A Chapter 7 bankruptcy is the quickest bankruptcy available, enabling you to walk away from most debts. Most people are still able to file Chapter 7, even after bankruptcy “reform.” However, a stringent formula is now applied to your financial means to determine whether you qualify to file Chapter 7 bankruptcy. Your expenses are strictly scrutinized and compared to your income in order to determine how much you could afford to repay your creditors in a Chapter 13 bankruptcy. In the vast majority of cases, Chapter 13 is not necessary and you are still able to walk away from your debts through Chapter 7 bankruptcy.
- STOP WAGE GARNISHMENTS
- ELIMINATE MOST DEBTS ENTIRELY.
- REMOVE JUDICIAL LIENS FROM YOUR HOME IN MOST CASES.
- ELIMINATE MOST BACK TAXES OLDER THAN THREE YEARS.
- WIPE AWAY BUSINESS DEBTS.
- KEEP ALL YOUR PROPERTY IN MOST CASES,
Chapter 7 bankruptcy is referred to as a “liquidation” but this is misleading. Ordinarily, you lose no property because the usual property owned by most people is exempt.
When schedules are properly prepared and presented, and when the means test is calculated with care, your bankruptcy results in a smooth and painless process with no surprises. Generally, we can have your case ready to file within a week or sooner if you have an emergency such as garnishment or foreclosure. In emergency situations we can file your case the same day.
From the date your case is filed, your bankruptcy process will take a total of about 90 days to final discharge. A bankruptcy discharge is the court order forgiving your debts. Even though the discharge doesn’t come for about 90 days, you receive immediate protection from your creditors as soon as your case is filed. Garnishments and foreclosures stop.
About 30 days after your Chapter 7 bankruptcy case is filed, the bankruptcy trustee assigned to your case will conduct a “Section 341” meeting of creditors. This refers to 11 U.S.C. 341 which is the section of the bankruptcy code that requires a meeting of creditors. 95 percent of the time, no creditors show up. The hearing simply involves you, your attorney, and the bankruptcy trustee. It normally takes less then 10 minutes in most cases. This is the only appearance you’ll be required to make in most cases.
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Elements of Chapter 7 Bankruptcy, How a Bankruptcy Case is Prepared and Filed
The Voluntary Petition in Bankruptcy: The bankruptcy process starts with the filing of a Voluntary Petition in Bankruptcy. This three page document tells the court whether you are filing bankruptcy under Chapter 7 or under another chapter of the bankruptcy code. It also provides statistical information such as the number of creditors included, the dollar amount of your debts and assets, whether you have filed bankruptcy before in the last eight years, and whether or not there are expected to be any assets available for distribution to your creditors.
Involuntary Petitions: If you were wondering why your bankruptcy petition is called a “Voluntary” Petition, that is because people can, in fact, be forced into bankruptcy involuntarily by one or more creditors filing an Involuntary Petition against you. This is a very rare occurrence. It could happen, most commonly, where a debtor has assets but refuses to pay his or her creditors. A involuntary petition enables a court-appointed trustee to take control of the debtor’s assets and liquidate them against his will for payment to creditors. Again, this is a rare occurrence.
In addition to your Voluntary Petition in Bankruptcy we prepare supporting schedules and file them with the court. Those schedules include:
Schedule A: Real Property. This is a listing of all real property you own. Real property in general means real estate (land, not mobile homes) but it also includes timeshares.
Schedule B: Personal Property: This is a listing of all personal property you own. Personal property includes everything you own, regardless of value or lack of value. All property, including household goods, books and art, season tickets, or any other property of any kind must be listed. If you hold membership interests in an LLC, stock in a corporation, or any other kind of asset, it must be listed. Failure to list an asset can create problems later that cannot be fixed once your bankruptcy is filed. Most oeople are not aware that once a Chapter 7 bankruptcy is filed, it cannot be “unfiled.” Your attorney must not only be informed of all property up front, but must also have the experience to determine how best to protect your property and determine the timing of your case filing. For instance, many people using low-price document preparation services find the lack of legal guidance ended up costing them hundreds or thousands of dollars more than hiring an attorney would have cost in the first place.
Schedule C: Exemptions. On this schedule, your Denver bankruptcy attorney determines which state and federal statutes may be used to prevent the bankruptcy trustee administering your case from taking away your property. It isn’t a simple process. Some exemption statutes don’t exactly mean what they appear to say. Some exemption statutes are hidden in the federal or state code. And just because you live in Colorado, that doesn’t necessarily mean you get to claim Colorado exemptions if you have lived anywhere else in the last three years. Claiming the wrong state’s exemptions can be catostrophic, depending on which state’s exemptions should have applied.
Schedule D: Secured Debts. This listing tells the court what debts you have which are secured (collateralized) by property you listed on Schedules A or B.
Schedule E: Priority Debts: Certain creditors receive preferences over other creditors. Those creditors are listed here. In general federal and state tax debts or domestic support obligations like child support and alimony are listed here. Even if you intend to keep your house or car, you must list the creditors for those items here.
Schedule F: Unsecured Creditors: All other creditors of any kind, including family members, must be listed here.
Schedule G: Co-Debtors: If anyone is jointly responsible with you for any debts listed in Schedules D, E, or F, then that person must be listed here.
Schedule H: Executory Contracts. Loosely speaking, an exectutory contract is a lease. Automobile leases, apartment leases, or any other similarcontractual obligation would be listed here.
Schedules I and J: This is a statement of your real world income and expenses, detailed on a monthly basis, as of the date your petition is filed. This is not to be confused with Form B22 (discussed below) which is your means test and is a fictional mathematical formula that may or may not be based on reality.
Statement of Financial Affairs: This document is particularly important. First, it must cross-check properly against your other bankruptcy schedules to avoid unwarranted (and unwanted) scruitiny. Second, a complete detail of any property sales or transfers must be disclosed so that the impact of filing bankruptcy can be fully evaluated by your attorney. Third, detailed listings of your prior address and business activities are necessary to make sure your attorney claims the proper exemptions for your belongings and can otherwise protect your business assets if any.
Form B22: Means Test. This the document that probably stirred the most controvery in 2005 when Congress pass the “kick ’em when they’re down” bankruptcy reform law in order to satisfy the big banks that were lining the pockets of the Senators and Congressmen with “campaign contributions.” In this document, you must look back at your last six months of income (regardless of current income), determine the average, deduct what the goverment thinks it should cost you to live (regardless of what it actually costs) and then determine how much money you can afford to pay your creditors. The trips and traps are numerous. By not properly completing this form and claiming all of what you are entitled to claim, you could end up in a Chapter 13 repayment plan writing a high monthly check to a bankruptcy trustee. And the U.S. Supreme Court is setting up more obstacles to overcoming the means test, this occurring most recently in January 2011 with the Lanning decision.
After your case is filed: About 30 days later, you will attend a meeting of creditors (also called a 341 hearing). A bankruptcy trustee, appointed to adminster your case, will question you about your assets and debts. Certain documents must be produced to the trustee long before the bankruptcy hearing (10 days after bankruptcy filing for your tax return) otherwise your case is dismissed.
About 60 days after your 341 meeting of creditors, the court mails a Notice of Discharge to you. This discharge does not close your case but it is the order that declares your debts null and void. It is revokable if you fail or refuse to comply with any requirements set forth by the trustee at your bankruptcy hearing. The 60 day window before discharge is available for creditor objections to discharge. These are not common when your case is properly prepared and filed by an experienced attorney; most such potential problems can be spotted by your attorney before the case is filed.