Chapter 7 bankruptcy is appropriate for individuals and businesses that face extreme debts without the ability to repay them. The Gorski Firm, APC is experienced in helping individuals and businesses file for protection under Chapter 7 of the Bankruptcy Code. With offices in Bakersfield and Long Beach, we serve customers in those areas as well as Kern County, Signal Hill, Seal Beach, Tehachapi, Golden Hills, Lakewood and Keane with their Chapter 7 bankruptcy needs.
This page provides the following Chapter 7 Bankruptcy Information:
Chapter 7 Overview
Chapter 7 proceedings commence upon the filing of a bankruptcy petition. A bankruptcy trustee is then appointed by the court. Generally, when an individual files a Chapter 7 bankruptcy, certain personal property is considered "exempt." Individuals are entitled to keep their "exempt" property during and after the bankruptcy process. Any "non-exempt" property is surrendered to the bankruptcy trustee who sells the property and distributes the proceeds to unsecured creditors. However, many individuals that qualify for Chapter 7 own only exempt property (e.g. household goods, clothes, an older car, etc.) and will not be required to surrender any property to the Chapter 7 trustee because in these instances there are no non-exempt assets to liquidate. The amount of property that you may exempt varies from state to state. For information regarding the exemptions available in California, contact The Gorski Firm, APC for a Free Consultation.
In exchange for surrendering their non-exempt property, parties filing for Chapter 7 protection are granted a discharge of most debts (i.e. they are not required to repay the discharged debts, it is "wiped out"). However, a discharge will not be granted as to certain debts (e.g. spousal and child support) or in circumstances where the filing party is guilty of inappropriate behavior (e.g. concealing records related to their financial condition.
[Return to List of Chapter 7 Topics]
Individuals and Chapter 7
Chapter 7 is used by individuals individual who seek to "wipe out" (discharge) all debts which are allowed to be eliminated with no repayment to the creditors. The goal of Chapter 7 bankruptcy is to provide individuals with a "fresh start" by wiping out all dischargeable debts including medical bills, credit card bills, personal loans (not guaranteed by a government agency), judgments obtained by creditors prior to the filing of a bankruptcy petition, business related debts, and commercial and residential leases.
[Return to List of Chapter 7 Topics]
Businesses and Chapter 7
With respect to a business filing for Chapter 7 protection, it typically ceases to operate unless the court-appointed Trustee chooses to continue the business.
[Return to List of Chapter 7 Topics]
The Chapter 7 Process
If after you consult with The Gorski Firm, APC you conclude that a Chapter 7 bankruptcy is the best solution to resolve your debts, we will ask you to provide us with certain documents (e.g. last two years of tax returns, recent paystubs, copies of all your debt statements and correspondence) so that we can begin preparing the Chapter 7 Petition to file with the court.
After we prepare the Chapter 7 Petition, you will review it for accuracy and completeness. Before we file an individual's petition, the bankruptcy code requires that you attend a credit counseling education course (we will refer you to either an online or telephone course). Once you confirm that the petition is complete, we will file it with the Bankruptcy Court Clerk's office.
[Return to List of Chapter 7 Topics]
Automatic stay
Upon the filing of the petition, most creditors are restrained from taking any additional action to recover the debt. This restraining act is called the "automatic stay." The automatic stay is very powerful in that it prohibits actions to collect debts unless the bankruptcy court enters an order lifting the stay to permit a creditor to proceed with collection or enforcement. The stay arises by operation of law and requires no judicial action. Provided that the stay remains in effect, your creditors generally may not initiate or continue garnishments, lawsuits, or communications demanding payment. While the stay provides great benefit, the Bankruptcy Code does limit its protections in some re-filed cases.
[Return to List of Chapter 7 Topics]
341 Meeting of Creditors
Approximately 30 to 45 days after the filing of the petition, you will appear with a member of The Gorski Firm, APC at a meeting with the Chapter 7 Trustee assigned to your case (the "341 Meeting of Creditors"). At this meeting, the Trustee will place you under oath and both the Trustee and your Creditors you a questions concerning your Chapter 7 Petition, expenses and income.
