Chapter 7 Bankruptcy

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What kind of bankruptcy is appropriate depends on an individual's particular circumstances. This article will explain Chapter 7 Bankruptcy. In the next edition, I will discuss Chapter 13.

You contact an attorney to review your personal circumstances. If Chapter 7 Bankruptcy is right for you, then you, through your attorney, file a petition with the Bankruptcy Court. The petition in bankruptcy includes statements of everything you owe, everything you own, your income and your expenses and much more. Federal law provides that the moment you file the petition, there is an AUTOMATIC STAY OF ALL COLLECTION ACTIVITIES against you. Lawsuits, foreclosures, repossessions, wage garnishments, bank levies, and harassing telephone calls by your creditors must, as a matter of law, stop.

What happens next?

The theory of Chapter 7 Bankruptcy is that everything you own is turned over to the Trustee in Bankruptcy to be liquidated (sold) and the net proceeds be used to pay off your creditors. If there is not enough to pay your creditors, you do not have to pay anything else and, in the normal course, the Bankruptcy Court will issue an order discharging and relieving you from the payment of any balance due on the debt.

Does this mean I have to turn over everything I own to the Trustee if I file for bankruptcy?

No. For most people, what really happens in bankruptcy is that they have so many exemptions that they have to turn little or nothing over to the Trustee. Exemptions are assets that you are allowed to keep despite the fact that you have filed for bankruptcy.

The following is a list of many federal exemptions:

1. $15,000 (per person) of equity in your residence.

Example: You and your wife have a combined $30,000 exemption in your residence. If your home appraises at $150,000 with a balance due on the mortgage of $120,000, then your entire equity is protected by the $30,000 combined exemption. You keep the house, but you must pay the mortgage. (If you are behind on your mortgage, then you should consider filing a Chapter 13 bankruptcy.)

If you do not own your residence, then you can use $7,500 (per person) of the residence exemption on any asset you wish.

2. $2,400 (per person) of equity in a motor vehicle. This means that you can retain a vehicle with up to $2,400 equity and your wife can retain a vehicle with up to $2,400 equity.

Example: You have a 1992 car with a book value of $9,000 with a lien for $8,000, the $1,000 equity is exempt, but you will have to continue making your monthly payments if you want to keep the car.

Example: Your spouse leases a 1996 car at a monthly rental of $350 for 3 years. You do not own the car, but you will have to reaffirm (agree to pay) the charges due under the lease to keep the car, or in the alternative, surrender the car to the dealer.

3. $1,000 (per person) in jewelry.

4. $8,000 (per person) aggregate, with $400 per item limitations, of household furnishings, goods, clothings appliances, etc. Thus you and your spouse may retain $16,000 worth of household items when filing for bankruptcy.

5. $800 (per person) on any assets you wish.

6. $1,500 (per person) on tools of your trade.

7. $15,000 (per person) for payment on account of personal bodily injury.

There are many other exemptions not listed above.

In addition, under New Jersey law, monies put away for retirement, either in a 401K or in an employee pension plan are not included in the bankrupt estate and therefore are exempt.

Do I have to turn over my paycheck each week?

No.

Do I have to turn over my Social Security Check or retirement check each month?

No.

Do I have to turn over my monthly disability check?

No.

What kind of debts does a Chapter 7 bankruptcy discharge?

Many debts are discharged: credit cards, doctor bills, hospital bills, deficiencies on cars (the balance due on the auto loan after a repossessed car is sold), deficiencies on mortgages (the balance due on the mortgage after the real property is foreclosed and sold), and loans. Debts not included in this lists may be dischargeable.

Will a Chapter 7 Bankruptcy relieve me from the payment of all my debts?

Certain debts are not dischargeable in Chapter 7 Bankruptcy, such as taxes. Student loans are dischargeable only in limited circumstances. If you forget to list a debt in your bankruptcy petition, then the debt may not be discharged. Alimony, equitable distribution and child support are not discharged.

What if I want to pay somebody after the bankruptcy is over?

It is possible to reaffirm (agree to repay) any debt. This is usually reserved for debts which are liens on property, such as car loans. You can reaffirm a small credit card debt for the purpose of building credit in the future.

Do I have to go to Court?

No, but you and your attorney will have to attend a hearing held by the United States Trustee where you are questioned about your debts and your assets. It usually takes about 5 minutes.

What is a discharge?

It is the order of the Bankruptcy Court that you do not have to pay the debts listed by you in the bankruptcy petition. (However, remember you still have to pay debts that are liens on your property if you want to keep the property, taxes, interest and penalties and frequently, student loans.)

When will I get my discharge?

After a few months, you will receive a copy of your discharge from the Bankruptcy Court.