Chapter 7 Bankruptcy What is a Chapter 7 bankruptcy? A Chapter 7 bankruptcy is a proceeding under federal law in which the debtor seeks relief from creditors.  The debtor must surrender his nonexempt property to a trustee who then converts the property to cash to repay the debtor’s creditors.  In exchange for the liquidated property the debtor receives a Chapter 7 discharge. Who can file a Chapter 7 bankruptcy? Anyone who qualifies and resides in, does business in, or has property in the United States is permitted to file a Chapter 7 bankruptcy case. The exception is a person who has intentionally dismissed a prior bankruptcy case within the last 180 days. To qualify for a Chapter 7 bankruptcy case a person must qualify for relief under the “means test”. What is the “means test”? The means test is a method of determining eligibility for filing Chapter 7. Post-2005, individuals who wish to file a Chapter 7 bankruptcy must demonstrate that they do not have the ability to repay a minimum threshold of their debt.  Whether or not debtors have the wherewithal to repay at least a portion of their debt is determined by whether their earnings exceed the income level set by the state in which they reside. If a debtor falls below the median income level based on their state and household size, the means test does not apply and they can probably qualify for Chapter 7 bankruptcy. What must be done before a Chapter 7 bankruptcy can be filed? A credit counseling class must be completed within 180 days of filing and a certificate of completion be filed with the court. The debtor will also work with his or her attorney to complete the necessary Chapter 7 petition and other paperwork to file with the court. What debts are not dischargeable in Chapter 7 bankruptcy? The following is a partial list of the most common types of debts not dischargeable in Chapter 7:

• Tax debts and debts assessed within three years of filing
•  Debts obtained by fraud for money, property, services or credit
•  Debts not listed on the debtor’s Chapter 7 forms
•  Debts for domestic support, including alimony, maintenance and/or support
• Most debts for student loans

  How does the filing Chapter 7 protect a person from credit collection, and other legal proceedings? The moment Chapter 7 is filed the “automatic stay” goes into effect, which acts as a type of restraining order against all collection proceedings pending against that person.  A creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable in damages to the person filing.  What effect does Chapter 7 have on a credit score? Chapter 7 bankruptcy can remain on your credit report for up to ten years and will reduce your credit score by over 200 points.  Will a person lose all of his or her property if he or she files a Chapter 7 case? Usually not; property that is exempt may not be taken by creditors unless it is encumbered by a valid mortgage or lien.  The filer is usually allowed to retain household goods and, in some cases, a vehicle and even the family home. Chapter 13 Bankruptcy What is a Chapter 13 bankruptcy? A Chapter 13 bankruptcy case is a proceeding under federal law in which the debtor seeks relief from creditors.  Chapter 13 allows a person to repay all or a portion of his debts under the supervision and protection of the bankruptcy court. Essentially Chapter 13 is a court-protected repayment plan.  No penalties and interest accrue during the plan. The debtor must make regular payments to the Chapter 13 trustee, who collects the money paid by the debtor and pays out to creditors in accordance with the Chapter 13 plan.  Once the Chapter 13 plan is completed, the debtor is released from liability for the remainder of his or her dischargeable debts.  A Chapter 13 plan runs for three-to-five years.  What is the difference between a Chapter 13 and a Chapter 7 bankruptcy? The main difference between a Chapter 7 and a Chapter 13 bankruptcy is that, in a Chapter 7 bankruptcy, the debtor’s nonexempt property is liquidated to pay as much as possible of the debt, while in Chapter 13 a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is possible under the debtor’s circumstances.  Typically, in a Chapter 7 case the debtor loses most of his nonexempt assets and receives a Chapter 7 discharge.  In a Chapter 13 case, the debtor usually retains any nonexempt property, but must pay back as much as the trustee deems feasible for the debtor to pay over 3-5 years. Chapter 7 cases take less time and are less expensive than Chapter 13 cases, but Chapter 13 cases allow a debtor who is above the median income or who has a large amount of nonexempt assets to keep their assets and receive the protection of bankruptcy. What is a Chapter 13 bankruptcy plan? A Chapter 13 bankruptcy plan is presented to the bankruptcy court by the debtor. The three-to-five-year plan states the amount of money or property the debtor will pay to the Chapter 13 trustee, the duration of the plan, the amount to be paid to each creditor and other pertinent matters. The debtor will begin making regular payments within 30 days of filing the Chapter 13 case.  Who is a Chapter 13 trustee? A Chapter 13 trustee is usually an attorney appointed by the United States Trustee to act as the trustee to the bankruptcy estate of every person who files bankruptcy. The trustees’ duties are to collect payment from the debtor, make payments to creditors, ensure that the plan is followed and administer the case until it is discharged. Would you like to talk with a knowledgeable and friendly bankruptcy rep from Client First Bankruptcy? Call us toll-free right now at 800-383-6004. We’re on your side!