Chapter 7 Bankruptcy Overview
In Chapter 7 bankruptcy, the bankruptcy trustee cancels many (or all) of your debts. At the same time the trustee might also sell (liquidate) some of your property to repay your creditors. Chapter 7 bankruptcy, also called "straight" or "liquidation" bankruptcy, is so named because the law is contained in Chapter 7 of the federal Bankruptcy Code. Here's an outline of Chapter 7 bankruptcy -- who can file, how the process works, and what happens to your property and debts.
Chapter 7 Bankruptcy Costs in Time and Money
The whole Chapter 7 bankruptcy process takes about four to five months, costs $335 in filing and administrative fees, and usually requires only one trip to the courthouse to meet with your bankruptcy trustee. You must also complete credit counseling with an agency approved by the United States Trustee. We will give you this credit counseling information when you meet with one of our attorneys.
Who Can File for Chapter 7 Bankruptcy?
You won't be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. Our attorneys can explain more about the Chapter 7 eligibility requirements.
Bankruptcy's Magic Wand -- The Automatic Stay
Filing for Chapter 7 bankruptcy puts into effect something called the "automatic stay." The automatic stay immediately stops creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally grab ("garnish") your wages, empty your bank account, go after your car, house, or other property.
Bankruptcy Court's Control Over Your Financial Affairs
By filing for Chapter 7 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.
The Bankruptcy Trustee for Chapter 7 Bankruptcy
The court exercises its control through a court-appointed person called a "bankruptcy trustee." The trustee's primary duty is to see that your creditors are paid as much as possible of what you owe them. And the more assets the trustee recovers for creditors, the more the trustee is paid.
The trustee (or the trustee's staff) will examine your papers to make sure they are complete and to look for nonexempt property to sell for the benefit of creditors. The trustee will also look at your financial transactions during the previous year to see if any can be undone to free up assets to distribute to your creditors. In most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell.
The Creditors Meeting
A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a "creditors meeting" has been scheduled. The bankruptcy trustee runs the meeting and, after swearing you in, may ask you questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 bankruptcies, this is the debtor's only visit to the courthouse. Also, usually no creditors show up to this meeting.
What Happens to Your Property
If, after the creditors meeting, the trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the trustee with its equivalent value in cash. If the property isn't worth very much or would be cumbersome for the trustee to sell, the trustee may "abandon" the property -- which means that you get to keep it, even though it is nonexempt. However, which property is exempt varies by state. Our attorneys can tell you which assets are exempt and which assets are not in Mississippi.
Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt. To get a better understanding of what may happen to your property in bankruptcy, give us a call.
How Your Secured Debts Are Treated
If you've pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you're behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments as before.
If a creditor has recorded a lien against your property because of a debt you haven't paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy. Get in-depth information on how your secured debts are handled with one of our experienced attorneys.
The Chapter 7 Bankruptcy Discharge
At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except:
debts that automatically survive bankruptcy, such as child support, most tax debts, student loans, and criminal fines, and
debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).