CHAPTER
7 BANKRUPTCY
Quick
Overview of Chapter 7 Bankruptcy
Should you
File Chapter 7 Bankruptcy?
What are
Some Disadvantages of Chapter 7 Bankruptcy
Why Do you
Need an Attorney?
QUICK OVERVIEW
OF CHAPTER 7 BANKRUPTCY
Chapter 7 of the United States Bankruptcy
is commonly known as a liquidating bankruptcy,
or just plain "bankruptcy."
This webpage explores the benefits and
downsides to filing a Chapter 7, including
what types of debts you can usually discharge
(get rid of) and other frequently asked
questions. Under any Chapter you are required
to list all of your debts and assets on
your petition. An asset is anything you
own or may have a right to own at some
future date within reason. For example,
it is not necessary to state that you
are a beneficiary in your children's life
insurance policy. Some (and in most cases,
all) of your assets will be exempt. California
law provides two separate sets of exemptions
from which to choose. A detailed analysis
of these exemptions is not possible here.
This is one of the reasons why you need
an attorney, to properly exempt your possession
so that you can keep them. Basically,
you can exempt household goods, and so
forth. After you file your case, a Trustee
is appointed. He or she will liquidate
(sell) all of your non- exempt assets
and pay your creditors according to the
priority afforded to them by the Bankruptcy
Code. You may voluntarily repay any debt
upon agreement with the creditor. Whether
this is ever advisable is questionable
and is an issue to be discussed with your
attorney.
SHOULD
YOU FILE CHAPTER 7?
The goal of most any personal bankruptcy
is to discharge your debts and allow you
a fresh start on your finances. In other
words, once your discharge is granted,
you no longer need to repay the debts
that were incurred before you filed your
bankruptcy. Your creditors are entitled
to share in the proceeds obtained from
the liquidation of your non-exempt assets.
Under Chapter 7, the amount your creditors
will get is fixed by the value of your
non-exempt assets. Certain debts are non-dischargeable
in a Chapter 7. Examples of these are
taxes less that three (3) years old, student
loans, child support and spousal support
(alimony), and any debts procured by fraud,
incurring a debt without a reasonably
certain ability to repay the debt, and
so forth. Assuming you need to file a
bankruptcy, the only way to properly determine
which Chapter to file is to first compare
your options under the other available
Chapters. Generally, Chapter 7 is the
cheapest, quickest and least painful of
the three major Chapters (the others being
11, which is for businesses, and 13).
If you are an individual, and meet the
requirements, Chapter 7 allows you to
discharge most or all your debts. It allows
you to do this regardless of how many
assets you have or how much your creditors
ultimately receive, if anything. It basically
allows you to walk away from your debts
and start over.
WHAT
ARE SOME OF THE DISADVANTAGES ?
You are only able to receive a discharge
after six years have passed since the
commencement of the last case in which
you received a discharge. Thus, you should
not file a bankruptcy, under Chapter 7,
if you think that you will need the option
of doing it again within the next six
(6) years. If you are a corporation, you
must stop operating your business immediately
upon the filing of the Chapter 7 petition.
Only under extraordinary circumstances
will the Trustee operate the business.
Another disadvantage of filing Chapter
7 comes when you are behind on your on
a car or a mortgage. If you are behind
on your payments on a car or a mortgage
and your file a Chapter 7 you will have
to immediately bring your loan "current".
This essentially means that you will have
to come up with the full amount of arrears
(the amount you are behind) immediately.
Most of the time this is not feasible.
If you cannot do this, in a Chapter 7,
you will be forced to "surrender"
or "give up" that asset (your
house or car). However, this does not
leave you with no recourse which would
allow you to keep the assets. See the
page on Chapter 13 bankruptcy.
WHY
DO YOU NEED AN ATTORNEY?
Some paralegal services charge a minimal
fee to prepare and file the necessary
paperwork to file a bankruptcy. While
in some cases this may not be a major
problem, it has been my personal experience
that the risk is simply not worth it.
Much of what goes into the bankruptcy
petition comes from the insightful and
probing questioning from a qualified bankruptcy
attorney. Paralegals and other "bankruptcy"
petition preparers are strictly prohibited
from practicing law and, therefore, cannot
give legal advice or ask the necessary
question to make sure you are completing
your paperwork fully and completely. Even
if they were legally allowed to do so,
they are not able to adequately assess
the laws surrounding exemptions and to
determine what your best options are.
Are you willing to risk possibly losing
your 401(k) or other assets because the
proper exemption wasn't used or they didn't
know the exemption existed? All to save
a couple hundred dollars. You may also
be assuming there is no problem with listing
a particular asset, or reaffirming a particular
debts, only to find out months or even
years from now, that because you filed
the bankruptcy or didn't take appropriate
steps, that you did not get rid of that
debt, or that you may lose an asset, or
any number of other problems. Perhaps
most importantly, they also cannot represent
you in court or at the 341 hearing (more
commonly known as the meeting of the creditors).
Further, if you list things incorrectly
in your petition, or omit necessary items
it is YOUR problem, not the paralegals.
You sign all your bankruptcy papers under
penalty of perjury. Ultimately you may
have to spend several thousand dollars
to attempt to remedy a situation that
could have been prevented, or at least
planned for, at the beginning.
AT FEES YOU CAN AFFORD
We can often save you more than the cost
of our service alone. (858)277-0232
We are a Debt Relief Agency.
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