Chapter 7 bankruptcy is the most common form of bankruptcy used by consumer debtors to obtain relief from their debts. It does not involve a repayment plan. It allows you to walk away from your debts free and clear. Although this form of bankruptcy is often referred to as a bankruptcy liquidation, most cases filed by this office are no-asset cases because I go out of my way to ensure that the chapter 7 trustee assigned to your case does not liquidate (collect and sell) any of your personal property. It is all about proper planning and advice.
I advise you to seek counsel from an experienced bankruptcy attorney to represent your bankruptcy petition. During the initial consultation, I will clearly explain the procedures and costs of filing for chapter 7 bankruptcy. I will not push you into filing bankruptcy. I will provide you the information you need to make your own informed decision.
Upon filing the chapter 7 bankruptcy petition, the bankruptcy court will automatically schedule a meeting of creditors. It is rare for creditors to show for these meetings with the exception of private lenders. In most cases the only parties present during the meeting are my client/s and myself. This meeting takes no more than 5-10 minutes. I will prepare you for the questions the trustee generally asks during the meeting.
After the meeting of creditors, you are required to take a second and final bankruptcy counseling course from the same website www.123debtor.com.
Within 60 days of the trustee’s meeting, you will receive a discharge letter in the mail relieving you from your debts. If any of your creditors attempt to collect on a pre-petition debt, please contact me right away. I will not allow your creditors to take advantage of you no matter how long it has been since you filed bankruptcy through my office. Upon filing your case, you will also receive a notice of the chapter 7 bankruptcy filing. You should retain both letters indefinitely.
Most debts are dismissed (discharged) in a chapter 7 bankruptcy. The following debts are not discharged:
*Certain tax debts. An attorney can explain whether your tax debts are dischargeable.
*Debts owing to a governmental unit or agency.
*Alimony and/or child support.
*Student loans with rare exceptions.
*Debts incurred by fraud or false pretenses if the creditor successfully objects.
*Significant unsecured debt purchases (credit cards and personal loans) including cash advances which were charged within the 90 days before filing but only if the creditor objects.
*Debts for personal injury related to drunk driving or willful and malicious injury.
*Debts which are not listed. There are exceptions to this. An attorney can explain.
*Court fines and restitution.
Chapter 7 Bankruptcy trustees may collect 25% of the debtor’s earned but unpaid wages as of the date of filing. For example, if the debtor is paid $1000.00 bi-weekly and files in the middle of the pay period, the trustee would be entitled to 25% of one-half of the debtor’s pay check ($500.00) leaving the trustee with $125.00 (which is 25% of $500.00). In most cases this does not amount to much, therefore, the trustee may not open a bankruptcy estate unless there are other significant assets to liquidate (tax refunds, bank account balances, payments to insiders). Just because a trustee can cause the debtor to turn over assets does not mean he/she will. Most trustees do not open a bankruptcy estate unless there is at least $1000.00 to $1500.00 worth of assets subject to turnover.
Assuming the debtor’s bank account balance was funded solely from wages, the trustee may cause the debtor to turn-over 25% of the debtor’s account balance as of the date of filing. For example, if the debtor had $100.00 in the bank on the date of filing, the trustee may collect $25.00 of the balance.
A trustee may take a portion of the debtor’s pending tax refund (even if the debtor has not filed taxes yet). It is therefore advisable that debtors do not overpay their taxes during the year. If you are getting a tax refund at the end of the year, you are overpaying your taxes. You should lower your deductions and attempt to break even at the end of the year. A trustee may not cause the debtor to turn over the portion of their tax refund attributable to child tax credit or earned income credit. These are exempt.
In some cases a debtor will have paid back debts owing to friends or family prior to filing for chapter 7 bankruptcy. Debtors are advised against doing this. The trustee may collect the funds from the debtor’s friends or family members depending on the amount they received. If the debtor paid an insider more than $600.00 in the last year, the trustee may go after the insider to retrieve the funds for the bankruptcy estate. Debtors should only pay-off debts to insiders after filing bankruptcy, never before.
These include but are not limited to: boats, trailers, recreational vehicles, expensive sports equipment, second homes with substantial equity, primary residence with more than $75,000 of equity, second vehicles, primary vehicles worth more than $7500, guns, stocks, bonds, cds and other investments which are not part of a retirement account.
Let’s assume a debtor files in November of 2016. The trustee would be entitled to 11/12th of the debtor’s 2016 tax refund. November is the 11th month of the year out of 12 months which is where the figure 11/12th is derived. It is assumed the debtor funded 11/12ths of their pending tax refund. To avoid losing the tax refund, debtors are advised to reduce their withholdings so as to prevent any tax refund. Contact a tax professional for advice on your proper withholding. Why give the government a free loan? It is better to pay less in taxes and have more money during the month to cover expenses.
Filing for chapter 7 bankruptcy is different for everyone. Contact Consumer Law Pro today at (303) 297-7729 to set up your free initial consultation, and get your questions about chapter 7 bankruptcy answered within the context of your unique situation.