Filing a Chapter 7 Bankruptcy – Basics
Filing Chapter 7 bankruptcy can provide you with a faster way to get through bankruptcy and get your debts discharged. In Chapter 7, also known as liquidation, the trustee may sell unexempt assets to pay your debts. Chapter 7 bankruptcies typically take 6 months from the first time we meet with a client until the case is discharged and closed by the Court. Call Margaret Travis to find out if you have unexempt assets and if a Chapter 7 could work for you.
How Do I Qualify?
To qualify for a Chapter 7 bankruptcy, your household income must fall under a minimum limit for the size of your household. We arrive at this number by a calculation called the “means test.” The means test determines if you can file a Chapter 7 or must commit your disposable monthly income to a Chapter 13.
If you think a Chapter 7 bankruptcy may work for you, contact experienced bankruptcy attorney Margaret Travis to evaluate your income, debts, and assets. She will let you know what she recommends will work best for your situation.
What Types of Debt Can I Discharge in a Chapter 7?
The good news: You can discharge many types of debt in a Chapter 7 bankruptcy like medical debt, credit card debt, department store purchases, signature loans, gym membership contracts, cell phone bills, utility bills, bank overdraft charges, and payday loans. You can even discharge car loans and mortgages if you intend to surrender the property. Filing a Chapter 7 can let you quickly get these creditors off your back.
Are there Debts I Cannot Discharge in a Chapter 7?
The bad news: Unfortunately, you will not be able to discharge all your debt in a Chapter 7 bankruptcy. Debts you cannot discharge include some tax debts, most student loans, unpaid fines, Domestic Support Obligations, and some types of criminal damages, among others. Be sure to tell your attorney about all your debts and discuss with your attorney what you can expect to discharge and what you cannot.
Sorry, with very rare exceptions, you cannot discharge student debt in a Chapter 7. The Bankruptcy Code lists student loans as not dischargeable unless they “would impose an undue hardship on the debtor and the debtor’s dependents.” That sounds promising, but it is a very heavy burden to prove “undue hardship” and get your student loan debt discharged. (Download the U.S. Code: 11 U.S.C. § 523 as a PDF.) However, the law in this area is slowly changing.
You can discharge secured debt in a Chapter 7. However, an asset as collateral backs secured debt, for instance your car or your house. The lender may get to take the asset if the borrower does not repay the loan. If you have equity in the asset above the exempt amount (see below), the trustee uses the extra equity to pay off your unsecured debts. Talk to your bankruptcy attorney to know what to expect.
Can I Keep Any of My Assets?
Maybe. Oklahoma bankruptcy laws provide many “exemptions” which let you keep property where the value of the property is equal to or less than the amount of the exemption. Discuss what you own and what you owe with your bankruptcy attorney, and she will be able to help you understand what you may be able to keep and what you must sell.
What About My House?
If you live in your house, it may fall under Oklahoma’s Homestead Exemption. Again, ask your attorney if your house qualifies for the Homestead Exemption. Generally, if you can afford to pay for it, you will be allowed to keep your house.
What About My Car?
Again, maybe. This depends on many factors:
- The car’s value
- Whether you can afford your car payment
- If you have kept your car payments current
- Whether your vehicle qualifies for a special “tools of the trade” exemption
Provide your attorney with a copy of your car’s title, how much you owe, who holds the lien, and whether you have missed any payments. She will be able to give you a good idea of what you can expect with your car.
Filing a Chapter 7 Bankruptcy – What Happens?
Once you decide to file for bankruptcy and hire an attorney, and have paid the retainer up front, you will go through the following steps to discharge your debt:
- Credit Counseling: You start by taking a mandatory Credit Counseling course. The course will help make sure you really need to file a bankruptcy rather than working out a repayment plan.
- Bankruptcy Petition: Your attorney will prepare and file your Chapter 7 Bankruptcy Petition, Schedules and Statement of Financial Affairs.
- Automatic Stay: Once you file your Petition, an automatic stay stops most collection activities for the duration of your bankruptcy case.
- 341 Hearing (creditor’s meeting): You must attend a meeting with the Bankruptcy Trustee and your creditors in which the trustee asks you a series of questions about your debts and property. Many creditors chose not to attend but they are allowed to.
- Predischarge Debtor Education Course: You complete your Chapter 7 by taking a financial management instructional course to help you develop good money management skills and habits to ensure you don’t take on more debt than you can handle in the future.
- Chapter 7 Discharge: Once you complete all the above, your Chapter 7 Discharge wipes out most of your debt.
Your attorney will need ALL the documents and information listed on our “What to Provide” page before she meets with you. Start gathering documentation of all your debts and assets and bring it when you meet with Margaret Travis. You must provide accurate information to your attorney and to the bankruptcy trustee. It is a federal offense to fail to disclose all your assets or lie to the bankruptcy trustee.