More than 413,000 people filed for bankruptcy in 2021, which was significantly lower than the 2020 filings.
People turn to bankruptcy when they need a way out of debt. For some, this occurs from a divorce, illness, or family death. Others end up in debt for other reasons, such as medical debts.
Are you thinking of filing? If so, you might have some questions about Chapter 7 bankruptcy. This chapter is one of several branches people use for debt-relief purposes. However, learning how it works is vital before filing.
So keep reading this guide if you’re ready to learn the ins and outs of a Chapter 7 bankruptcy case.
It’s the Liquidation Branch
If you research Chapter 7 bankruptcy, you’ll likely find that people refer to it as “the liquidation branch.” This phrase summarizes the primary aspects of a Chapter 7 case.
Liquidating involves selling assets to pay for debts. Therefore, when you meet with a bankruptcy lawyer, they’ll tell you that you might lose some assets. The court can require that you turn them in so they can sell them.
Then, they’ll take this money to repay your debts. However, you won’t lose every asset.
The court considers each asset you own and classifies each as exempt or non-exempt. You can keep the exempt assets, which might include keeping your home. However, you must surrender your non-exempt assets.
It Requires Income Qualifications
Secondly, people can only file for Chapter 7 bankruptcy if they meet the income qualifications. Therefore, bankruptcy lawyers perform income-based tests when meeting with people interested in bankruptcy.
The basis of the test is that you can only use Chapter 7 if you earn less than the state’s average income. People who don’t pass the income test might benefit from Chapter 11 bankruptcy or Chapter 13 bankruptcy.
You can prepare for this income test by gathering your income proof from the last six months. For example, you might have pay stubs, 1099s, and receipts from child support you’ve received.
You must include income from all sources, even if you received money from an inheritance, lawsuit payout, or lottery winnings.
You Don’t Repay Your Debts
One of the reasons people turn to Chapter 7 bankruptcy is to avoid repaying their debts. Because Chapter 7 requires the risk of losing assets, you won’t have to repay your qualifying debts.
The court reviews a filer’s debts meticulously to determine if they qualify for a discharge. Then, the court issues a discharge on the qualifying debts at the end of the case.
A discharge is equivalent to debt forgiveness. In other words, you will never owe money for debts the court discharged. Instead, the court forgives these debts.
You can learn more about how courts classify debts by visiting a bankruptcy law firm. A lawyer can tell you which debts the court will likely classify as dischargeable debts.
Some debts won’t qualify for a discharge. For example, student loan debt doesn’t always qualify. You might also have tax debt that doesn’t qualify.
When debts don’t qualify for a discharge in a Chapter 7 case, you will still owe them when you complete your case.
You Get an Automatic Stay
One vital thing to know about all bankruptcy branches is they come with an automatic stay. An automatic stay is one of the top ways you find relief after filing your bankruptcy case.
The automatic stay prohibits your creditors from:
- Calling you
- Texting you
- Emailing you
- Sending you letters
- Asking for you to pay your debt
Your creditors can’t pursue you in any manner after they receive the automatic stay notice. If they do, you have the legal right to sue them.
People might choose bankruptcy when they experience significant problems paying their bills. When this occurs, their creditors begin hounding them for payment. These calls and letters can be frustrating and never-ending.
However, the automatic stay ends the calls and creditor pursuit, providing much-needed relief.
The Court Assigns a Trustee
You start a bankruptcy case by meeting with a bankruptcy attorney. After the attorney explains everything, you can decide whether to file or not.
If you decide to file, the attorney helps you complete all the necessary filing documents and sends them to the local bankruptcy court. The court does several things when they receive these documents.
First, they issue the automatic stay, which includes notifying every creditor listed on the documents. Next, they assign a trustee to the case.
A trustee is an attorney who works for the bankruptcy court. The trustee handles a bankruptcy case from start to finish and has numerous responsibilities.
Their primary responsibility is to evaluate every detail of the case, including the filer’s income, debts, and assets. In addition, the trustee must ensure that the information is accurate and that the person qualifies for bankruptcy.
It Requires One Court Visit
You will have to attend at least one court hearing for a Chapter 7 bankruptcy case. The hearing is called a meeting of the creditors (also called a 341 meeting).
You’ll find out this court date shortly after filing your Chapter 7 case, and you must attend. Your attorney also attends the meeting.
During this meeting, you will meet with your assigned bankruptcy trustee and take an oath, to tell the truth. Then, the trustee asks a series of questions that you must answer.
There is a chance you might have to attend another court hearing for your case. However, most people attend only one when using Chapter 7.
This hearing provides the trustee with the information needed to process your case. If everything checks out, the trustee will issue a discharge for your case, but this doesn’t happen immediately.
It might take several months to receive the discharge. However, your case concludes when this occurs.
Get a Free Consultation for Chapter 7 Bankruptcy
Chapter 7 bankruptcy might offer the relief you need for your financial problems. However, you won’t know unless you meet with a bankruptcy attorney.
Contact us at Meredith Law Firm, LLC, for more information. We assist with all branches of bankruptcy and offer free consultations. Call us today or visit our website to learn more.