What is Chapter 7 Bankruptcy?

Chapter 7 is designed for people who are having financial difficulties and are not able to re-pay their debts.  Under the changes to the Bankruptcy Code that took effect October 17, 2005, you can usually qualify for a Chapter 7 if one of the following is true:

  • Your average gross monthly income for the last six months is below your state’s median income

  • Your gross income, less certain expenses, is below your state’s median income

  • You can show “special circumstances” that would allow you to qualify for Chapter 7.  

Under Chapter 7, you can usually exempt, or keep, most or all of your assets under Florida law, or, if you have not lived in Florida for the past two years, under the state’s exemption law that applies to your case. Most retirement accounts and pensions are also exempt. Secured property, normally your car and house, may not have any net equity or is otherwise exempt, in which case you can keep it as well.  The Chapter 7 Trustee may liquidate any non-exempt property and use the proceeds to pay your creditors according to priorities of the bankruptcy code.

Once your Chapter 7 case is over, you receive a discharge.  The discharge prevents your creditors from taking any steps to try to collect their unsecured debt.  They cannot call you, write you, sue you, or take any steps that could be considered an attempt to collect its debt.  If you want to keep property that has a lien on it, you must keep your payments current, and may be required to reaffirm your debt.  Some debts can not be discharged. Typical examples are child support, alimony, and other domestic support obligations, some taxes, student loans, criminal restitution, and debts for death or personal injury caused by operating vehicles while intoxicated with alcohol or drugs.


Why File for Chapter 7?

You may want to file for Chapter 7 bankruptcy for 1 or more of these reasons:

1.  Your income is not over median family income for your household size.  Median income is approximately:

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$50,000 for a household of 1
$60,000 for a household of 2
$67,000 for a household of 3
$79,000 for a household of 4
$88,000 for a household of 5.  

We can sometimes qualify people for Chapter 7 even if they make over median income.

2.  You do not have non-exempt assets that a Chapter 7 Trustee will take and sell.  Exemption law is complex but we have the expertise to protect your assets.

3.  You do not have a regular income.

4.  To discharge certain qualified aged tax debts to the U.S. Internal Revenue Service (IRS).

5.  You do not have a pending personal injury claim.

See Chapter 7 FAQs

 
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Chapter 7 FAQs

Frequently Asked Questions Regarding Chapter 7 Bankruptcy:


What is a Chapter 7 discharge?

Chapter 7 permanently discharges your liability for all dischargeable debts until the end of time.


Who is the Chapter 7 Trustee?

The Chapter 7 trustee represents creditors and is responsible for ensuring your petition and schedules are accurate, and can liquidate/sell non-exempt property to pay creditors.  However, I can negotiate a “buy-back” of non-exempt property if you want to keep your property. In most cases, there is no “buy-back” because all of your property is exempt under applicable exemptions laws.


Will the Chapter 7 Trustee take my tax refund? 

Unless covered by available exemptions, the trustee can take the pro-rata portion of your refund but only for the year in which you file bankruptcy.  The earned income credit (EIC) cannot be taken. The pro-rata portion is determined by the amount of days elapsed in the year before your case was filed.


Will I have to appear in Court?

You will have to appear for a “meeting of creditors” presided over by the Chapter 7 Trustee.  


Will I be represented at the meeting of creditors?

Absolutely.


How long will I be in Chapter 7?

The length of your Chapter 7 case is usually 3 to 4 months.


Do I make too much money to file Chapter 7?

If your monthly income is more than median monthly income for your household size then you might not qualify for Chapter 7. However, we can sometimes qualify people for Chapter 7 even if they make over median income.


Do I have to include my mortgage and car payments in my Chapter 7? 

No.  All debts are disclosed, but you can continue paying your mortgage and car payments.


How is Chapter 7 different from a debt consolidation or settlement services?

Unlike debt consolidation or settlement services, Chapter 7 enables you to stop all collection activity and lawsuits against you and discharges debts without needing creditor consent.


Whether you already know which Chapter is right for you, or you need help choosing between Chapter 7 and Chapter 13, schedule a free consultation today.