Chapter 7 Bankruptcy Questions

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is a legal procedure that allows you to discharge certain debts to give you a “fresh start.” Once debts are discharged under Chapter 7, the creditors can no longer hold you liable to pay them. Although in most Chapter 7 cases a discharge of debts is granted, some types of debts are not dischargeable debts. Moreover, a bankruptcy discharge will not extinguish a lien on your property. If you are not eligible to file for Chapter 7 bankruptcy, Chapter 13 Bankruptcy may be another option for you.

Am I eligible to file for Chapter 7 bankruptcy?

The changes that were made to the federal bankruptcy law in 2005 have made it more difficult for debtors to file for Chapter 7 Bankruptcy. To qualify for relief under Chapter 7 of the Bankruptcy Code, you must pass the “means test.” The means test determines if your “current monthly income” is more than the state median for your household size. Our experienced bankruptcy attorneys will help you determine whether you pass the means test. Moreover, you must not have filed a Chapter 7 bankruptcy within the last 8 years.

In addition, you may not be a debtor under Chapter 7 or any chapter of the Bankruptcy Code if you have not completed credit counseling from an approved credit counseling agency within 180 days prior to filing. Your case will get dismissed if you fail to meet this requirement. You can find a list of approved credit counselors on the official website of the U.S. Department of Justice.

You cannot file for bankruptcy under Chapter 7 or any other chapter if during the preceding 180 days a prior bankruptcy petition was dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens, or if you willfully failed to appear before the court or comply with court orders.

If you want to file for Chapter 7 bankruptcy in Colorado, you must have lived here for the longer portion of the 180 days immediately preceding the date of filing. Otherwise, you cannot file in Colorado but only in the state where you recently lived.

Contact our Denver bankruptcy attorneys today to determine whether you meet the Chapter 7 bankruptcy eligibility requirements.

Is there a limit on the amount of debt I can discharge under Chapter 7 bankruptcy?

There is no limit. Relief is available under Chapter 7 Bankruptcy irrespective of the amount of your debts or whether you are solvent or insolvent.

What is the means test?

The Bankruptcy Code was amended in 2005 to stipulate the “means test” to create objective standards for determining whether a debtor is “worthy” of debt relief under Chapter 7 Bankruptcy. It applies only to individuals with primarily consumer debts. The means test compares the debtor’s annualized current monthly income to the state median income for his or her household size in order to determine whether he or she passes. If your income is less than or equal to the state median income, you pass the means test and may thereafter file for Chapter 7 bankruptcy. If you fail the means test, you still have the option to file for Chapter 13 Bankruptcy.

What debts are dischargeable under Chapter 7 Bankruptcy?

Dischargeable debts include personal loans, credit card debts, auto accident claims, medical bills, overdrafts, unsecured signature loans, civil judgments, certain business debts, promissory notes and guaranties, repossession and foreclosure deficiencies, civil claims, certain tax debts, and HOA dues before foreclosure.

What are the non-dischargeable debts under Chapter 7 bankruptcy?

Non-dischargeable debts under Chapter 7 Bankruptcy include student loans, most tax debts, court-ordered child support obligations, alimony or maintenance, any cash, financial or personal goods and services obtained by fraud or obtained as an abuse of the bankruptcy process, or injury to the person of another.

Will I lose my assets, real estate, or personal belongings if I file for Chapter 7 bankruptcy?

The law empowers the Chapter 7 Bankruptcy Trustee assigned to your Chapter 7 Bankruptcy case to liquidate any of your non-exempt assets. There are exemptions available for various categories to protect your assets from liquidation. Please set up a free consultation with one of our experienced bankruptcy attorneys to get an informed understanding of what exemptions you may claim.

Will I lose my house or my car if I file for Chapter 7 bankruptcy?

In Colorado the homestead exemption is $60,000 per household, and the automobile exemption is $5,000 per vehicle, per debtor. Whether your house or car could be liquidated by the Chapter 7 Bankruptcy Trustee depends on how much equity you have in the property in comparison to the fair market value of the property and the amount of secured debt you still owe to the secured creditor. Please set up a free consultation with one of our experienced bankruptcy attorneys to get an informed understanding of what secured property you may keep under Chapter 7 Bankruptcy.

Will I lose my business if I file for Chapter 7 bankruptcy?

Whether the Chapter 7 Bankruptcy affects your business largely depends on what type of business entity you have.

