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CHAPTER 7 BANKRUPTCY
What is Chapter 7?
Chapter 7 is the traditional straight liquidation Bankruptcy. You can get rid of all your debts that are “dischargeable,” like credit cards, medical bills and other unsecured debts. You get to keep whatever property is “exempt” according to State and Federal Law.
DISCHARGING DEBTS
The reason why most people file Chapter 7 is to take advantage of the Chapter 7 Discharge. Most unsecured debts are dischargeable, such as credit cards, medical bills, payday loans, personal loans, and other debts such as a deficiency following a foreclosure or repossessed vehicle. Some things, however, are "excepted" from or not subject to discharge, such as taxes that are fresher than 3 years old, spousal support and child support or domestic support obligations, students loans, intentional torts, and money or property obtained by fraud, i.e., knowing you can't pay it back. The discharge can be entered 60 days after first meeting of creditors. 99% of Chapter 7 filings are uncontested, and a creditor has to have specific reasons for objecting to your dishcharge which usually involves fraud. In order to dispute your bankruptcy, a creditor has to file a complaint objecting to the Discharge, an "Adversary Proceeding""in the Bankruptcy Court. Once the discharge is entered, your creditors are permanently barred from making any further attempts to collect on their debts and are prohibited from contacting you again! Thats the whole point of a Chapter 7 Bankruptcy.
Secured debts, such as car loans, mortgage loans, and some types of loans involving personal property, survive a bankruptcy filing. That means that you have to keep paying those debts even after you file, by entering into a "Reaffirmation Agreement" and agreeing to remain personally liable ono the debt.
THE CHAPTER 7 DISCHARGE:
The goal of a Chapter 7 is to receive a Discharge and get rid of all your debts, credit cards, medical bills, payday loans, personal loans, judgments, deficiencies following a repossession or foreclosure and any other unsecured debt. When the discharge is entered, your creditors are forever barred from contacting you or taking any further action to collect on any debt. They can't come back years later to see if you are then able to pay them. The credit reporting agencies are required to report your debts as discharged. There can be sanctions imposed against anyone who violates a discharge order, so you can finally live in peace after the Discharge is entered on the court's files.
EXEMPTIONS: How You Keep Your Stuff:
The goal in any bankruptcy, at least from the debtor’s perspective, is to get rid of as much debt and keep as much of your stuff as you can. When your Bankruptcy Case is filed, your property goes to a fictitious entity created called the "Bankruptcy Estate." To the extent your stuff is not exempt, the Bankruptcy Trustee's job is to liquidate it for the benefit of your creditors. Don't worry though. You keep your stuff by claiming it as "Exempt” when you file your bankruptcy petition. Exemptions are governed by both State and Federal Law, and it can be very tricky. Under California Law you can exempt all kinds of things such as:
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equity in your house ($50,000.00 if your single; $75,000.00 if you're married or head of a household; and $150,000.00 if your over 65 or on SSI)
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household goods and furnishings, like furniture, clothing, kitchen equipment;
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jewelery;
People who try and do their bankruptcies on their own can easily get in to trouble and you should consult a Bankruptcy lawyer and do your exemption planning before you file Bankruptcy. Otherwise, you could get yourself in trouble and have the Trustee grab it. Below is a table of some of the commonly used exemptions in California. There are many exemption in federal and State law.
>>>>> See Table of Exemptions
TAXES
As a general rule, taxes are not dischargeable. However, there are exceptions to the rule. If you have taxes that are three years older or older, and you have had your tax return on file for at least two years, income taxes may be dischargeable. Taxes like payroll tax, sales tax and other “trust fund” taxes are generally not dischargeable. However, if you have non-dischargeable taxes, an option for you may be to file Chapter 13, and spread the payments out over time.
UTILITIES
Utilities such as phone, electric and gas bills are subject to discharge in the Bankruptcy Court. Since utilities are monopolies, essential service providers like the phone company, P.G. & E and SMUD have to allow you to keep service, but they can require you to make a deposit. Practical experience has shown that despite the fact that you can discharge utilities, a lot of times it is easier to make arrangement to keep the bill paid so that service is not interrupted and you don't have to make arrangement to make a deposit. The deposit usually works out to what you would have paid if you had kept the service on. Cell phones are a different story. Because there are many providers, your carrier is not obligated to keep you. If you are happy with your current provider, pay them and then file. It will save you a lot of hassle.
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Law Offices of Paul R. Bartleson
1007 7th Street, Suite 202,
Sacramento, CA 95814
Ph. (916) 447-6640
E-mail Us
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