Chapter 7 Frequently Asked Questions
What is a Chapter 7 Bankruptcy?
A chapter 7 bankruptcy is the most common form of bankruptcy filed by consumer debtors. This chapter does not require filers (debtors) to repay their debts unlike a chapter 13 which is a repayment plan. The debtor will receive a discharge (forgiveness) of eligible debts in about three months from the date of filing. Chapter 7 is most the cost-effective way to obtain a fresh start, however, not everyone will qualify. Chapter 7 is a liquidation of non-exempt property. This law office strives to ensure our clients forfeit very little to no assets in their bankruptcy. In most cases, our clients end up with no- asset cases. In other cases, the client turns over a limited amount of assets such as a portion of their next years tax return. We will explain which assets if any you may lose.
What Does a Chapter 7 Discharge Do?
A chapter 7 discharge is a federal court order that legally prevents creditors from attempting to collect against the debtor’s discharged debts. All of the debts listed in the bankruptcy are automatically included in the discharge order so long as they are eligible for discharge. An attorney will explain which debts, if any, are not dischargeable such as student loans and certain tax debts. Most debts are eligible to be discharged including but not limited to medical debts, credit cards, personal loans, payday loans, rental related, auto loan deficiency balances and many more.
How do I obtain a Chapter 7 Discharge?
First you must be eligible to file a chapter 7. Certain income requirements apply depending on your household size and location. You may not qualify if you filed bankruptcy in the past. Once qualification has been established, the debtor must file a bankruptcy petition, schedules and other related documents with the bankruptcy court. The debtor must take a credit counseling course and attend a meeting of creditors as well as comply with any instructions from the chapter 7 trustee assigned to the case
What is the bankruptcy means test?
In short, the means test is a form filed in every case which determines whether the debtor’s income exceeds a certain threshold for their household size and location. If the debtor’s income is higher than the median income, they may still qualify depending on the amount of their disposable income as determined by the form. The expenses used on the form to determine disposable income are not the debtor’s actual expenses but rather are taken from the IRS local standards. The only expenses which are based on the debtor’s actual expenses are for secured debt payments, child support, health care, and most payroll deductions.
It is advisable that you hire a Denver Colorado bankruptcy attorney for this process. The means test is not a straightforward form to complete. Most pro se debtors learn this only after their case is filed and dismissed. The form has many limitations which are not immediately discernible from the form itself. Since the form was first implemented, the expenses which may be deducted on the form have been limited by judicial decisions. Only by staying up to date with current case law is an attorney able to properly complete the form. Do not rely on online means test forms. These online forms allow a debtor to deduct all of their actual expenses. You cannot substitute the advice of counsel to complete the chapter 7 means test form.
Your attorney will immediately advise you whether you are eligible under the form 22(a) Means Test and provide counsel on how to proceed. It is not advisable for a debtor to proceed with a chapter 7 bankruptcy once their attorney has determined a presumption of abuse will arise in the case. There are certain exceptions to this for debtors who income from the last 6 months does not reflect their current situation. The form is based on the last 6 months of income and therefore the U.S. Trustee’s office may allow the case to proceed so long as the debtor provides substantial documentation to support their current situation.
If a presumption of abuse arises, your attorney should advise you of this before the case is filed. It is generally not advisable to proceed with a chapter 7 unless certain exceptions which your bankruptcy attorney can explain are applicable to your case. If you decide to proceed with such a case, the U.S. Trustee’s office will file a presumption of abuse. You will not receive a discharge unless you successfully convince the trustee that you merit an exception with is very rarely granted.
Are there other factors that would prevent a discharge?
Aside from the income requirements under the means test, you may not be eligible to maintain a chapter 7 case if:
- You filed a chapter 7 in the last 8 years and received a discharge or you filed a chapter 13 in the last 6 years (with certain exceptions).
- You defraud your creditors in your chapter 7 case by concealing or transferring valuable non-exempt assets.
- You made false claims regarding your financial condition in order to obtain credit and the creditor objects.
- You falsify or conceal financial records and/or business agreements.
- You mislead the chapter trustee appointed to your bankruptcy case regarding your financial situation and/or withhold information form the trustee.
- You fail to explain a significant loss of property. For example if you liquidate significant non-exempt assets before you file bankruptcy and fail to explain what you did with the proceeds.
- You fail to attend the meeting of creditor or fail to answer questions during the meeting.
- You fail to take a course in personal financial management within 45 days of the meeting of creditors.
- You were convicted of bankruptcy fraud in the past.
- This is not a comprehensive list. Other exemptions to eligibility may apply. Seek legal counsel with any questions.
Which debts are not discharged?
All of your debts except the following are eligible for a chapter 7 discharge:
- Debts owing to a governmental unit are not dischargeable this includes parking tickets and speeding tickets.
- Most of your recent tax debts are not discharged. Some tax debts are eligible for discharge. To be eligible, at the very least the tax return from which the tax debt is owing must have been due at least 3 years ago. For example, if you have a tax debt from 2009 the earliest you may discharge that debt is April 15, 2013. In some cases you may have to wait longer than three years from the date the tax return was due. You should seek legal advice from an experienced Denver Colorado bankruptcy attorney if you have significant tax debts.
