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National Association of Consumer Bankruptcy AttorneysLaw Offices of Stan E. Riddle, Attorneys & Lawyers - Bankruptcy & Taxes, Oakland, CA
Chapter 7 Bankruptcy

Chapter 7 - Background

In a Chapter 7 bankruptcy a debtor surrenders their nonexempt assets to the bankruptcy trustee who then liquidates such property to repay the debtor’s unsecured creditors. For most individuals who are in financial distress the types of property they hold, such as household goods, retirement funds or older vehicles can be exempted and therefore protected from liquidation by the bankruptcy trustee. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13.

Chapter 7 - Eligibility

To qualify for relief under chapter 7 of the Bankruptcy Code the debtor must be an individual, a partnership, a corporation or other business entity who satisfies the basic income limits established in the means test, whether the debtor is financially solvent or not. Your eligibility may be called into question if in the last 180 days you have had a bankruptcy petition dismissed due to a willful failure to fulfill the requirements of the bankruptcy. The debtor must also complete a credit counseling course from an approved agency within 180 days prior to their bankruptcy being filed.

The discharge of certain debts is one of the primary purposes of bankruptcy. This gives an honest individual debtor a financial "fresh start", where the debtor has no liability for discharged debts. In a chapter 7 bankruptcy , this discharge is only available to individual debtors, not to partnerships or corporations. Although most individual chapter 7 cases result in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property, debts secured with collateral or most tax debts.

Chapter 7 - How It Works

A chapter 7 case begins with the debtor filing a petition, along with the required schedules, statements and certificates, in the regional bankruptcy court for the area in which they live or where the business is organized or has it principal place of business.

Filing a petition under chapter 7 stops most collection actions against the debtor or the debtor's property. As long as the “automatic stay” is in effect, creditors may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payment. At the time that the petition and its associated schedules are filed with the bankruptcy court the clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Approximately 20 to 40 days after the petition is filed, the case trustee will hold a meeting of creditors. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property. As it is throughout the process, it is important for the debtor to cooperate with their chosen representative, as well as the trustee, in providing any financial records or documents that are requested.

Chapter 7 - The Discharge

A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any further collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Excluding cases that are dismissed or converted, individual debtors receive a discharge 60 to 90 days after the date of the meeting of creditors.

Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor 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 the debtor continues to pay the debt.

An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders.

The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or the U.S. trustee if the discharge was obtained through fraud by the debtor, if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee, or if the debtor (without a satisfactory explanation) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor's case.

The Law Offices of
Stan E. Riddle

5179 Lone Tree Way
Antioch, CA 94531
Main: (925) 818-2795
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