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USCF Sections

Consumer Information On Filing Chapter 7 Bankruptcy.

Article By : Patrick Mansfield | U.S. Consumer Finance
Chapter 7
Filing bankruptcy is one of the more important decisions anyone can make affecting their finances. The protections made available under chapter 7 include relief from creditor calls, avoiding wage garnishment and preventing lawsuits. However, in some cases, filing Chapter 7 bankruptcy may cause a loss of assets in the form of real property or bank accounts.

As a chapter 7 case doesn’t entail a repayment plan the way chapter 13 does, the bk trustee will sell the available non-exempt assets, applying the proceeds to those creditors holding claims, such as lien holders and mortgagees, in accordance with BK Code provisions. Other exempt property may be kept by the debtor, while still other property may be liquidated. At any rate, it is well advised to be aware when filing a petition for Chapter 7 bankruptcy that it may result in the loss of property.

Determining Eligibility for filing Chapter 7:

The petitioner may be an individual, a partnership, a corporation or other business entity. While individuals are subject to a means test, the amount of debt, or whether or not a debtor is insolvent, has no bearing on the ability to obtain relief through filing bankruptcy. There are restrictions, however, if the debtor’s willful failure to appear or comply with the court caused a previous bankruptcy to be dismissed, or if the petitioner voluntarily dismissed a case within the previous 180 days, the petitioner will not be able to file.

There is also the requisite credit counseling that must be received via an approved agency within 180 days and prior to filing. It is important to realize that while the primary purpose of bankruptcy is to discharge the debt in order to give the honest person a chance for a fresh start, the right to a discharge is not considered absolute. Each case is evaluated based upon the petition submitted along with the all the schedules and statements filed.

How Chapter 7 Works:

Filing a petition for Chapter 7 bankruptcy is done with the court serving the area in which the individual lives or where the business is organized.

The petitioner is also required to file the following:
  • Schedule of assets and liabilities.
  • Schedule of income.
  •  Schedule of expenditures.
  • Statement of financial affairs.
  • Schedule of executory contracts.
  • Schedule of unexpired leases.
  • Most recent tax return and/or current tax returns filed.
  • Certificate of credit counseling.
  • Evidence of payment from employers.
  • Statement of monthly net income.
  •  A record of any state or federally qualified education or tuition accounts.

It is important to include in the schedules and statements the following required information:
  •  A complete list of all creditors with the last known amount owed and nature of their claims.
  •  The source and amount of income, complete with a report of frequency of payment.
  • A complete list of all property owned by the debtor.
  • A complete and detailed list of all monthly living expenses, i.e., food and shelter, clothing, utility payments, taxes, transportation, and more. (This is not meant to be a comprehensive list of all expenses as these items can vary greatly between petitioners).

The court and the appointed trustees, along with creditors are entitled to know what the household finances include. To this end, there is a requirement on the part of spouses, whether or not filing jointly or filing petitions separately as individuals, that the income and expenses must still be reported for both spouses.

Bankruptcy Discharge:

The ultimate goal and the purpose for filing a petition is to have the debt discharged. In general, the individual debtor will receive a discharge in ninety-nine percent of cases, usually within 60 to 90 days after the creditors meeting.

Precautions:

Debtor’s whose income falls seriously below the poverty level preventing them from being able to pay the filing fees, even if in installments, may have the court step in and waive this requirement.

Many states have made use of a provision that allows for each state to adopt their own exemption law in lieu of federal exemptions. This would allow the debtor to make the choice between federal or state law.

While filing the petition stops most collection activities against a debtor, protecting their property as well, this automatic stay may be subject to limitations. The stay doesn’t require any judicial action as it does arise by operation of law.

Debtors should be prepared to consult either an attorney or a service that is capable of guiding them through the process of filing bankruptcy should there be any questions or concerns on exactly how to proceed.
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