THE FOLLOWING INFORMATION APPLIES TO THE NORTHERN AND EASTERN DISTRICTS OF TEXAS ONLY:
SPECIFICALLY THE DALLAS AND SHERMAN (PLANO) DIVISIONS.
What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is the most commonly used and most commonly thought of type of bankruptcy. It is, generally, a liquidation of the debtor’s non-exempt assets and a discharge of the debtor’s liabilities. Almost anyone can declare bankruptcy under chapter 7.
A bankruptcy under chapter 7 generally has two parts or concepts. First, the declaration of bankruptcy subjects all the debtor’s non-exempt assets to the claims of its creditors.
Shortly after filing the bankruptcy petition, a trustee will be appointed. It will be the trustee’s duty to collect and liquidate all the non-exempt assets for distribution to the creditors. Before filing the Schedules and Statement of Financial Affairs, we will discuss with you the allowable exemptions. We will attempt, legally, to maximize the exemptions to your benefit. Most of your assets probably will be exempt and not subject to the claims of the trustee. Some examples of non-exempt assets may include stocks and bonds; savings and checking accounts; and inheritances. More information on exemptions can be found under the What You Keep section of our site.
The second phase of a chapter 7 bankruptcy is the discharge. Once you have received a discharge, the creditors whose claims are discharged cannot attempt to collect their debts from you or your property. Certain debts are not discharged and you should be aware of these. These debts may include:
- Any creditor who was not properly scheduled or did not get notice of the bankruptcy;
- Student loans;
- Injuries caused while driving while intoxicated;
- Most child support and alimony payments;
- Certain taxes; and
- Debts to a creditor who can prove that you defrauded it in obtaining credit or an extension of credit.
Also, if you fraudulently hid assets from the trustee or creditors or filed false papers with the court, you may not get a discharge. In addition, you may subject yourself to criminal prosecution.
Although you receive a discharge, any creditor with a valid lien on your property must continue to be paid. If the payments are not made, it may recover its collateral. Therefore it is important that you continue to make the payments on your house and cars if you wish to keep them. Also there are certain types of consumer purchases where the agreements give the retailer a lien. A typical example could be a car or appliance purchase. In such cases, it may be necessary to continue the payments or surrender the items. As an alternative, you may be able to redeem the item. That means you pay the creditor, in one lump sum, the value of the item instead of the actual debt against it.
Within 6 months prior to the filing of a bankruptcy case, you must take a Credit Counseling Course. This is mandatory and your case will be dismissed if this condition is not met. There are many companies that offer this service and it can usually be taken online and/or by telephone. Ask your attorney. Make sure to select a credit counseling company that has been approved for your district.
Also, after filing, you will be required to take a Financial Management Course. The same company that offers the Credit Counseling Course usually offers the Financial Management Course. If you do not take the Financial Management Course, the case may be closed without granting your discharge. You will probably have to pay your attorney a lot more to reopen the case to get the discharge. Bummer!
Schedule of Debts and Assets
Very shortly after the filing of the Petition, you will be required to file a Statement of Financial Affairs and Schedules of Debts and Assets. It is very important that the Statement and Schedules list all creditors and assets. You must also file your pay-stubs or other income information for the past 60 days.
If you do not file these documents within fourteen (14) days after the filing of the case, the Court may dismiss it. In doing so, the court may prohibit you from filing bankruptcy again for 180 days.
Also, you must deliver to the Trustee, at lease seven (7) days prior to the 341 Meeting, a copy of your last filed tax return.
Once the case is filed, the court will notify all the listed creditors of the filing and give them notice of the important dates. Your creditors should no longer contact you concerning repayment. If a creditor contacts you, you should advise the creditor that you have filed bankruptcy, inform them of the district in which you filed, and provide them with your bankruptcy case number.
Objections To The Bankruptcy Case
Creditors have 60 days from the conclusion of 341 Meeting to object to your bankruptcy. These objections are generally rare and take the form of a lawsuit filed as an adversary proceeding in the bankruptcy case against the debtor. The most common types of objections are fraud, such as the debtor “ran up” the credit card before filing, or that the debtor lied on his bankruptcy papers. Assuming that there is no such objection, the Court will issue a discharge in about 60 to 90 days from the 341 Meeting.
Information On The Means Or, In Other Words, Do You Qualify For Chapter 7?
Since Mid October 2005, non-business Chapter 7 debtors have had to “qualify” for Chapter 7. That means that they must pass a financial test that shows that they are not able to repay a part of their debt.
The test is complicated, using “real” and “fake” allowed amounts for their expenses. For some things, the actual expenses are used and for others, the allowable IRS expenses are used.
Usually, it is necessary to run all of the income and expense numbers through a computer program to figure out whether the client qualifies for a Chapter 7.
Having said all that, the first stage of the test is fairly easy – Does the debtor’s total gross income before taxes and deductions fall below the state’s median income?
We are happy to run a “means test” during our free initial consultation.
Call Lusky & Associates, P.C. for a FREE CONSULTATION (972) 386-3900.