A Chapter 7 bankruptcy does not involve the filing of a plan of repayment as in Chapter 13. Instead, you are immediately relieved from the obligation of paying your debts (with certain exceptions), while shielding your unencumbered assets. As to any property encumbered by liens or mortgages, you may elect to keep that property by keeping the payments current, or you may return the property in full satisfaction of the debt.
To qualify for relief under chapter 7, an individual debtor is subject to a means test, and you may be denied Chapter 7 relief if your income, less allowed expenses, exceeds the median. Also, you are required to have received credit counseling from an approved credit counseling agency within 180 days of filing. If a debt management plan was developed during required credit counseling, it must be filed with the court.
You are allowed to protect your assets by declaring them exempt under one of two sets of exemptions provided by California state law. These exemptions are sufficient to protect all the assets of most debtors. In the rare case where a debtor does have non‐exempt assets, he may protect the assets by filing under Chapter 13 and proposing a debt repayment plan. Your attorney will advise you in the selection of exemptions and appropriate chapter under which to file.
Filing a petition under Chapter 7 automatically stops all collection actions against you or your property. But the stay may be effective for only a short time in some instances, such as support obligations or secured creditors. Once such creditors obtain relief from the stay, they may proceed to recover the property or collect support. However, with certain exceptions such as support claims, creditors are not allowed to initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by you.
Between 20 and 40 days after the petition is filed, the trustee appointed in the case will hold a meeting of creditors. During this meeting, the trustee puts you under oath, and both the trustee and creditors may ask questions. Both you and your spouse, if filing, and your attorney must attend the meeting and answer questions regarding your financial affairs and property. If you fail to cooperate with the trustee by attending all required meetings and providing any records or documents that the trustee requests, your case is subject to dismissal.
Within 60 to 90 days after the first meeting of creditors, you receive a discharge. A discharge releases you from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against you. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of Chapter 7 cases. Before receiving the discharge, however, you are required to complete an approved instructional course concerning financial management.
If you wish to keep certain secured property (such as an automobile), you may decide to “reaffirm” the debt. A reaffirmation is an agreement between you and the creditor that you will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as you continue to pay the debt. The reaffirmation agreement must be filed with the court prior to the entry of the discharge.
You may be able to voluntarily repay all or part of any debt that you did not reaffirm. Such payment does not reinstate the creditor’s rights, nor does it confer rights on any other creditor.
For more information on Chapter 7, contact me today. I provide a free, no obligation consultation by phone or at a location near you.
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