Chapter 7 Bankruptcy Overview
In today's economy, many individuals and businesses find themselves drowning in debt they cannot repay. In these cases, filing for bankruptcy protection may provide a solution to what seems like an insurmountable problem. Bankruptcy provides two basic forms of relief: (1) liquidation of debt through Chapter 7, and (2) reorganization of debt through Chapter(s) 11 and 13. The majority of bankruptcies filed in the United States are Chapter 7 liquidation cases. One of our experienced bankruptcy attorneys can advise individuals and businesses about whether Chapter 7 is the right choice for them. The bankruptcy lawyer's goals are to help Chapter 7 debtors make a fresh start and ensure that creditors are paid.
Chapter 7 Relief Is Available to Both Individuals and Businesses
Chapter 7 bankruptcies, also known as "straight bankruptcies," are the most common form chosen by individuals. In a Chapter 7 consumer bankruptcy, the individual debtor's estate is liquidated and the assets are distributed to creditors. Partnerships, sole proprietorships and corporations are also eligible to file under Chapter 7. However, unlike individuals, these business entities are not eligible to receive a discharge. Chapter 7 business liquidations are conducted in significantly the same manner as Chapter 7 consumer bankruptcies — many of the business's assets are sold and the proceeds are divided among the company's creditors. Partnerships or corporations that wish to keep doing business may decide that Chapter 7 is not the best option because after liquidation and distribution, the business ceases to exist.
A Chapter 7 case begins with the debtor's filing his/her petition with the bankruptcy court. Once the petition is filed, the automatic stay is triggered. The automatic stay immediately stops most debt collection activities unless such activities are authorized by the court. However, filing a petition does not stay certain types of actions, and the stay may only be in place for a limited period of time. As long as the automatic stay is in place, creditors may not initiate or continue lawsuits against the debtor, garnish wages or call the debtor demanding payments.
Along with the petition, the debtor must file a schedule of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. There are additional filing requirements for individual debtors with primarily consumer debts. These debtors must file a certificate of credit counseling and a copy of any debt repayment plan; evidence of any payments from employers made 60 days before filing; a statement of monthly net income and any anticipated increases in income or expenses after filing; and a record of any interest the debtor has in state or federal qualified education or tuition accounts.
The court appoints a trustee who oversees the Chapter 7 case, reviews the petition and schedules and other related documents. About 20 to 45 days after filing the petition with the court, the debtor must attend the first meeting of creditors, also known as the 341 hearing. At that hearing, the Trustee and creditors will have an opportunity to question the debtor under oath regarding his/her finances and the information contained in the documents filed with the court. It is the Trustee's job to look for fraud and abuse by the debtor and to liquidate any non-exempt assets of the debtor's in order to pay off the debtors debts. In many cases, however, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. Most consumer bankruptcies are "no asset" cases in which there is nothing available for the Trustee to sell for the benefit of unsecured creditors.
The trustee has what is known as "avoidance powers" in which he can to recover money or assets from third parties for the estate. These powers include the power to set aside preferential transfers to creditors within 90 days of filing, and up to 1 year if the transfer was to a family member or insider; undo security interests and pre-petition transfers that were not properly perfected; and pursue fraudulent conveyance and bulk transfer claims under state law. If there are assets, the Trustee reduces those assets to cash and pays off unsecured debts to the extent possible depending on what class of claim the debt falls into. Certain priority claims, such as taxes, child support and other similar claims are paid first, then the remaining proceeds are distributed according to the class of debt. Each class must be paid in full before creditors in the next lower class are paid anything.
When a debtor wants to keep certain secured property (such as a car) after bankruptcy, he or she may choose to reaffirm the debt. In a reaffirmation agreement or lease assumption, the debtor and creditor agree that the debtor will pay all or part of an otherwise dischargeable debt after bankruptcy. The creditor promises that it will not repossess the property as long as the debtor continues to pay the debt. Reaffirmation agreements must be entered into before discharge is entered and they must be signed by the debtor and filed with the court. 11 U.S.C. §524(c).
When all of the proceeds are distributed, most remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, such as student loans, damages resulting from the debtor's willful or malicious acts, debts incurred by giving false financial information, domestic support obligations and some debts incurred just prior to filing for bankruptcy, are non-dischargeable. A court may deny a discharge if the debtor failed to keep or produce financial records; failed to satisfactorily explain any loss of assets; committed perjury; failed to follow an order of the court; fraudulently transferred or hid property; or failed to complete the required financial management course.
At Ziulkowski & Associates, PLC, our lawyers can help you overcome obstacles to the repayment of debt. Because the Bankruptcy Code affords various forms of relief, including liquidation under Chapter 7, it is recommended that you seek the advice of a lawyer to make the best financial and legal decisions. Ziulkowski & Associates, PLC today to speak with an experienced bankruptcy attorney who can provide you essential advice if you are considering bankruptcy.Type your paragraph here.
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