Chapter 7 Overview

Bankruptcy Chapter 7

Who files Chapter 7 bankruptcy?

Quick answer: people who, because they don’t make too much money, qualify to wipe out some or all of their debt while still keeping all of their property.

You have to qualify for Chapter 7. In the vast majority of cases this is the type of bankruptcy that you want to qualify for. Why?

1. It’s less expensive.
2. The process is over in 100 days. (A Chapter 13 case can last 3 to 5 years.)
3. Almost all clients wipe out all of their unsecured debt and keep all of the things that they own.

What are the income limits in order to qualify for Chapter 7 bankruptcy?

1. If you are single and earn less than $50,579 per year, you automatically qualify for Chapter 7.
2. If you are married without children and earn less than $66,532 per year you automatically qualify for Chapter 7.
3. If you are married with one dependent and earn less than $70,814 per year you automatically qualify for Chapter 7.
4. If you are married with two dependents and earned less than $81,837 per year you automatically qualify.

What if my income is over? Am I automatically disqualified from filing the simpler, less expensive Chapter 7 bankruptcy?

No. You can still qualify for Chapter 7 if you fail what is known as the “means test.” Basically, expense categories applicable to you are run through a formula to determine if, in the eyes of the bankruptcy court, you have any money left over at the end of the month after covering payments for all of your necessities of life. The “means test” can be very unfair. One person with the same amount of income as another person can pass the test while the other fails simply because one of the persons has certain types of expenses and the other does not. As a general rule, your income can be way over the amount that automatically qualifies for bankruptcy and you will still qualify for Chapter 7 if you have some combination of the following types of expenses: a car loan, a health insurance payment, child care costs, educational costs for a child, extraordinary monthly medical expenses, child support or alimony payments, back taxes, a mortgage payment, mortgage arrears, charitable deductions, union dues, disability insurance payments, health savings account payments or you take care of an elderly or infirmed family member.

Even if I qualify for Chapter 7, when would I want to file under Chapter 13, instead?

1. If you are behind on your mortgage or are way behind on your child support payments and need up to 60 months to get caught up.
2. If you have a second mortgage on your home and the home is worth less than the balance of your first mortgage. Here, in a Chapter 13 case, in addition to all of the other debts that you could wipe out, you can also wipe out the second mortgage.
3. You need a guaranteed low or no interest repayment plan to repay current state and federal income taxes.
4. You need the protection of the bankruptcy court for up to five years.

Once the Chapter 7 case is filed, can creditors still take my money, garnish my wages, sue me, continue with a lawsuit or even call me?

No. Once the case is filed no further collection activities can be taken against you without a court order. And “collection activities” is broadly construed. It means no more phone calls. No more letters. Wage garnishments and bank levies must stop. If you have been sued, that legal proceeding is stayed, and if the debt is wiped out in bankruptcy that legal proceeding is terminated without you having to do anything other than complete the bankruptcy process.

Penalties are severe if a creditor breaks these rules, so once you get your bankruptcy case on file you will quickly realize that “the sky really is blue.” And, unlike any other firm, you don’t have to pay us in full in order to get your case filed. We make getting access to relief as easy as possible.

What are the main goals of a Chapter 7 bankruptcy?

1. Wiping out as much debt as possible.
2. Keeping everything that you own.
3. Obtaining a better car and a better car loan and leaving an “ugly” car loan behind. By “ugly” we mean a high interest rate, a loan balance that is much higher than the value of the car, or both.

What debts can I wipe out in a Chapter 7 bankruptcy?

Note: wiping out as much debt as possible in a Chapter 7 case is one of the three main goals of the process (the others being keeping everything that you own or have an interest in and leaving an ugly car loan behind.)

1. The list is long. Credit card debt, payday loans, medical bills, monies owed pursuant to most judgments, personal loans, bank overdraft charges, most older income taxes, bad business debts, overpayments of unemployment or disability compensation, old car loans, deficiency balances on repossessed or voluntarily surrendered vehicles, old mortgages on foreclosed or surrendered properties, unpaid monies related to renting a house or apartment.
2. What debt is not dischargeable—that list is relatively short. Recent taxes, most government fines, back child support and alimony, almost all student loans, claims for personal injury or death if you were intoxicated, credit obtained by fraud. And a few others that rarely arise.

