Chapter 7

A filing under chapter 7 is called a liquidation, which is the most common type of bankruptcy proceeding. Chapter 7 bankruptcy lasts approximately four months from the time it is filed in court until the discharge order is entered. Chapter 7 bankruptcy discharges (“cancels”or “wipes out”) most debts completely.

Some debts, however, cannot be discharged, such as certain taxes, most student loans (except under an undue hardship), child support, maintenance/alimony, court-ordered fines, penalties and restitution, debts incurred through fraudulent conduct, debts incurred by causing intentional injuries, debts incurred from injuries caused by driving while intoxicated and debts that were incurred after the filing of the bankruptcy.

Immediately upon filing a chapter 7 bankruptcy, the “automatic stay” stops creditors’ collection activities, including lawsuits, garnishments, foreclosures, phone calls, letters, etc.

You will only be required to appear one time in front of the chapter 7 trustee at the § 341 meeting of creditors, unless there are some serious problems with your case. This will be a 5 to 10 minute hearing where you will be required to testify under oath. I’m there with you and we will have prepared for this hearing.

Creditors have 60 days from that hearing to file any objections to your case and you have the same 60 days to add any omitted creditors. The discharge will come shortly thereafter and the case is over.

A secured debt is a debt for which some type of property (home, car, furniture, jewelry, etc.) has been pledged to be given to the lender in the event that the loan is in default or is not being paid. This property is called collateral. In a chapter 7 bankruptcy it is not possible to force the lender to modify a secured debt (however, it can be done in a chapter 13). In other words, a debtor in Chapter 7 must generally pay the secured lender pursuant to the terms of the original contract or return the collateral.

The main requirement to qualify for chapter 7 is that the total household income for the debtor(s) cannot exceed the total reasonable and necessary living expenses for that household. If the income exceeds expenses for that household, the debtors do not qualify for a chapter 7 and must file a chapter 13 (or chapter 11) if they want bankruptcy relief.

Once a chapter 7 liquidation is filed, a trustee is appointed who then collects the “non-exempt” property of the debtor, sells it and distributes the proceeds to the creditors. Generally, the trustee will allow the debtor(s) to pay cash for the non-exempt property that the debtor(s) wants to keep. Each debtor is entitled to certain exemptions (another word for protections of property that can be retained while filing for bankruptcy), which vary from state to state. These exemptions have limits and are determined by the amount of “equity” in specific property. Equity is defined as the value of certain property minus the amount owed on that property (a house valued at $125,000 which has a $100,000 loan on it has $25,000 in equity). The following are some of the exemptions on equity in property that are provided under Colorado law to debtor(s) in chapter 7 & 13 bankruptcy:

* Real estate (only if you live there) – $75,000

* Automobile – $7,600

* Household goods – $3,000

* Clothing – $2,000

* Books, CDs, DVDs, etc. – $2,000

* Tools of your trade – $30,000

* Jewelry – $2,000

* Retirement plans (401K, IRA, etc) – $ unlimited

* Wages owed to debtor at filing – 75%

The amount of the above exemptions are doubled when a married couple files bankruptcy together — except for the $75,000 real estate exemption.

Once a person is discharged under a chapter 7, they cannot file another Chapter 7 bankruptcy for eight years (they can, however, file a chapter 13 after waiting 4 years, or in an emergency can file a chapter 13 with no discharge within the 4 years).

Erik B. Atzbach has the experience and knowledge to offer clients superior bankruptcy representation. He knows how to apply the recently changed bankruptcy laws to your case in the most advantageous way possible.