General Considerations– In Chapter 7, or liquidation bankruptcy, the debtor seeks to discharge or eliminate their debts. In a Chapter 7 bankruptcy most, if not all, of a debtor’s debts are discharged.

 

When a bankruptcy case is filed, a debtor has several responsibilities in addition to filing all of the debtor’s bankruptcy schedules in an accurate and complete manner.  The Debtor must attend all required hearings, and to cooperate with the bankruptcy trustee in administering the case. 

 

When the bankruptcy case has been completed, the debtor receives a discharge from the bankruptcy court which cancels, or discharges, most of the debts listed on the petition. The entire process takes approximately 3-4 months from filing until receipt of the Discharge Order in the case.

 

Eligibility to File Chapter 7:  Debtors cannot file for a Chapter 7 bankruptcy and receive a discharge of their debts if they have filed and completed a Chapter 7 bankruptcy within the preceding eight (8) years, or if a Chapter 13 proceeding in which a discharge was received, was filed within the preceding six (6) years.

 

Procedure in Chapter 7:  After a bankruptcy petition is filed, the clerk of the court schedules a “meeting of creditors” (§341 hearing).  The debtor and all creditors are notified of the meeting of creditors. The bankruptcy trustee who is appointed to administer the case conducts the hearing. The debtor is required to appear at the hearing and give testimony under oath about their financial affairs. The trustee reviews the petition and asks questions about the debtor’s assets and financial affairs. Creditors who attend the hearing are also allowed to ask the debtor questions.   A bankruptcy judge presides over each case throughout the bankruptcy proceeding. The judge makes rulings on disputed issues.  For example, the bankruptcy judge may be called on to determine whether a claim is secured or unsecured, and whether a creditor is entitled to repossess its collateral during the bankruptcy proceeding.

 

The Automatic Stay:  Filing for bankruptcy creates an “automatic stay” which immediately stops all creditors from trying to collect what you owe them. This automatic stay therefore protects your wages from garnishment, your bank account from attachment, and your vehicle, house or other property from repossession.

 

Exemptions:  In a bankruptcy, every debtor is permitted to exempt, or protect, their assets up to a certain dollar amount. Exemptions exist for many different types of property (for example: real estate used as a residence, household goods, automobiles, tools of the trade, tax refunds, claims against another, tax qualified retirement plans, etc.).  For most individuals, all of their property can be exempted. The bankruptcy trustee’s main duty is to gather all non-exempt property of the debtor, and sell that property to pay creditors.  Not only does the bankruptcy trustee have the power to take possession of non-exempt property, but the trustee may also in certain circumstances recover property and money paid or transferred by the debtor to creditors, relatives, or friends, before the debtor filed the bankruptcy petition.

 

Secured and Unsecured Creditors:  An unsecured creditor is one whose claim is not secured by any property.  An example would be an open account with a store, a bank card account, credit cards, personal loans, and medical bills.

 

A creditor is a secured creditor if the debtor has possession of property that was pledged as collateral.  For example, if a debtor purchased a vehicle, furniture, or a home through a monthly installment agreement, the item which is being purchased is security or collateral for the installments that are yet to be paid.  This security interest, or lien, which is held by the secured creditor usually remains intact throughout the bankruptcy proceeding, even though the debt is discharged.  Consequently, if the debtor wishes to retain any property in which a creditor has a lien, or security interest, the debtor must continue to pay for the item.  If the debtor does not wish to retain the item, then the debtor can eliminate, or discharge, the entire obligation for that item, but the creditor is permitted, after following certain procedures, to repossess the item, or in the case of a home, to foreclose on the home.  It is important to remember that if a debtor wishes to retain property such as a home, vehicle, or furniture, the debtor has the absolute right to do this so long as the debtor continues to make the payments in accordance with the contract for the purchase of these items.

 

In certain limited circumstances, the lien of a secured creditor may be avoided, or eliminated, in its entirety, thus allowing the debtor to retain the item without making payment for it.

 

Non-dischargeable Debts:  A bankruptcy under Chapter 7 will not discharge all debts. Examples of non-dischargeable debts include tax debts (particularly tax debt for the last three (3) years), student loans and educational benefits, child or spousal support obligations, traffic tickets, court fines and orders of restitution, debts incurred through fraud or misrepresentation, debts incurred through willful or malicious acts of the debtor which cause injury or property damage to another, and debts arising out of a DWI for death or personal injury.

 

Chapter 7: liquidation

Law Office of George Peter Rose

Over 25 Years Bankruptcy Experience

417 South “G” Street

Tacoma, WA 98405

Phone: (253) 572-1657

Fax: (253) 272-1472

While the information presented in this web site is accurate as of the date of publication, it should not be cited or relied upon as legal authority.  It should not be used as a substitute for reference to the United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court.  Finally, this web site should not substitute for the advice of competent legal counsel.  If you have further questions, please contact the Law Office of George Peter Rose at (253) 572-1657 or email us at prose@roselaw.comcastbiz.net.

We are a debt relief agency.  We help people file for bankruptcy relief under the Bankruptcy Code.