What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy, often known as “liquidation bankruptcy,” is one of the two forms of bankruptcy available to individuals struggling with high levels of personal debt. It is also sometimes known as “straight bankruptcy.” These nicknames describe the Chapter 7 process accurately – it is a straightforward form of bankruptcy that filers can generally complete in three to four months. With Chapter 7 bankruptcy, money is raised to repay the filer’s creditors by selling, or liquidating, his or her nonexempt assets.
Chapter 7 bankruptcy is not for everybody. Individuals who do not pass the Means Test do not qualify for Chapter 7 bankruptcy and even among those who do, it is not always the right course of action. Chapter 7 bankruptcy is an extreme form of bankruptcy that requires the filer to relinquish control of his or her assets to the bankruptcy trustee handling the case. It requires numerous sacrifices, but sometimes it is the only way for a filer to regain control over his or her debt.
The Chapter 7 Means Test
You can only file for Chapter 7 bankruptcy if you pass the Means Test. If you earn less annually than your state’s median income for a household of your size, you automatically pass and can file a Chapter 7 bankruptcy case. If you earn more than your state’s median income for a household your size, it is still possible to file a Chapter 7 case if you demonstrate that you do not have sufficient disposable income after making your required payments each month. Required payments include mortgage and car payments and court-ordered payments like child support and alimony. If you do not pass the Means Test, you can file for Chapter 13 bankruptcy.
The Chapter 7 Bankruptcy Process
Once you file your bankruptcy petition, an automatic stay goes into effect. This is a court order for your creditors to stop their collection attempts. This will not stop certain obligations, such as child support payments. Your case will be assigned to a bankruptcy trustee, who will oversee your case until its conclusion.
Within 30 days after you file your bankruptcy petition, your bankruptcy trustee will conduct a meeting of your creditors, also known as a 341 meeting. During this meeting, you must answer any questions you face from your bankruptcy trustee and your creditors. These questions will be about your assets, your expenses, your liabilities, and your income. The goal of this meeting it to gauge your current financial situation and verify that you filed your original documents about these subjects truthfully.
After your nonexempt assets have been liquidated and you have completed your 341 meeting, you become eligible for a Chapter 7 discharge. This is the discharge of your debts that allows the court to close your case and makes it possible for you to move forward with your life debt-free. A completed Chapter 7 bankruptcy will remain on your credit report for 10 years following its closure.
Work with an Experienced Merrillville Bankruptcy Lawyer
Chapter 7 bankruptcy can be complicated. To ensure that you understand all aspects of the process and that your rights and interests are protected throughout, work with an experienced bankruptcy lawyer. Contact the Law Office of Kevin M. Schmidt, P.C. today to set up your free consultation in our office.