For someone in serious debt, Chapter 7 bankruptcy can offer welcome relief and a new beginning. However, if you have never filed for bankruptcy, the process may be confusing and even intimidating. By taking the time to learn more about Chapter 7, you can see how it could benefit your situation. Here is more on understanding Chapter 7 bankruptcy:
What is Chapter 7 Bankruptcy?
Chapter 7 refers to the type of bankruptcy that allows debtors to liquidate their non-exempt assets and discharge their qualifying debts. The “qualifying debts” are ordinarily unsecured debts meaning there is no collateral for them. Examples of unsecured debts are credit cards, medical bills, and some personal loans. Once a debtor’s qualifying unsecured debts are discharged in Chapter 7 bankruptcy, they are gone forever, and the debtor is no longer obligated to pay them.
Some unsecured debts are not covered by Chapter 7. For instance, student loans, unpaid child support, and taxes and fines are not eligible for Chapter 7. Additionally, secured debts, or property with debt secured by collateral, do not qualify for Chapter 7.
California Means Test
If your income is above the state median in California, you will have to pass the California Means Test to file for a Chapter 7 bankruptcy. However, if your income is below a specific limit, you will be exempted from having to pass the means test and should be able to file under Chapter 7.
What to Expect During Chapter 7 Bankruptcy
- Credit Counseling– A bankruptcy petitioner must attend an approved credit counseling class within the 180-day-period before filing their case. When filing, you will be expected to include a copy of the credit counseling certificate and any debt repayment plan developed through the class.
- Trustee’s Review– After you file for Chapter 7, the bankruptcy court will review your finances and ensure that you qualify. A trustee will be appointed by the court to review your information and oversee the liquidation. You will be expected to include information about your assets and liabilities, current income and expenditures, a statement of your financial affairs, and a list of any executory contracts and unexpired leases. Your financial affairs statement will include detailed information about your creditors and debts, income, property, and living expenses. You are required to give the trustee a copy of your tax return or transcripts for the most recent tax year as well as your tax returns filed during the case.
- The Automatic Stay– One of the best things about filing for bankruptcy is the protection of the automatic stay. All creditors named in the case will be notified of the bankruptcy by the clerk of the court. As soon as you file, the automatic stay goes into effect and will stop most collection actions against you and your property. While it is in place, creditors cannot pursue debt collection efforts against you.
- Meeting of the Creditors– After the Trustee’s review, they will schedule a “341 hearing” or meeting of the creditors. This meeting happens between 21-40 days after you file. You, your attorney, and the trustee will be at the meeting; your creditors may attend, but many choose not to do so. Creditors typically only participate if they have some objection to your filing. You will give sworn evidence at the meeting and answer questions about your debts and finances.
- Your Secured Debts and Exempt Assets– Not all of your assets have to be liquidated during Chapter 7. You can keep certain “exempt” assets such as your personal residence, vehicle, and retirement accounts. If you are still paying for a secured debt, you will need to continue making your payments. You will also need to get current on any missed payments. Secured debts are loans for property that can be repossessed for non-payment, such as houses and car loans. You will also have to sign a “reaffirmation agreement” identifying the secured asset and agreeing that you will pay any remaining unpaid amount.
- Payment and Discharge– At this stage, once the trustee has determined everything is in order, the sale can move forward, the proceeds can be used to pay your creditors, and your qualifying debts will be discharged.
- Fresh Start– Your case is over, and you get a fresh start. There are rules about how long you have to wait to file and discharge debt through bankruptcy after your case is completed, however.
Chapter 7 bankruptcy can be an excellent way to get a new start. However, before you file, it’s essential to consult with an experienced California bankruptcy attorney who can explain the steps and help you assess your case.
Contact the Law Office of Raffy Boulgourjian
Attorney Raffy Boulgourjian is a California real estate and bankruptcy attorney with over twenty years of experience representing clients. He has the knowledge and expertise to provide you with the advice you need during your California bankruptcy case. Contact Mr. Boulgourjian today to schedule a free legal consultation to discuss your California legal needs.