What is Chapter 7?     Who Can File?    What are the exemptions?    

What is Chapter 7 bankruptcy?  Chapter 7 is one of the two types of bankruptcy that is available to most individuals; the other is Chapter 13.  Chapter 7 is what is commonly referred to as a “liquidation” or “straight” bankruptcy.  In simple terms, a person who files Chapter 7 is saying that they can no longer afford their bills and they are asking from relief of them all subject to other provisions of the law.  In essence, when you file Chapter 7, you list your debts and your assets and it is assumed that you are requesting discharge of all of your debts.  On certain secured debts, like a home or vehicle, you have the option of surrendering the property and being forgiven of the debt or keeping the property and paying per the terms of the contract.  If you keep the property,  you may be required to enter into a reaffirmation agreement which states that the contract will continue as if you had never filed bankruptcy as to that debt.  Unsecured debts that are dischargeable will be discharged and you will no longer be required to make payments on them.

Who can file Chapter 7 bankruptcy?

The new bankruptcy laws put certain limitations on who may file Chapter 7 based upon household income.  There can be other restrictions on who may file for relief under Chapter 7, but Chapter-7 is far from dead as reported by many news agencies on the eve of the bankruptcy laws changing in 2005.  In our practice estimations, at least 85-90% of those individuals/couples who could have filed under Chapter 7 under the old law still can.  However, in some cases the calculations that are involved in what Congress calls the “means test” are so complicated that special software is required to determine whether someone is eligible to file for Chapter 7 or not.  Two general requirements for bankruptcy are that you must have received qualified “credit counseling” and have filed taxes, if you are required to, for the past four (4) years.

Chapter 7, unlike Chapter 13, is not a repayment Chapter.  Other than the fees and costs you pay to file the case, you do not make payments to a Trustee as you do in Chapter 13.  In Chapter 7, you pay the fees and costs set forth by your attorney and then you will only be making payments on secured debt that you are keeping and your living expenses thereafter.  One of the primary advantages of Chapter 7 is that the entire case is usually completed within six (6) months of filing.  There can be other advantages, but they are case specific and that information can be given to you during your free initial consultation.  If you are several or more payments behind on a car or home that you wish to keep, it is generally not advisable to file a Chapter 7 generally as it does not enable you to catch the payments up over time as a Chapter 13 does.

In either Chapter 7 or Chapter 13 a “Trustee” is appointed to oversee your case.  In Chapter 7 the function of a Chapter 7 is to insure that you have met basic filing requirements, that your bankruptcy documents are truthful and accurate and, if there is property that is not protected by law, to sell property to pay unsecured creditors.  In my estimation, in over 85-90% of the Chapter 7 cases we file there is no property that is not protected by law.  The Federal law gives rather generous “exemptions” in many different kinds of property.  An exemption is created by the law saying that there is a certain amount of value in property that you are allowed to retain.  For instance, currently the Federal Exemptions allow you to protect up to $22,975.00 in home equity ($45,950.00 for married couples).  This means that if you have a $90,000.00 home with $62,000.00 owed, you can protect the full $28,000.00 in equity if married, but if you were an individual, you would have $5,025.00 that is not protected which the Trustee could access for sale.  There are many other exemptions for household goods, clothing, tools, vehicles, retirement accounts and more.  Please remember as I said before, most people do not exceed the exemption levels and you will need to speak with a qualified attorney for complete advice on the subject.  It is our job to help you arrive at fair values from property and to determine to what extent the law allows you to protect the property.

Of course, the information contained on this website is merely general information and the facts and circumstances of your individual case may vary and to receive proper legal advice. For specific personal Arkansas bankruptcy law information you will need to contact our office to arrange a free consultation.  You can reach us at 501.753.7400 or by email via the “Email for help” link to the left.

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