Chapter 7 Information
Chapter 7 bankruptcy is sometimes called liquidation bankruptcy—it cancels your debts, but you might have to let the bankruptcy trustee sell some of your property to repay your creditors. You will get to keep any exempt property, which usually includes household goods and clothing, and similar items.
By filing for bankruptcy, you are technically placing the property you own and the debts you owe in the hands of the bankruptcy court. You can’t sell or give away any of the property you own when you file, or pay off your pre-filing debts, without the court’s consent. However, with a few exceptions, you can do what you wish with property you acquire and income you earn after you file for bankruptcy.
In every Chapter 7, the court appoints a bankruptcy trustee. The trustee’s primary duty is to see that your creditors are paid as much as possible on what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.
At the end of the bankruptcy process, most of your debts are discharged by the court. That means that you no longer owe your creditors, except for:
- debts that automatically survive bankruptcy, unless the court rules otherwise (for example, child and spousal support, most tax debts, and student loans), and
- debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by fraud or malicious acts).
What is Chapter 7?
Chapter 7 is what most people think of when they think of bankruptcy. When you file a Chapter 7 bankruptcy petition, a trustee is appointed to liquidate any of your assets beyond those that are exempt. Once any excess assets are sold, the money is used to pay creditors. Most debts are discharged, and you can usually keep any income you earn after the petition was filed.
Who can file Chapter 7 Bankruptcy?
Individuals and businesses can both file for Chapter 7, but only individuals can receive a discharge. Since BAPCPA passed in 2005, debtors must pass a “means test” to be in Chapter 7. In essence, if you make too much money, you will not qualify for Chapter 7, and you will have to be in a Chapter 13.
What is Credit Counseling?
Before an individual can file bankruptcy, they must obtain credit counseling from an accredited agency. A list of accredited agencies can be found at the United States Trustee’s website, here.
Will I lose all of my belongings?
You are entitled to protect your possessions using exemptions under either federal or state law. You can protect some equity in your residence ($125,000 under Washington law), vehicles, household goods, life insurance, retirement plans (including IRA’s and your 401(k)), clothing, and some items related to your job. If you don’t own a residence, you might be able to use the federal exemption “Wild Card” to exempt any other property.
Can I stop bill collectors from contacting me?
One of the major benefits of filing for protection under Chapter 7 is that most creditor actions are stayed, or stopped. This means that debt collection efforts, garnishments and foreclosure are stopped. As soon as a creditor becomes aware that you have filed for bankruptcy, the creditor must stop all efforts to collect the debt. If there is an ongoing garnishment or foreclosure, you should tell us so that we can contact the creditor immediately. A creditor wishing to proceed with action against the debtor or its property must obtain permission from the Court. If the creditor continues to try and collect once they become aware of the bankruptcy, they may be liable for court sanctions, damages and attorneys fees.
I am married; does my spouse have to file bankruptcy too?
No. In some cases where only one of you has debts, or under other conditions, it might be advisable to only have one spouse file. Since Washington is a community property state, even if only one spouse files, all of the couple’s community property may be subject to your bankruptcy.
Do I have to fill out forms?
Yes, unfortunately, and lots of them! You will receive a lengthy and very detailed questionnaire from our office. You will need to complete all of the questions, even if they do not necessarily apply to you or your situation. You must list all of your property and all of your debts. This includes debts owed to family members or friends or your mother’s antique wedding ring. When you sign your bankruptcy petition and schedules, you do so under penalty of perjury. At your initial court appearance, you will have to testify, under oath, that the list of assets and property are complete. The consequences of failing to list assets or debts can be very serious. Download worksheets here
What if I forget to list a creditor?
You can file an amendment to your schedules up to a certain point in time before your discharge is entered. If the amendment is filed in time, then the creditor is added to the bankruptcy.
Do I have to go to Court?
Yes. About 30 to 40 days after your bankruptcy case is filed, you will have to attend a hearing with your bankruptcy trustee. Notice of this meeting is mailed to all of your creditors who are invited to attend the meeting. This hearing is called the First Meeting of Creditors, or the Section 341 Meeting. At this hearing, the trustee will swear you in and ask you questions about your bankruptcy petition, assets, debts and other matters. After the trustee is finished asking questions, creditors will have the opportunity to ask you questions. Most of the time, creditors do not attend. An attorney from Resolve Legal will attend the hearing with you. After this hearing, you will, most likely, not have to attend any other Court hearings.
What happens after I file my case?
Normally, the bankruptcy court will grant your discharge about 60 to 65 days after the First Meeting of Creditors.
What debts are discharged?
The purpose of bankruptcy law is that the honest debtor should be given a “fresh start” through the discharge of debts. Not all debts, however, are dischargeable. The following types of debts are generally non-dischargeable:
- Debts that the Bankruptcy Court determines are non-dischargeable because of fraud, false pretense, misrepresentations or willful and malicious injury to property
- Most taxes
- Debts that you did not schedule
- Debts owed to a spouse, former spouse or child for alimony, maintenance and support, or property settlement agreements
- Debts for fines, penalties or restitution for criminal activity
- Debts for damages for driving while intoxicated
- Student Loans
What happens if my creditor has collateral securing the payment of debt?
A secured debt is simply a debt in which the creditor has a lien on some item of property to “secure” your payment of the debt. The most common types of secured debts are a mortgage on a home and a lien on a car. In Chapter 7 cases, you generally have the following four choices to deal with your secured debt:
- If your payments are current on the date that you file the chapter 7, and your equity in the collateral is covered under the exemptions, you may keep the property so long as you continue to make the monthly payments and comply with the terms of your contract. The advantage is that you cannot be held responsible for the debt if you can’t make the payments current sometime in the future.
- If your payments are not current, you can try to negotiate a “reaffirmation agreement” with the creditor that allows you to catch up your payments.
- Redeem the property by paying the creditor the value of the collateral.
- Give the property back to the creditor (“surrender” the property) and have the debt discharged.