The 2005 Bankruptcy Reform Act set criteria for the type of financial situations that applicants must meet in order to qualify for a Chapter 7 bankruptcy. Understanding if your situation qualifies for a Chapter 7 filing starts by calling me, your affordable Hartford Bankruptcy lawyer, for a free consultation. As an experienced attorney, I will evaluate your financial situation, review your assets as well as debts and assess whether you meet the criteria established under federal law to qualify you for a Chapter 7 Bankruptcy.
Chapter 7 is often known as the “clean slate” or “fresh start” bankruptcy meaning that your unsecured debt will usually be wiped away. Examples of unsecured debt include car loans and housing loans, medical bills, pay day loans, credit cards and other related debt. However, there are other types of debt that cannot be wiped away. I will go over those types of debt with you as well..
Chapter 7 Bankruptcy is the most common bankruptcy that is filed. Most individuals would love to have their debts just disappear and start anew. However, qualifying for a Chapter 7 Bankruptcy is not that straightforward. You must meet the criteria of a “means test.” I will be able to assess your situation to see if you qualify under the means test. In case you do not, you will possibly have to file for Chapter 13 bankruptcy. A Chapter 13 bankruptcy is typically a restructuring of your debt so you can establish a repayment plan. We do not handle Chapter 13 bankruptcies but I will be happy to refer you to an attorney who would be a good fit for your situation.
Details of Chapter 7 Bankruptcy
Understanding all facets of filing for bankruptcy is extremely important. It is imperative that you have a qualified attorney on your side. There have been cases when those who didn't understand the law or were represented by inexperienced lawyers lost their homes, vehicles and other major assets and still had to face their tremendous debt. Experienced help is the key.
Before you file for Chapter 7 bankruptcy or endeavor to undertake a task you do not fully understand, give me, your bankruptcy attorney, a call at my law office. My experience as an attorney will allow me to fully inform you of all your options and adequately represent your interests. I have handled hundreds of bankruptcy cases, gaining the experience needed to properly handle bankruptcies when an individual's financial future is at stake.
Relating to Businesses
Businesses can file for bankruptcy under Chapter 7 (Liquidation), Chapter 11 (Reorganization) or Chapter 13 (Reorganization for Sole Proprietors). When a business is in severe financial distress, it has the option of filing for bankruptcy. A business's creditors can force it to file for bankruptcy as well, but that is another topic for discussion. Filing for Chapter 7 means that the business must stop all operations unless the Chapter 7 Trustee authorizes it to continue. A Chapter 7 Trustee is appointed right away to examine the business's financial dealings. Typically, the Trustee will sell the assets of the business and distribute the proceeds to the creditors. Occasionally, the bankruptcy court will empower the trustee to run the business for a short period of time, but only if it will benefit the creditors. The basic job of the Trustee is to sell off as much as it can of the business's assets to create a way to pay the business's creditors as much as possible. Administrative and legal expenses are paid first, then the creditors.
Chapter 7 Bankruptcy does not mean that all employees of the business will lose their jobs. If in the extreme circumstance employees lose their jobs, the court allows for some type of wages to be paid during the bankruptcy process. The Bankruptcy Code has a hierarchy of how payments must be made and the Trustee must follow it. In the uppermost part of that order are claims for wages or pay, salaries and commissions.
A creditor who is fully secured by some sort of collateral is entitled to receive that collateral, and that secured creditor may not be harmed by bankruptcy. A creditor is fully secured when the collateral meets or exceeds the amount of the debt. Therefore, secured creditors are not allowed to receive proceeds from liquidation distributions. In general, all creditor claims are either secured or unsecured. An unsecured creditor is one that has no collateral covering the amount of the debt, or does not have enough collateral covering the amount of the debt owed.
Secured creditors will receive the collateral, whereas unsecured creditors must wait for liquidation. If the business doesn't have enough collateral to cover their secured debt, then whatever is left over will go to the unsecured debt column. All creditors will receive notice of the bankruptcy to give them the ability to file claims. The purpose of filing creditor claims is to see if there will be any money available to pay the debts owed to them once the bankruptcy is over. However, unsecured creditors are typically paid last under the order established in the Bankruptcy Code.
Under Chapter 7, if a business is dissolved, it will not receive a “discharge.” Individuals only receive Chapter 7 discharges. Once all assets of the business have been fully liquidated and dispersed, the case is closed. In theory, the debts of the business remain in effect until the statute of limitations on those debts expire. Stockholders do not have to be given notice of a Chapter 7 bankruptcy, but if all creditors are paid in full then the stockholders will be notified so they have a chance to file claims for anything that is left over.
Relating to Individuals
Individuals who live, own property or own a business in the United States may file for a Chapter 7 (liquidation) bankruptcy. Individuals cannot file for Chapter 7 bankruptcy if they have had a bankruptcy dismissed in the prior 6 months.
Under Chapter 7 bankruptcy, an individual is permitted to keep certain exempt possessions. Most liens, like property mortgages and car loans will remain. Depending on the state in which you file, the value of the property claimed under the exemption will vary. Other assets will be sold by the trustee to reimburse creditors. Most types of unsecured debt will be discharged by Chapter 7 bankruptcy, but not all. Some examples of debts that will remain after Chapter 7 bankruptcy are: income taxes less than 3 years old, student loans, child support, property taxes, as well as court-ordered fines and/or restitution owed by the debtor. Spousal support and property settlements through divorce are typically not covered by the bankruptcy.
A chapter 7 bankruptcy will remain on an individual's credit for ten (10) years from the date of filing. In general, this diminishes the availability of new credit and/or creates terms which are significantly less favorable. However, extreme debt has the same effect. One must weigh the benefit of removing certain debts from one's credit report compared to the bankruptcy showing up and affecting one's credit.
The trustee also has the power to deem a Chapter 7 bankruptcy as “abusive.” The trustee will look at whether the debtor has the ability to repay their debts in 5 years. This is significant because that individual would qualify for a Chapter 13 filing instead of liquidation. If this is the case, the Trustee may prevail in stopping the debtor from receiving a Chapter 7 discharge and the debtor will have to file under Chapter 13. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was instrumental in stopping abuse of Chapter 7 filings by imposing a means test for Chapter 7 cases.
Filing for Chapter 7 bankruptcy can be a complicated and stressful endeavor, but having the right representation can help you avoid making mistakes that can potentially harm your financial position. As your Connecticut Bankruptcy attorney I am here in this time of crisis to help bring you peace of mind and give you all the information you need to make an informed decision. Call me at (860)523-8783 for a free consultation and let me show you how I can help.