a regular income may seek an adjustment of debts under Chapter 13 of the Bankruptcy Code. Chapter 13 provides individual debtors with an opportunity to save their home from foreclosure; allowing them to “catch up” on past due payments through a payment plan.
Out-of-court agreements with creditors or debt counseling services may also provide alternatives to filing bankruptcy.
Chapter 7 Eligibility
To qualify for relief under Chapter 7 of the Bankruptcy Code the debtor should be an individual, a partnership, a corporation or other business entity. You must receive credit counseling from an approved credit counseling agency either as an individual or in a group meeting within 180 days before filing under any Chapter of the Bankruptcy Code.
The main purpose for filing bankruptcy is to discharge certain debts giving the debtor a “fresh start.” The debtor is not liable for debts once they are discharged. Under Chapter 7 a discharge is only available for individuals and not to partnerships or corporations. Furthermore, a bankruptcy discharge does not remove a lien on property.
Role of the Case Trustee
When a Chapter 7 petition is filed, an impartial case trustee is appointed by a U.S. Trustee to liquidate the debtor’s nonexempt assets and administer the case. The trustee will normally file a “no asset” report with the court if all the debtor’s assets are exempt or subject to valid liens and then there would be no distribution to unsecured creditors.
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