Filing for relief under Chapter 7 is the most common type of bankruptcy filed throughout the United States each year. Filing for Chapter 7 is governed by Chapter 7 of Title 11 of the United States Code. Chapter 7 is a liquidation chapter of Bankruptcy wherein the trustee administering your case will sell those assets that you cannot protect in your case and use that money to pay some of your creditors. At the end of your case, the Court will issue a Discharge Order, which means that the debts that are dischargeable have now legally been eliminated
Chapter 7 vastly differs from a Chapter 13 filing in many aspects. Rather than having your unprotected assets liquidated like you would in a Chapter 7, no liquidation occurs in a Chapter 13. In a Chapter 13, you create a plan of reorganization wherein you are paying monthly payments to your Trustee who is turn paying the creditors that your plan dictates him/her to pay.
Filing for Chapter 7 is initiated when your Bankruptcy Petition is filed with the Court. The Petition, along with the other required documents, will provide the Court a complete financial picture of your particular situation. The filed documents will contain a list of all of your creditors, a summary of your assets, a current budget, amongst other things. These documents are signed under penalty of perjury and will require complete accuracy.
Am I Eligible To File A Chapter 7 Based On My Income?
Being eligible to file a Chapter 7 Bankruptcy is the first thing one must look at when examining your particular case. However, it’s not as easy as “I make $55,000.00 per year, do I qualify for a Chapter 7?” There are several other factors that one would need to examine before making that determination. Consider the following two scenarios:
- SCENARIO 1: A married couple with two children, ages 3 and 5. The husband has full time employment and earns $50,000.00 per year. The wife also works full time and earns the exact same as her husband, $50,000.00 per year.
- SCENARIO 2: A married couple with one child at 4 years of age. The husband works part time and earns $30,000.00 per year. The wife works full time and earns $48,000.00 per year.
With just the above information, it is still near impossible to determine which couple would qualify for a Chapter 7 filing. Now let’s add in some additional information to both scenarios:
- SCENARIO 1: The couple has two car payments at $520.00 monthly per car, a mortgage at $3,400.00 per month, daycare expenses for their children at $1,800.00 per month, and the husband pays child support for another child outside of the home at $800.00 per month.
- SCENARIO 2: This couple only owns one car (no payment on the car), does not pay for daycare, and rents an apartment at $750.00 per month.
After the additional information was added, we can now determine that Couple 1 would qualify for a Chapter 7 filing while Couple 2 would not. Without a full understanding of how Bankruptcy works, one would think that the couple earning less money would file for the Chapter 7. However, that is not always the case. As you can now see, qualifying for Chapter 7 is on a case-by-case basis and a full analysis would need to be done on your particular situation to make that determination.
Is The Trustee Going To Liquidate My Assets?
“The Trustee shall collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of the parties in interest.” 11 U.S.C. 704. What that means is the trustee is obligated to sell your assets that you are unable to exempt. Using the exemptions, Congress allows you to protect a certain amount of assets and keep them safe from being liquidated by the Trustee.
Let’s consider the following example:
John is filing for Chapter 7 bankruptcy. John owns a home with a value of $200,000.00. The home has a secured loan (i.e. mortgage) against it in the amount of $195,000.00. John also owns 2 vehicles. John’s primary vehicle is worth $10,000.00 and is secured against a car loan in the amount of $8,000.00. John’s second vehicle has a fair market value of $5,000.00 and is owned outright by John. John also owns a small boat worth $3,500.00 and also has 100 shares of stocks with a value of $2,500.00.
Let’s say that the local exemptions protected up to $16,000.00 of assets. If John were to file his Chapter 7 Bankruptcy, the Trustee would liquidate $2,000.00 of John’s assets. Why? Because John has $18,000.00 of equity in his assets - $5,000.00 in the home, $2,000.00 in the primary vehicle, $5,000.00 in the second vehicle, $3,500.00 in the boat, and $2,500.00 in the stocks. Taking the full value of John’s assets ($18,000.00) and subtracting the exemption limit John is allowed to use ($16,000.00), the Trustee is left with $2,000.00 worth of assets to liquidate. Once liquidated, that $2,000.00 goes to John’s creditors.
To further understand this, let’s consider a second example:
Kelly is filing for Chapter 7 bankruptcy. Kelly owns a home worth $600,000.00 and is secured against a mortgage of $615,000.00. Kelly owns two vehicles. Kelly’s first vehicle is worth $45,000.00 and is secured against a loan of $50,000.00. Kelly’s second vehicle is worth $25,000.00 and is secured against a loan of $27,500.00. Kelly also owns a boat. Her boat is valued at $10,000.00 and is secured against a loan for $12,000.00. Finally, Kelly has 100 shares of stocks with a value of $15,000.00.
Again, let’s say the local exemptions protect up to $16,000.00 worth of assets. If Kelly were to file her Chapter 7 bankruptcy, what would the Trustee liquidate?
The answer is that the Trustee will not liquidate anything in Kelly’s Chapter 7 Bankruptcy! Why? Because once you factor in all of the secured loans against Kelly’s assets, the only asset that has equity are the stocks worth $15,000.00. Thus, taking the full value of Kelly’s equity ($15,000.00) and subtracting the limit of exemptions Kelly can use ($16,000.00), the Trustee is left with -$1,000.00. Since the Trustee cannot liquidate the assets to make money for the unsecured creditors in Kelly’s case, Kelly gets to keep all of her assets.
341 Meeting Of Creditors
After filing for Chapter 7, you will be required to, pursuant to 11 U.S.C. 341, attend a meeting of creditors with your Court appointed Trustee. At this hearing, any creditor in your case will be allowed to come and question you. More importantly, the Trustee will be asking you certain questions under penalty of perjury wherein you will need to testify with 100% truthfulness. The main thing the Trustee is trying to determine is whether the papers you filed with the Court are accurate and whether there are any assets for him/her to liquidate. Mr. Bains has attended hundreds of these hearings and will be able to walk you through the 341 hearing before ever stepping foot in the hearing room. Call 916-800-7690 right away and set up your free consultation with a highly trained Sacramento Bankruptcy Lawyer.
The ultimate goal in filing for Chapter 7 Bankruptcy is to receive a Discharge. A Discharge is a court order eliminating a Debtor’s legal obligation to pay back certain types of debts to their creditors. This means that those specific creditors cannot send you bills demanding payment, call you, threaten or actually initiate a lawsuit against you, report non-payment to the credit bureaus, or take any other action against you to attempt to collect on that discharged debt.
How We Can Help
It is highly recommended to hire a local Sacramento Bankruptcy Lawyer that is familiar with the Chapter 7 process. Mr. Bains has the knowledge, experience, and skill required to get the best possible results for all of his clients. Mr. Bains has handled hundreds of Chapter 7 cases over the past 6 years.
Do not let another day go by without speaking to our office. Call 916-800-7690 to set up your free consultation with our dedicated Chapter 7 Attorney. By calling our office, you will speak directly with a Sacramento Bankruptcy Lawyer who specializes in Chapter 7 Bankruptcies. You will continue to deal directly with the Attorney through the entire Chapter 7 process and will not be passed on to a staff member like many other offices will do.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.