Chapter 7 – How To Qualify, Alternatives, and Discharge
According to the United States bankruptcy plans, the debtors can easily recover their bad debts following any of the four chapters. An enterprise, sole proprietor, or partners can opt for chapter 7 whereas the debtors who desire to discharge their debts under their own liability can choose either chapter 13. These chapters follow a payment plan and have certain restriction to apply.
Introduction to chapter 7 bankruptcy
The chapter 7 bankruptcy code states that the trustee of the debtor utilizes and sells the nonessential assets of the debtor in order to clear the payment of the creditor. This chapter opposes chapter 13 which involve the repayment of the funds at the scheduled time. The debtor’s assets and belongings include the small household items like furniture, refrigerator, television, and much more. The code of chapter 7 permits the debtor to keep and hold certain important assets like a house and other belongings. However, before filing the case, the debtor must be aware and consider the fact that they may lose their property to pay back their creditors.
Eligibility for filing chapter 7
To apply for the chapter 7 bankruptcy plan, a debtor must be an individual, sole proprietor, a partner, or belongs to other business entity. The new code clarifies that the debtor must accomplish all the necessary requirement of chapter 7 otherwise; the case is transformed to chapter 13 by the judge. The first qualification of eligibility criteria states that the Debtor’s income should not be more than the median income i.e., to qualify the chapter 7, one of the major requirement is a mean test which helps in identifying the income level of the debtor. The income of a debtor should be either equal to or less than the median income. If it exceeds the median income then the debtor is further asked to apply for the second mean test.
The eligibility source of income of a debtor is as follows:
- Wages, bonus, tip, salary, commission
- Income from profession or business
- Rent and royalties
- Interest, dividend
- Child support or spouse support income
- Unemployment benefits
- Employee’s compensation
- Pension or retirement income
- Annuity income
- State disability insurance
However, the income generated from social security benefits is not included in the eligibility of chapter 7 following the tax refunds.
Also, the debtor’s who earlier file for the chapter 7 and dismissed the same then he is not allowed to file another case for chapter 7 bankruptcy before the time limit of 8 years. Moreover, the debtor is not eligible to file the chapter 7 if he has defrauded his creditor.
How long does chapter 7 take?
Though the average period of the chapter 7 bankruptcy discharge is 3-6 months from the date of filing case, debtors may experience a delay if their trustee demands the requirement of more documents. However, people involved in the lawsuits suffer from a long delay in getting the discharge. After the successful discharge, a debtor can rebuild the credit report or can apply for a new credit card.
Document needed for filing chapter 7
To file the chapter 7 bankruptcy, you need to prepare forms and submit it to your attorney. After the submission, your attorney will prepare another form including:
- Bankruptcy petition
- List regarding the number of creditors
- List of your monthly income and expenses
- List of assets and liabilities
- A statement regarding the financial affairs
- A statement prepared by either your attorney or the bankruptcy agency (You have to read and agree that you have read the letter) stating all the codes of the chapters and the payment of fine or imprisonment in case of fraud or dismissal of the case.
- Copy of two stubs
- A copy of your monthly income report
- Reports of your secured properties like car, home, and etc. (if you have) and your approval and agreement to give up for repaying your creditors
- The analysis of your mean test report
- A copy of your debt repayment plan prepared by the counseling agency
These forms have to be filed and submitted within 45 days of your petition. If you fail to do so then the courts have the authorities to dismiss your case.
Chapter 7 bankruptcy costs and timeline
The chapter 7 bankruptcy plan is discharged after a period of 4 to 6 months and you are only asked once to visit a court. Though total cost of filing the case start at $335 which is the cost to file the case with the bankruptcy trustee, additional fees like the attorneys fee, pulling copies of your credit reports and the cost of attending your debtor eduction course. There are also some additional fees that may be charges by the trustee, including the real estate fee, title search charges, and etc.
341 meeting of creditors
A meeting of creditors and trustee held for the discussion regarding the bankruptcy plan and payment. Though in most cases the creditors do not appear, the trustee asks several questions regarding the plan. Your 341 meeting usually take 30 mins or less, depending on your case.
Chapter 7 bankruptcy process
The chapter 7 bankruptcy procedure involves the filing of forms, few meeting with the creditors, and other essential requirements. The steps involved in the process of chapter 7 bankruptcy are:
- Get mandatory credit counseling: before the six months of filing the chapter 7 plans, you must get the credit counseling by an approved agency of United States. The court will only approve your case if you have received the proper counseling from an agency
- File your petition and other forms: you have to file several forms in order to get the benefits of the automatic stay. This form basically contains the information regarding your monthly income and expenditure, assets and liabilities, and much more. Your mean test reports are also sent to the court for your income analysis. Moreover, you are also required to submit the details of nonexempt assets which you are willing to give up.
- The trustee takes over the case: your job is finished after the completion of paperwork. The court hires a trustee for your case and he becomes responsible for collecting your nonessential assets and selling the same to repay your creditors. You are also required to provide a copy of tax return to the trustee.
- The meeting of creditors: the court gives you a date of a meeting of the creditors, trustee, and other people to whom you have to explain the repayment plan and bankruptcy forms. This meeting is often termed as 341 creditors meeting and is completed in a short period of time.
- Your eligibility is confirmed: after the meeting, the court examines and analyzes your eligibility and approves your case only after you pass the mean test. If the court denies and rejects your case then you are having another choice of filing for chapter 1 3 bankruptcy.
- Nonessential property is handled: after the approval, your nonexempt property is calculated for the selling purpose. Though you can argue to keep certain properties, you have to pay extra cash or utilize the exempt assets for the same.
- Completion of financial management course: before the closure of chapter 7, you are asked to learn the debtor’s education course and after that, you have to file the form 423 to get a discharge.
- Receiving the discharge: you will receive a successful discharge at the conclusion period of 3 to 6 month.
- Case closed: after few days of receiving the discharge, your case in the court will get closed and you will no more remain liable to creditors.
The automatic stay
When a debtor file the chapter 7 bankruptcy case, the court issue an order of relief that is often termed as an automatic stay. According to this order, the creditor cannot collect the property, asset, or funds from the debtor until the discharge of the case. It offers various securities to the debtor including the protection against the forfeiture of assets by the creditor, filing of liens, wage garnishment, and much more.
Chapter 7 Discharge
A discharge is generally released in after 60-90 days of the 341 creditors meeting. Though 99 percent people get the discharge easily, the case of some debtors extends due to the objection of the creditors. The debtors also have to pay the child support, tax debt, student loans, and the debt generated by a fraudulent source before getting a discharge. Once t the discharge is taken a debtor is no longer liable to pay the creditor.
Advantages of chapter 7 bankruptcy
The chapter 7 bankruptcy is filed by a large number of people as it benefits a debtor by clearing most of his debts. Some major benefits this plan offers are:
- The debtors receive a new start by paying off the creditors and discharging the case
- There is no limitation in terms of the amount of secured or unsecured debts. Whether the debts are less or high, the court approves it.
- The debtors are not required to follow a repayment plan given by the court.
- The chapter 7 process is very quick and takes only 4-6 months for discharge