[Return to List of Chapter 7 Topics]
Financial Management Course
To qualify for a Chapter 7 discharge, the Bankruptcy Code requires you to complete a Post-Filing Debtor Education Course (we will refer you to either an online or telephone course). If you fail to complete this course within the time required, then your case may be closed without a discharge being issued.
[Return to List of Chapter 7 Topics]
Discharge of Debts
Assuming that the Trustee requests no further information at the 341 Meeting and provided that no objections from your creditors are filed with the Court, you will receive a discharge of your dischargeable debts shortly after 60 days from the 341 Meeting.
[Return to List of Chapter 7 Topics]
Non-Dischargeable Debts
Under the Bankruptcy Code certain debts cannot be wiped out. They are classified as non-dischargeable debts and include:
- Alimony, maintenance, and child support obligations
- Student loans (except in extreme hardship cases)
- Fines, penalties, and criminal restitution
- Debts incurred as a result of intentional injury to a person or property
- Taxes owed governmental authorities
If your only debts are of the non-dischargeable classification, Chapter 7 is not a feasible option, however, Chapter 13 might be an alternative. Contact The Gorski Firm, APC for a Free Consultation to discuss whether your debts can be discharged in Chapter 7.
[Return to List of Chapter 7 Topics]
Rights of Secured Creditors in Chapter 7
A secured creditor's rights to their collateral (security interest) generally continues even though a discharge is received on the underlying debt. For example, absent some type of arrangement to surrender or "reaffirm" a car loan, the creditor with a lien on the car may repossess the vehicle even if the debt to the creditor is discharged. The Gorski Firm, APC offers assistance in negotiating "reaffirmation agreements" so that you can keep property that secures repayment of certain debts (e.g. vehicle loans).
[Return to List of Chapter 7 Topics]
Who is eligible to file for Chapter 7 Protection?
Businesses
A business that is unable to service its debt or pay its creditors can voluntarily file—or sometimes be forced by its creditors to file—for bankruptcy in a federal court under Chapter 7. When a business files for Chapter 7 bankruptcy, it stops operating and a court-appointed Chapter 7 Trustee sells all of its assets, distributing the funds to creditors. Creditors with a security interest are paid before unsecured creditors.
[Return to List of Chapter 7 Topics]
Individuals
Chapter 7 relief is available only once in an eight year period. If you previously had debts discharged in a Chapter 7 bankruptcy, you must wait at least eight years before you are eligible to have new debts discharged by another Chapter 7 filing.
However, if you previously had debts discharged in a Chapter 13 bankruptcy, you must wait at least six years before you are eligible to have new debts discharged under Chapter 7 unless the plan in the prior Chapter 13 was a 100% plan as to unsecured creditors OR payments under plan totaled 70% of claims and the plan was in good faith and on your best efforts.
Additionally, an individual cannot file a Chapter 7 bankruptcy if he or she already did so in the previous 180 days and the bankruptcy petition was dismissed, or that individual failed to appear or comply with the court's orders, or he/she dismissed the case voluntarily after their creditors with liens sought the help of the court to recover property (i.e., they sought relief from the stay).
[Return to List of Chapter 7 Topics]
The "Means Test"
The means test is designed to determine whether an individual filing for bankruptcy protection can repay a portion of the money owed to his or her creditors. The test is designed to prevent abuse of the bankruptcy process. The test compares the average of your six months of income to the median income in your state. If the your income is greater than the state median, then the test applies and detailed formula must be used to determine whether you are eligible to file for Chapter 7. The formula involves subtracting certain statutory values for living expenses from current monthly income to determine whether you in fact have enough money to repay creditors. If the calculation reaches certain levels, a presumption of Chapter 7 abuse applies for which you will either have to overcome, convert the case to Chapter 13, or have the case dismissed.
[Return to List of Chapter 7 Topics]
Free Consultation
If you are considering seeking bankruptcy protection, the first step you should take is to consult a knowledgeable and experienced bankruptcy attorney. The Gorski Firm, APC is experienced in handling bankruptcy cases on behalf of individuals, families, and businesses. Call our office today for a Free Consultation. We will review your financial situation, and help you determine whether bankruptcy is the right option for you. If it is, we help you prepare and file all of the appropriate documents, and represent you at the scheduled meetings and court appearances.
[Return to List of Chapter 7 Topics]