Chapter 7 is often referred to as a “straight” bankruptcy or a “liquidation” bankruptcy. Both individuals and corporations are eligible to file. One of the main purposes of Chapter 7 is to give people a fresh start and an opportunity to rebuild. Businesses normally use Chapter 7 to effect an orderly liquidation and to stop creditor harassment. Corporations do not get a discharge as compared to individuals. In general, businesses cannot operate post-petition in Chapter 7 whereas they can in Chapter 13.
Chapter 7 can eliminate unsecured debt, such as credit cards, medical bills, certain income taxes, and repossessions. If a debtor wants to keep secured property like a home or a car, but is behind on the payments, a Chapter 7 case may not be the right choice. A Chapter 7 bankruptcy postpones but does not eliminate the right of mortgage holders or car loan companies to foreclose or repossess your property. Certain other obligations like alimony, recent income taxes and student loans are non-dischargeable. Chapter 7 provides an “automatic stay” that puts an end to collection activities, including lawsuits, bank levies and garnishment of your wages. People like Chapter 7 because it cleans up their credit and is a relatively quick bankruptcy.
To determine eligibility, it is necessary to first review assets. It is important to understand that Chapter 7 could result in the sale of some of your property. However, for most debtors their assets are protected by certain California exemptions. What is exempt is a matter of California law. Second, it is necessary to review income as it is considered to determine if you have the ability to repay a portion of your debts. A calculation is based on a six month average income and then compared to forecasted monthly expenses. Note that most people who are at the point of having to file for bankruptcy relief do qualify.
Once a Chapter 7 case is filed, a bankruptcy trustee is appointed to review your case and has the power to sell non-exempt assets and use the proceeds to pay your creditors. In most cases there is nothing to sell as most property is either exempt or fully secured. Careful consideration is required if you have a recent divorce, own a business, have a recent sale of a business or real estate, have a pending lawsuit, or if you may inherit property.
The goal of a Chapter 7 bankruptcy is to obtain the discharge of your debt. The discharge is granted approximately three months after the bankruptcy filing. After the bankruptcy is complete and discharge is granted, creditors are permanently barred from taking any collection actions against a debtor.
Contact us at (925) 472-8000 for more information or if you have questions.
What is Chapter 7 Bankruptcy?
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 and more). 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). 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. Learn more.
Can a Business File for Chapter 7?
What is the Bankruptcy Automatic Stay?
The bankruptcy automatic stay is one of the first protections offered to those who file for bankruptcy. In most situations, the automatic stay takes effect as soon as the initial paperwork in a bankruptcy case has been filed. Once activated, it protects debtors from all forms of collection. Learn more.
What does the automatic stay stop?
Generally speaking, the automatic stay stops foreclosures, repossessions, lawsuits, wage garnishments, and tax levies. It does not stop criminal proceedings or legal actions against you for support (such as paternity testing or child support). Learn more.
How Long Does it Take to File Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a relatively quick process. While a Chapter 13 repayment plan can last several years, Chapter 7 debtors generally get a discharge in about four months from the date of filing. Learn more.
What is the Chapter 7 Means Test?
What are Exempt Assets?
What is 'secured' debt?
A “secured” debt is a debt where you have pledged property (pledged property is known as “collateral”) to ensure your payment of the debt. In other words, if you are unable to pay the debt, the lender can take the collateral and have the collateral sold to generate funds to pay the debt. Common examples of secured debt are your mortgage loan (secured by your house) and your car loan (secured by your car). Sometimes household goods (TV, appliances, etc.) can also be secured to pay the debt owed to the seller of the goods. The repossession and sale of the collateral does not necessarily result in payment in full of the debt. If the sale of the collateral does not result in full payment of the debt, the amount of the shortfall (known as the “deficiency”) will still be owed to the creditor, unless the deficiency is then discharged in bankruptcy. A Chapter 7 bankruptcy will discharge such deficiency claims. Learn more.