Can I keep what I own and still wipe out my debt?

Short answer: 99% of the people we have represented keep everything they own and wipe out all the debt that can be wiped out.

Who doesn’t keep everything that they own?

People who have property that we cannot find an exemption for. General rule of thumb if you don’t own real property and have lived in California continuously for two (2) years: you will keep your furniture, furnishings, clothing, up to $2,000 worth of jewelry, all monies in a retirement plan PLUS $6,000 of equity in any number of vehicles and $27,000 of ANYTHING else.

If you own real property, you can shield your retirement plan, your jewelry, $3,000 in equity in any number of vehicles PLUS the equity in your house as follows:

1. $75,000 if you’re single.
2. $100,000 if you’re married or single with another family member living with you.
3. $175,000 if certain age or age and income requirements are met.

What can I do if I have more property than I can exempt?

Typically, you can legally convert the property that is not exempt or protected by an exemption category by converting it into property where there is an available exemption category.

What are my options in a Chapter 7 case with regards to my car loan?

Four options:

1. Reaffirm the car loan as is and keep making the same payment pursuant to the same contract.
2. Surrender the car back and wipe out the loan.
3. “Redeem” the car. Rarely used. Here, you can pay the current lender, in one lump sum, the value of the car and the balance of the loan is wiped out. Easier said than done. Typically, the lender will ask the court to set value which means additional fees to get the court’s opinion and if the court doesn’t agree with your valuation and you decide not to go forward with the redemption at the price the court sets, you gambled and lost the attorney’s fees paid.
4. Get another car either while you are still in bankruptcy or after getting out and surrender the current car back to the lender and wipe out that debt. As hard as this is to believe: it is a lot easier to get a car/truck either during bankruptcy or shortly thereafter than you might think.

What do we typically recommend with “ugly” car loans? We recommend that you do anything other than reaffirm that debt. It is a lot easier than you think to get another car so don’t think you’re stuck with the car you have.

What is the process in filing a Chapter 7 case?

The steps would be as follows:

1. Schedule a free consultation.
2. If you decide to go forward, we will go over the entire bankruptcy petition with you. We do not use questionnaires.
3. At the end of the first meeting, we will send you an e-mail with a final list of information and documents that we need to file the case.
4. At the second meeting, the petition is finalized, reviewed and signed. The case is typically filed within 1 to 2 days of final review.
5. Roughly one month after the case is filed, there is a short hearing with a court official. Basically, the official, known as a trustee, wants to confirm that you have listed all of your assets, debts, income and provided all other necessary information and supporting documentation. In almost all of our cases, the meeting with the court official, or trustee, lasts between three and five minutes.
6. After the hearing, creditors have 60 days to complain if that’s what they want to do. We have helped over 1000 people since 2005 and it is extremely rare that a creditor in one of our cases complains. In other words, once the case is filed the dischargeable debts are dead and gone. The process just needs to run its course.
7. Between the hearing with the court official and the expiration of the 60 days, we work with you to keep or surrender your car, and other minor details.
8. At the end of the process, the court processes the final paperwork and we hope you become yet another client who posts a positive review about your experience with us on Yelp or Google!

What can I expect at my free initial consultation and typically how long does it take?

We will answer your questions, let you know what your options are and discuss with you how much it would cost to pursue each of your options. In order to do this, we obtain information from you on the following topics and then take the time necessary to make sure we understand fully your situation with regards to each of these topics:

1. Your total income from all sources.
2. The nature and amount of your debts.
a. Do you own a home?
b. Do you have a car payment?
c. What type of debt you have.
d. Whether any of that debt was incurred within the last 90 days.
e. Whether you have borrowed any money from family and, if so, whether you have repaid any of that borrowed money within the last year.
f. Whether you owe any back taxes or have student loans.

3. The nature and value of any property that you own or have an equity interest in.

The typical initial consultation lasts anywhere from 30 to 45 min.

Are you ready to take that first step onto the road to financial well-being?

Call today to schedule a free consultation to discuss the particulars of your case. We will take the time on the phone to get a clear understanding of your case, and if we can help, we will work with you to find a time as soon as possible to have you come in to discuss your case in greater detail with an experienced bankruptcy attorney.