- Debts which were obtained by false pretenses or fraud and the creditor objects to the discharge.
- Debts which you omit from your bankruptcy schedules, unless the creditor knew of the bankruptcy case in time to file a claim.
- Most of your divorce-related debts, including property settlement debts, alimony, and child support are not dischargeable.
- Debts which resulted from intentional or malicious injury to another person or property and the creditor files a complaint with the bankruptcy court.
- Education loans are very difficult to discharge and most debtors will not qualify for the rare exception given to those individuals who can prove undue hardship.
- If you injured someone or their property while driving under the influence any of your resulting debts from the accident are not dischargeable.
- This is not a comprehensive list. Other exceptions may apply.
Where should I file if I recently moved.
The bankruptcy court of the state you have lived for the greater of the last 180 days has jurisdiction of your case. For example, if you have lived in Colorado for 91 days out of the last 180 days, you would file in the U.S. Bankruptcy Court for the State of Colorado. Otherwise you must wait until the 91 days have passed or if you cannot wait, you must file in your former state of residence.
Can I File Bankruptcy Without my Spouse?
Yes. You are not responsible for your spouse’s debts which he/she incurred before or after you were married. If one spouse has maintained a low debt to income ratio, that spouse should not file bankruptcy. Just keep in mind that the non-filing spouse’s income may still count against your eligibility to qualify for a chapter 7.
There are also good reasons to file bankruptcy with your spouse assuming you are both struggling with debt. The reasons include: saving money on legal and filing fees, attending one meeting of creditors, dealing with the same attorney and filing just one petition. There may also be reasons why a husband and wife may want to file separately. Seek counsel.
Are there reasons to delay filing?
There may be reasons to delay.
If you have ongoing medical expenses from an injury or illness, you should wait until all anticipated costs have been billed.
If you anticipate receiving an inheritance in the near future, you should seek legal counsel on how to proceed.
If you are waiting on a tax refund or you have a significant amount of money coming your way, you will need to turn-over that money to the trustee unless you spent it before you filed. Always seek the advice of counsel when it comes to disposing of assets or spending large quantities of money before filing bankruptcy. This type of conduct could have implications on your Denver bankruptcy case.
When is it advisable to file bankruptcy right away?
There may be reasons to delay. One of the most obvious is to save a home from foreclosure with a pending sale date.
If a creditor has a judgment against you the next step is a wage garnishment and/or bank account garnishment. Many individuals wait until the garnishment goes into effect to seek bankruptcy protection. By then it may be too late because the garnishment takes income that could have funded the bankruptcy legal costs.
Do Judgments go away when I File Bankruptcy?
Filing bankruptcy prevents creditors who have received a judgment from collecting on the judgment. Filing bankruptcy does not make the judgment disappear from your public records. The fact that a creditor received a judgment against you will remain on your credit. If you own a home and have a judgment on your record, you should seek legal counsel regarding removing the judgment lien against your home after filing bankruptcy.
How will filing bankruptcy affect my credit?
If you have good credit, your credit score will drop substantially. However, if you already have bad credit, it will go up shortly after filing. Filing bankruptcy reduces your debt to income ratio so your credit score will eventually go up depending on how you manage it after filing. The effect of filing bankruptcy on your credit score will last for approximately 2 years. It is not unreasonable to anticipate a credit score in the high 600s after 2 years of getting a bankruptcy discharge. The credit score is just one of many factors a creditor will weigh in lending credit. Some creditors may not grant credit for several years after the bankruptcy discharge even though the individual may have a good credit score.
Will my friends, family or employer find out?
It is not likely, unless they search your public records on PACER which most people will not have reason to do.
It is rare for a trustee to contact your employer unless there is a reason to do so.
Will potential employers discriminate against me for filing bankruptcy?
It is unlawful for an employer and government agencies to make any eligibility determinations based on the fact that you filed bankruptcy.
Can I expect to lose property in a chapter 7?
It is rare for a person to turn over significant property in a chapter 7 because in such cases it is usually better to file a chapter 13 which is not a liquidation. Most individuals who file bankruptcy have nothing left except their exempted assets. Your attorney will go over your asset schedules and advise you on what to except.
Which property can I keep?
You will keep the vast majority of your property is most cases. Property which is exempted from levy by State law is also protected in a chapter 7 bankruptcy. Therefore, the laws of your State (not bankruptcy law) determines which property is exempted. In Colorado your belongings are protected up to a certain value. Some property is not entitled to any protection such as: recreational vehicles and expensive sport’s equipment, fire arms, stocks, bonds, cds. If you have significant valuable assets (expensive art for example) you may not want to file bankruptcy. Bankruptcy is intended as a last resort. See Colorado Revised Statute section 13-54-102 for a complete list of exempt property in Colorado.
Is there a court meeting?
You do not have to appear before a judge except in very rare cases. You will be warned well in advance of that. In a chapter 7 case, the only appearance you can expect to appear for is the 341(a) meeting of creditors. It is rare for creditors to appear for these meetings. The trustee assigned to your case will conduct the meeting. This person is not a judge. The trustee is a private individual (similar to a private contractor) to the U.S. Trustee’s office. The trustee is paid a fee to administer your case and ask questions during the meeting. The trustee collects a percentage of any assets received.