Chapter 7 Bankruptcy Filing
Filing bankruptcy under Chapter 7 is ideal not just for individuals but for partnerships, corporations, and other enterprises. However, before one should resort to filing a petition under this chapter it is important what the stakes are. Nobody goes to war without counting the costs it would entail. The same is true in Chapter 7 bankruptcy. One needs to understand that there are things that you cannot afford to lose.
Video: Understanding a Chapter 7 Bankruptcy Filing
Definition of Chapter 7 Bankruptcy
In contrast to Chapter 13 bankruptcy petition, Chapter 7 bankruptcy does not involve the proposal of a repayment schedule in order for you to settle partly or your entire debt. According to the United States Courts, Chapter 7 bankruptcy allows the bankruptcy case trustee to collect the debtor’s non-exempt assets and utilizes the proceeds thereof to pay the creditors as provided in the Bankruptcy Code. Possibly 
so, there are properties that the debtor has that are subjected to liens and mortgages which are pledged to other creditors. Nevertheless, the Bankruptcy Code allows the debtor to retain some of his exempt property while empowering the case trustee to handle and liquidate those that are non-exempt. Consequently, debtors should keep in mind that filing a petition for bankruptcy under Chapter 7 will lead to loss of some valuable assets.
Chapter 7 Bankruptcy Process and Expectations (Personal and Company)
If the applicant debtor’s current monthly income is above the state median, the law requires the use of the “means test” to ascertain whether the filing of bankruptcy under Chapter 7 is presumptively abused or not. By virtue of the Bankruptcy Code, Chapter 7 filing is presumed to be abusive if the applicant debtor’s aggregate current monthly income over five years, the net of some allowed expenses by law is more than (1) $10,950; or (2) 25% of the debtor’s non-priority unsecured debt, provided such amount is $6,575 at a minimum. The debtor may dispute the presumption by showing special circumstances that would justify the additional expenses of the current monthly income. Otherwise, such case shall be turned over as a Chapter 13 case—with the debtor’s consent—or the case will be dismissed. The Chapter 7 bankruptcy process is commenced by filing a petition with the bankruptcy court having jurisdiction where the debtor holds domicile or residence.
According to the United States Courts, the basic documents that a debtor applicant must prepare are:
(1) a schedule of assets and liabilities;
(2) a schedule of current income and expenses;
(3) a schedule of executor contracts and unexpired leases;
(4) a statement of financial affairs;
(5) a certificate of credit counseling and a copy of any debt repayment plan as a result of credit counseling;
(6) proof of payment received from employers within 60 days prior to filing bankruptcy, if any;
(7) a statement of monthly net income and ay anticipated increase in income or expenses after filing; and
(8) record of any interest incurred by the debtor in federal or state qualified education or tuition accounts.
The applicant debtor must provide the Chapter 7 case trustee with a copy of tax return or transcripts available for the most recent tax year. The tax returns filed as the bankruptcy case progresses must also be filed with the case trustee. If you have unfiled tax returns in previous years before the case commenced, copies of those should be given to the case trustee as well.
Eligibility
Any individual, corporation, partnership, or some business enterprise may file bankruptcy under Chapter 7. In connection to the means test mentioned earlier, relief is available to individual debtors, whether such debtor is solvent or not. If a debtor has, 180 days prior to filing the Chapter 7 bankruptcy, willfully failed to appear in a previous bankruptcy petition or comply with orders of such court and such petition or the petition was voluntarily dismissed as when the creditors sought such relief from the bankruptcy court to retrieve property upon which they have lien rights. Another disadvantage is this chapter cannot apply to those who have not resorted to credit counseling from an approved agency prior to application for bankruptcy.
Video: Chapter 7 Bankruptcy Explained
Advantage
One advantage of filing bankruptcy under Chapter 7 is the automatic restraint on creditors to pursue collection actions against debtors and their property. Such restraint is by virtue of law and does not require any court action. As long as the restraining order is in effect, creditors cannot institute collection proceedings against the debtor.
Disadvantages
One o
f the purposes of bankruptcy is to help the debtor settle their debts and allow such debtor the opportunity to start over with a clean slate. However, a discharge is a privilege only available to individuals and not to partnerships and corporations. Although it is common that a Chapter 7 case for an individual gives rise to discharge of debts, such case is not absolute since there are debts that cannot be discharged. One example of which is lien over the property.
Changes in Laws
While the family home can be made exempt wither under homestead or marital ownership, the debtor must be faithful in paying off the mortgage to keep the home. However, the new law provides that the maximum homestead exemption is only at $125,000 of such home was acquired 40 months prior to filing or if the debtor engaged in fraudulent acts.
Additional Information and Pertinent Forms
For more information on securing the required forms, you can go to the United States Courts’ web site and download these online. Such forms are not available from your court of jurisdiction. The alternative would be to purchase these at legal stationery stores.
Disclaimer
These forms are not for sale. Official forms are readily available for free by downloading them from the United States Courts’ web site.