CHAPTER 7 BANKRUPTCY

Chapter 7 Bankruptcy Lawyer

A Chapter 7 bankruptcy is the fastest and easiest type of bankruptcy. A Chapter 7 bankruptcy will let you permanently wipe out all your unsecured debts like credit cards, unpaid medical bills, court judgments, etc. A Chapter 7 will also immediately stop any collection actions against you, such as wage garnishments and lawsuits. You can also keep all of your stuff, like your car, your house, and your personal property.

How Chapter 7 Bankruptcy Works

A Chapter 7 bankruptcy is pretty simple in some ways. You file the bankruptcy and list all of your debts and financial obligations. You also list all of your property and assets (cars, house, furniture) and give an estimated value for those items. A bankruptcy trustee then reviews your case to see if you have any assets that are not protected by exemptions (more on that later). The trustee will also check to see if you make too much money to qualify for a Chapter 7.

95% of the time, the trustee will find that you don’t have any non-exempt assets and then approve you for a bankruptcy discharge. One you get the discharge in a Chapter 7 bankruptcy, all of your unsecured is completely gone. Unsecured debt means loans that are not secured by collateral like your house or your car. Unsecured debt includes things like credit cards, medical bills, payday loans, personal loans, collection agency accounts, court judgments, and more.

There are certain types of debts that you can’t discharge in Chapter 7 (or any type of bankruptcy). These include things like child support obligations, student loans, fines or penalties to government agencies, and certain most tax debts. For more detail on what debts are not dischargeable see the chart below.

Chapter 7 Eligibility Requirements

Not everyone will be eligible to file a Chapter 7 bankruptcy. A Chapter 7 bankruptcy has certain income eligibility requirements. If you make too much money, you won’t qualify for a Chapter 7 and you will have to file a Chapter 13 bankruptcy instead. So what is the income limit for a Chapter 7? The answer to that depends on a lot of factors and it can be somewhat complicated. In Maryland, if your gross household income is less than $8,000 per month ($96,000 annual), you will automatically qualify for a Chapter 7 under the means test. If your gross monthly income is over $12,500 ($150,000 annual) then you will automatically NOT qualify for Chapter 7 under the means test. If your monthly household income falls somewhere between $8,000 and $12,500, then you may or may not qualify depending on various factors (e.g., how many children you have, what your fixed allowable expenses are, etc.). The closer you are to the $8,000 a month mark, the easier it will be to qualify for a Chapter 7 under the means test.

There are a number of other factors that go into determining eligibility for a Chapter 7 under the means test, so if your monthly income is over the automatic qualification limit ($8,000) we will need to do a detailed review and analysis to see if you can qualify. So what happens if you file a Chapter 7 and it turns out that you actually make too much money and don’t meet the eligibility requirements? The U.S. Trustee’s office serves as the ”bankruptcy police.” They monitor Chapter 7 filings and review the means test calculations for debtors with higher incomes. If they believe that a debtor makes too much to qualify for a Chapter 7, they will contact the debtor (or their attorney) and ask them to voluntarily convert their case from a Chapter 7 to a Chapter 13.

What Information Do You Need to Provide in Chapter 7 Bankruptcy?

To file a Chapter 7 bankruptcy you will need to file a bankruptcy petition on the official bankruptcy petition form approved by the court. The petition is like a very detailed and comprehensive statement of your financial status. The information you will be required to provide in the petition includes:

• Income: You have to state exactly how much your monthly household income is and where that money comes from (i.e., employer / business, etc.). This information must be provided for EVERYONE in your household even if they are not filing. So for a married couple, if only 1 spouse is filing bankruptcy, you still have to include the income of the non-filing spouse (unless you are legally separated).
• Expenses: Debtors must provide a very detailed statement of their monthly household expenses. The petition form contains various categories of common expenses such as rent/mortgage, food, utilities, car payments, and even things like entertainment.
• Property: The petition contains a long section that requires you to estimate the value of all the personal property that you own. The section is broken down into categories (e.g., household goods & furniture; clothing & jewelry; vehicles, etc.). In most cases, all of this property will be fully protected under your exemptions.
• Debts / Creditors: Finally, debtors are required to provide a list of all their current debts and the names and contact details for all creditors. We usually pull this information directly from your credit report and supplement it with any debts or creditors that might not be named on the credit report.

The Trustee Meeting

About 40 days after you file a Chapter 7 bankruptcy petition, you will have to appear in person for what is known as the “meeting of creditors.” The name is very misleading because in 99.5% of Chapter 7 cases, there are no creditors present at the meeting. Creditors have the option of appearing at the meeting, but they almost never bother to show up. Why? Because in a Chapter 7 bankruptcy there is really no point in appearing for the meeting. If you qualify for Chapter 7 bankruptcy your dischargeable, unsecured debts WILL get wiped out and there is literally nothing creditors can do about it.

The meeting of creditors in a Chapter 7 should really be called the “trustee meeting” because the only person you actually meet with is the Chapter 7 bankruptcy trustee. The Chapter 7 trustee is a lawyer who gets appointed by the bankruptcy court (under the supervision of the U.S. Trustee’s office) to administer your case. The Chapter 7 trustee’s goal is to determine if you have any assets that are not protected by exemptions. If you do, the Chapter 7 trustee can go after those assets (unless you convert to a Chapter 13) and he or she gets a percentage fee of anything they recover.

In 98% of Chapter 7 cases, however, there are no unprotected assets for the trustee to go after. The Chapter 7 trustee just approves your case for discharge and that’s it.

Getting Your Discharge

After the meeting the trustee is completed, you will need to complete the second part of your “debtor education” class. This is done online, and it involves reading through some information about money management, etc. and then answering a few questions. You will need to complete the second part of the debtor education course with the same vendor that you used for part 1 (the pre-filing part). Part 2 takes a little bit longer than part 1. Once you finish part 2, you will get a Certificate of Completion. The U.S Trustee has a list of all approved credit counseling vendors.

You will need to send that certificate to us so we can file it with the bankruptcy court. Filing this certificate is the final step in the Chapter 7 process and you will get your discharge order a short time afterwards. Once your discharge order is entered, your Chapter 7 case will be closed, and you can move on with you life. All of your dischargeable debts will be wiped out.