Chapter 7 Bankruptcy for Individuals
By: LawInfo
Published: 11/2008
Sometimes debt can become overwhelming. It may happen for unexpected personal reasons or because expected revenue has stopped and it may leave individuals financially overwhelmed and lacking the ability to repay all of their outstanding obligations.
Individuals may decide that it is time to file for bankruptcy in order to get a fresh start. In order to get that fresh start they may decide that they do not want to agree to a repayment plan that would be required if they were to file under Chapter 13 of the bankruptcy laws and instead decide that they would rather liquidate their nonexempt assets to satisfy their obligations pursuant to a Chapter 7 bankruptcy agreement. What qualifies as exempt and nonexempt assets differs from state to state.
Who is Eligible for Chapter 7 Bankruptcy?
If an individual’s current monthly income is less than the state median then that individual is likely eligible for Chapter 7 bankruptcy. If the individual’s current monthly income is greater than the state median then the bankruptcy court will apply a means test to determine if the filing for Chapter 7 bankruptcy is presumptively abusive. If the filing is found to be presumptively abusive because of the amount of money the individual earns or because of the amount of debt the individual owes then the court will either dismiss the case or convert the case to a Chapter 13 filing.
What Happens if You File a Chapter 7 Bankruptcy?
And individual who wishes to file for Chapter 7 bankruptcy must provide the court with evidence that the individual has received credit counseling, with financial records including tax returns and with records of outstanding debts. Information about the debtor’s assets and monthly living expenses will also be required. Other relevant information, such as expected bonuses or raises, must also be disclosed. If the individual is married then the same information must be provided for the individual’s spouse regardless of whether an individual or joint petition for bankruptcy is filed.
Filing and court fees are usually due at the time the petition for bankruptcy is filed. However, the court may allow a petitioner to pay in installments or may waive the fees if the petitioner earns less than 150% of the poverty rate.
If a court finds an individual eligible for Chapter 7 bankruptcy protection then the bankruptcy trustee will collect and sell the individual’s nonexempt assets and distribute the proceeds among the creditors in accordance with applicable laws.
Once a petition for Chapter 7 bankruptcy has been filed, creditors may no longer pursue actions against the debtor for collection of the debt. The bankruptcy trustee will hold a meeting with the creditors and the debtor. During the meeting, the debtor will be under oath and will need to answer questions from the trustee and the creditors.
After that meeting, the trustee will create an estate of the debtor’s nonexempt assets. The money earned from the sale of those assets will be distributed to creditors in accordance with the priority established by law.
At the conclusion of the case, the bankruptcy judge will issue a Chapter 7 discharge to the debtor which releases the debtor from most outstanding debts. It is important to note, however, that there can be many exceptions to a Chapter 7 discharge and it is important for Chapter 7 debtors to seek qualified legal counsel to help them with the bankruptcy proceeding and subsequent discharge.
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