Chapter 7 is a type of bankruptcy that offers individuals a fresh financial start by discharging many unsecured debts (such as credit card debt, medical debt, pay day loans, personal guarantees, and more). As a comparison, bankruptcies can also be filed under Chapters 11 and 13. Most people first see if they can qualify under Chapter 7 because it is more cost effective and quicker than the other types of bankruptcies. Debtors can obtain their discharge and start reestablishing their credit again after about 3-4 months.
David A. Arietta takes the time to review a client’s situation to ensure that the client properly qualifies for Chapter 7. The worst thing would be filing a Chapter 7 and having problems arise post-petition. Unlike a Chapter 13, one a Chapter 7 is filed, it cannot be voluntarily dismissed.
Qualification for a Chapter 7 bankruptcy depends on a review of assets and also a review of income. A prospective debtor should not have non-exempt assets. Income is analyzed based on a six month period pre-petition and the debtor’s expected income and expense going forward.
Chapter 7 is sometimes referred to as the “liquidation” bankruptcy because, in theory, your bankruptcy trustee can liquidate or sell off to raise cash any of your non-exempt assets (assets that are not protected by California’s exemption statutes). A trustee is appointed as soon as the case is filed. In the Oakland division of the Northern District of California there are usually about five panel trustees, any of which could be assigned randomly to your Chapter 7 case.
Most people who qualify for Chapter 7 bankruptcy have few or no non-exempt assets, so liquidation is highly unlikely with proper bankruptcy planning and analysis. Most Chapter 7 cases are determined to be “no-asset” cases. That means that the trustee has reviewed the filed petition, schedules and statement of financial affairs, has examined the debtor under oath and has made a decision that there are no assets available for distribution to creditors. The trustees are usually determining if there could be a distribution to general unsecured or priority creditors. If there are secured creditors like mortgage companies, car companies or lien creditors, the trustees will not liquidate assets just to pay those secured claims.
Chapter 7 is also available for corporations. Unlike individuals, corporations do not receive a discharge. The bankruptcy filing allows for an orderly liquidation of what is left of the corporation. Many corporations facing Chapter 7 have either closed operations or are very close to closing down. Once the case is filed, a bankruptcy trustee is immediately appointed. The business cannot continue to operate once the case is filed. The owner of the business must turn over the keys to the premises and his or her sole role from that point forward is to provide information and documentation to the trustee.