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Chapter 7

Chapter 7 of the Bankruptcy Code is designed to give debtors a “fresh start”.  A Chapter 7 bankruptcy is a liquidation bankruptcy meaning that non-exempt assets are sold to pay your debts.  While this sounds scary, it is important to understand that the law allows you exemptions (or the ability to protect) equity in numerous assets so that, in many cases, you are able to keep all of your assets while you discharge your debt.
 In the state of California, there are two basic exemption schemes; one set of exemptions is based on having equity in your primary place of residence while the other set is based on not having equity in your primary place of residence or not owning your primary place of residence.   This set of exemptions will allow you to choose which assets you wish to protect.

The proper choice and selection of exemptions is crucial to a successful bankruptcy and it is best to use an experienced attorney who understands the bankruptcy code so that errors aren’t made.  The failure to properly choose your exemptions could lead to the sale of your precious assets and possessions.

Upon the filing of Chapter 7 bankruptcy, a trustee is appointed to your case.   It is the job of the trustee to determine if there are any non-exempt assets that can be sold to pay your creditors. Not only does the trustee look at your assets, the trustee also has to consider whether or not you have transferred or sold any property within a certain time period that could be recovered to pay your creditors.  Examples include, paying one creditor a large sum of money within the 90 days prior to the filing of your bankruptcy petition or selling for less than fair market value or giving away an asset prior to the filing of your bankruptcy petition.  Frequently, people believe that if they pay off a creditor prior to the filing, they can keep that creditor out of the bankruptcy and keep the card or by giving assets away, they will not lose them to the Trustee.  This is generally not the case and shows why it is important to consult a competent bankruptcy attorney.  A competent bankruptcy attorney will properly analyze your case and may be able to work with you regarding the timing of the filing of your case along with maximizing the use of your exemptions to protect your assets.

The other main issue in your Chapter 7 bankruptcy involves your income and expenses.   One of the main requirements for qualifying for a Chapter 7 bankruptcy is an evaluation of your ability to repay your debt over time.  To do that, there is a full disclosure of your income, calculated on a monthly basis over the last 6 months prior to filing, and all of your expenses.   The first test is the “means” test where your average monthly income is compared to the median income for your household size in the state in which you reside.  If your income is lower than the median income then you pass the means test and you should be able to file a Chapter 7 without a review of your expenses.  If you earn more than the median income then you need to show that your net income after allowable expenses is not enough to make a meaningful distribution payment to your unsecured creditors.  There are many factors into what is an “allowable expense” and a “meaningful distribution”.  It is important that you use competent and experienced bankruptcy counsel, like the Law Offices of Craig Zimmerman, to represent you in a Chapter 7 bankruptcy

 There is generally one required hearing in a Chapter 7 bankruptcy case, the 341(a) meeting of creditors.  This is an administrative hearing before the appointed Trustee in the case.  These hearings are generally conducted within 30-45 days of the filing date of your bankruptcy petition.    Clients of the firm are represented by an attorney at these hearings.  There the appointed Trustee will examine you with respect to your assets, debts, transfers of assets, and bankruptcy schedules.Most cases are “no-asset” cases which mean that there are no non-exempt or unprotected assets for the trustee to administer and pay to your creditors.  If your case is a no-asset case, then usually about 75-90 days after the date that your 341(a) meeting was originally set for your case will be discharged and your bankruptcy will be complete.   You will no longer be obligated to pay the unsecured debts that you included in your bankruptcy and you will not be able to get another bankruptcy discharge for another 8 years.There are some unsecured debts that are not discharged in a Chapter 7 bankruptcy.  These debts include recent taxes, child support of any duration, and fines or restitution.  Generally speaking, creditors holding these types of debts need not take any action in your bankruptcy to have their debts survive the bankruptcy. There are certain types of debts that also may be non-dischargeable in your bankruptcy and they include fraudulently incurred debts, those debts incurred by malicious or intentional acts to another, those incurred by larceny, embezzlement, or breach of fiduciary duty and those arising out of a marital settlement agreement or divorce decree.  These types of creditors have to file a lawsuit in the bankruptcy court known as a Complaint to Determine the Dischargability of a Debt.  This complaint must be filed by the time set by the bankruptcy code, which is 60 days from the date your first meeting of creditors (341(a) meeting) is set for or their debts are also discharged in the bankruptcy.   If the creditor fails to file the complaint within the required time frame, they are permanently barred from doing so and the debt is discharged as part of your bankruptcy.  If the creditor does file the complaint, you have the option to defend it, as the creditor still has to prove their allegations, or you can attempt to negotiate a settlement with the creditor.