August 12, 2010

What is Chapter 7 Bankruptcy

Posted in Bankruptcy tagged at 1:26 pm by demetriagraves

I’ve found that as an attorney when I’m helping clients with bankruptcy many people are uncertain of what it is and how it all works. So, let’s have a look at bankruptcy and specifically Chapter 7 bankruptcy. When an individual or company files for bankruptcy, they are making a legal declaration of an inability to repay debt to creditors. Once bankruptcy is declared, a debtor is absolved of most financial obligations; however, the bankruptcy will affect one’s credit history and ability to obtain credit in the future. In other words, bankruptcy is basically a way for individuals to wipe out their debts while protecting themselves from creditors.

Chapter 7 is the most common of all bankruptcy filings in the United States. An individual that files Chapter 7 will have their assets sold, with the exception of certain exempt property, such as necessary clothing and household appliances. The proceeds from this will go to creditors to pay off the debt. Chapter 7 does not absolve a debtor of certain obligations, including child and spousal support or student loans. All other debts can be discharged; however, the bankruptcy is reflected on a debtor’s credit report for 10 years.

The reason it is called Chapter 7 is simply because that’s the specific provision in the Bankruptcy Code. Importantly, you may have read that Chapter 7 is also called “liquidation bankruptcy”. It is true that if a corporation files Chapter 7, then it will be forced to liquidate all its assets. Individuals however in the vast majority of cases do not have to liquidate their assets, because they are entitled to “exempt” or protect their personal assets.

So then, how does Chapter 7 work? Firstly, you’ll need to meet with an experienced bankruptcy attorney who can help you determine if bankruptcy is the best option for you and which type of bankruptcy to file. When you’ve decided to proceed, your attorney will assist in the preparation and filing of the bankruptcy petition, schedules and statements. This set of documents is usually about 50 pages long and will itemize your assets, your debts, income, expenses, as well as a variety of other financial questions. The Chapter 7 petition is quite detailed, and you will have to sign it under oath.

Another common question I get asked regarding bankruptcy is if you can file bankruptcy again. The answer depends on what Chapter of bankruptcy you are planning to file and how long has it been since you last filed for bankruptcy or got a discharge. It is important that you know what Chapter of bankruptcy you filed and how long ago so that you can determine if you can qualify to file bankruptcy again. The following information applies only if you obtained a discharge in the previous case. If you did not obtain a discharge in your previous bankruptcy case then none of these time limits apply.

If you have filed bankruptcy in the past then the bankruptcy code allows you to file for bankruptcy again in certain situations. If the case that you previously filed was a Chapter 7 bankruptcy then you can file for Chapter 7 bankruptcy protection, 8 years after you filed your previous Chapter 7 bankruptcy. If 8 years have not passed since you filed your Chapter 7 bankruptcy case then you can choose to wait or consider Chapter 13 bankruptcy. If you file prior to the 8 years then your case will be denied a discharge.

As you can see there’s a lot to consider regarding bankruptcy. This is why it’s important to work with an experienced attorney who can help guide you through the process. If you are considering bankruptcy, I offer a free confidential initial consultation where you can get all your questions answered. Bankruptcy may be your best option but it’s important that you understand all the long-term implications.

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