If you own a corporation, the creditors could potentially come after your share of ownership in the corporation. In most cases, however, creditors only elect to come after your personal assets so long as they are not mingled with any business assets. This typically allows you to maintain business operation throughout your personal bankruptcy.

If you are a sole proprietorship, you have not legally separated your business from your personal assets. In other words, all of your personal assets are inseparable from your business. Therefore, bankruptcy court can liquidate any of the non-exempt portions of your assets at its discretion.

If you are in a regular partnership with another individual, you do not set up a separate legal entity. This means any partnership assets can be liquidated by the court at its discretion, even though they are jointly owned with the other partner.

If you own a Limited Liability Company (LLC), your interest in an LLC may be affected depending on which state you are from. Many states have within their LLC statutes provisions requiring a charging order be issued rather than entitling the creditor to take the LLC interests outright. This means the LLC member will continue to serve in his capacity and vote the LLC interest, but charging order requires any distributions which are made to the member will now be paid to the creditor instead.

Please set up a free consultation with one of our experienced bankruptcy attorneys to get an informed understanding of what rights and options you have as a business owner under Chapter 7 bankruptcy.

Do I need to disclose information about my business to the Bankruptcy Court if I file for Chapter 7 bankruptcy?

You must disclose information about your business to the Bankruptcy Court. The disclosure of information about the business does not necessarily mean you will lose the business. The Bankruptcy Court needs to examine all of your exempt and non-exempt assets before going through the liquidation of non-exempt assets and the bankruptcy discharge process.

What is redemption of secured property in bankruptcy?

Redemption is a legal process where a debtor is permitted to retain a secured property such as a vehicle by paying the creditor the current market value of the secured property, not the total secured debt that is still owed on the account. For instance, a Chapter 7 Bankruptcy debtor owes $25,000 to a secured lender, but the secured property is currently worth $10,000. The debtor can then take advantage of the redemption process to pay only $10,000 (current market value of the secured property) to the lender, while keeping the property and discharging the remaining difference of $15,000 as unsecured debt. However, if after the Bankruptcy Court grants the redemption the debtor is unable to come up with one lump sum payment, the debtor may not be able to redeem the secured property. As an alternative, the debtor may obtain a redemption loan from certain finance companies that offer loans to bankruptcy debtors.

Do I have the right to a discharge or can creditors object to a discharge?

The debtor does not have an absolute right to a discharge under Chapter 7 Bankruptcy. Creditors receive a notice from the court shortly after the case is filed that sets forth the deadline for objecting to the discharge. To object to the discharge, a creditor must file a complaint in an adversary proceeding in the Bankruptcy Court before the deadline. The objecting party bears the burden to prove all the facts essential to the objection.

A Chapter 7 bankruptcy discharge may be denied by the court for any of the reasons described in Section 727(a) of the Bankruptcy Code, which includes failure to provide requested tax documents, fraudulent transfer or concealment of property, failure to account for the loss of assets, or failure to complete the requisite financial management course.

How long does it take before I receive a discharge of debt under Chapter 7 bankruptcy?

A Chapter 7 Bankruptcy case can take anywhere from 3.5 to 4 months or beyond before the debtor receives a discharge of debt. After your Chapter 7 bankruptcy is filed with the Bankruptcy Court, you will be required to attend a meeting of creditors in about 4-6 weeks. Your case could be administered by the Chapter 7 Bankruptcy Trustee and remain open beyond the date you receive a discharge of debt.

How much is the court filing fee for Chapter 7 bankruptcy?

The court filing fee for Chapter 7 Bankruptcy is $299.00. The Bankruptcy Court allows debtors to make installment payments over a three month period.

Additional Bankruptcy Information

• Chapter 7 Bankruptcy: Overview of Chapter 7 bankruptcy protection.
• Chapter 13 Bankruptcy: Overview of Chapter 13 bankruptcy protection.
• Chapter 13 Bankruptcy FAQ: Questions and answers about filing for Chapter 13 bankruptcy protection.
• Consumer Bankruptcy: General information about consumer bankruptcy issues and other bankruptcy solutions.
• Consumer Bankruptcy FAQ: Questions and answers about consumer bankruptcy protection and other bankruptcy solutions.

The information contained here is intended to be educational and informative only. It is not intended to be legal advice nor does it create an attorney-client relationship. You should consult with an experienced bankruptcy attorney for advice about your particular situation. Call our office today at (303) 781-1533. We represent Bankruptcy clients in Denver and throughout Colorado.

 

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