San Diego Bankruptcy: Chapter 7
When you think of bankruptcy, a Chapter 7 is probably what you think of. The term “Chapter 7” refers to Title 11 of the United States Code, Chapter 7 therein. This is federal law, made out of Washington D.C. and is applicable to all citizens of the United States and any foreigner with debt held by an American company. When someone says, “I filed a Chapter 7,” they are saying, in essence, “I filed a document in federal court utilizing the laws as written in Chapter 7 of the 11th book of American laws.” This section of law details the debt relief available to both people as well as businesses and spells out what must be done to obtain that debt relief.
For people, the debt relief available to them under Chapter 7 is a “discharge” of all unsecured debts, with some exceptions; and what must be done to obtain that relief is to file a petition with the court, take two instructional courses, pay a fee, and appear at a hearing. For businesses, it means the end of the road. Assets and inventory are sold and creditors are paid off with whatever cash is available.
Chapter 7 is known as a “liquidation.” This means that everything you own at the time of the filing becomes the property of the United States Trustee (an arm of the federal bankruptcy court) for the purpose of selling and paying your creditors off with the money acquired during that sale. Incidentally, if you are a married person filing individually, this includes the entirety of your community assets (thereby prejudicing your spouse until the case concludes). Worry not, however. Exemptions exist which allow the debtor to exclude from the trustee’s grasp various items. People very often exempt equity they have in their home (thereby preventing the trustee from selling the house), but you may even choose to exempt cash, provided it is not too much. Generally, the list of exemptions is so inclusive that most debtors retain everything they own and nothing is sold from underneath them.
The goal of the Chapter 7 filing is a discharge. A discharge is the prohibition applied to creditors from collecting on a certain debt. Effectively, this means that whatever debt is discharged, you need not pay it back, ever. And, in fact, creditors are subject to penalties for later trying to get you to pay it.
The paperwork that must be filed is called a “petition” and is generally between 40 and 60 pages long. It must include the certificate of your successful completion of the first instructional course. It lists your assets, your debts, your personal and financial history, your intent with respect to secured property, your monthly income and expenses, etc. It is quite long and detailed.
Along with the petition, you must pay the court what is loosely called the “filing fee.” This amount is currently $299. In actuality, the true filing fee is $245, but the court assesses an additional $39 administrative fee and a $15 trustee surcharge. If you have no assets which can be liquidated (i.e., you have exempted all that you own), then the fee paid to the local trustee (usually between $50 and $100) comes from this money, as well.
After the petition is filed and the filing fee paid, the court will schedule a hearing. This is called “the first meeting of creditors” or a “section 341(a) hearing.” It is an invitation to your creditors to question you under oath. For the most part, creditors never show; it would be a waste of their money to send someone to ask about a debt that is going to be discharged. The hearing is also an opportunity for the local trustee (an attorney from the community experienced in bankruptcy who is given the authority to oversee your case) to confirm your identity by examining a photo ID and to ask you questions to determine if you have any other items listed which you did not include in your paperwork. If the trustee can find such property, and if you cannot exempt it, they can sell it for the benefit of your creditors. The trustee is motivated to do this because they get a percentage of what they can find and sell.
After that, you need only take your financial management court and await a granting of the discharge. Once you receive notice of the discharge, your case concludes, and your fresh start begins.
For people, the debt relief available to them under Chapter 7 is a “discharge” of all unsecured debts, with some exceptions; and what must be done to obtain that relief is to file a petition with the court, take two instructional courses, pay a fee, and appear at a hearing. For businesses, it means the end of the road. Assets and inventory are sold and creditors are paid off with whatever cash is available.
Chapter 7 is known as a “liquidation.” This means that everything you own at the time of the filing becomes the property of the United States Trustee (an arm of the federal bankruptcy court) for the purpose of selling and paying your creditors off with the money acquired during that sale. Incidentally, if you are a married person filing individually, this includes the entirety of your community assets (thereby prejudicing your spouse until the case concludes). Worry not, however. Exemptions exist which allow the debtor to exclude from the trustee’s grasp various items. People very often exempt equity they have in their home (thereby preventing the trustee from selling the house), but you may even choose to exempt cash, provided it is not too much. Generally, the list of exemptions is so inclusive that most debtors retain everything they own and nothing is sold from underneath them.
The goal of the Chapter 7 filing is a discharge. A discharge is the prohibition applied to creditors from collecting on a certain debt. Effectively, this means that whatever debt is discharged, you need not pay it back, ever. And, in fact, creditors are subject to penalties for later trying to get you to pay it.
The paperwork that must be filed is called a “petition” and is generally between 40 and 60 pages long. It must include the certificate of your successful completion of the first instructional course. It lists your assets, your debts, your personal and financial history, your intent with respect to secured property, your monthly income and expenses, etc. It is quite long and detailed.
Along with the petition, you must pay the court what is loosely called the “filing fee.” This amount is currently $299. In actuality, the true filing fee is $245, but the court assesses an additional $39 administrative fee and a $15 trustee surcharge. If you have no assets which can be liquidated (i.e., you have exempted all that you own), then the fee paid to the local trustee (usually between $50 and $100) comes from this money, as well.
After the petition is filed and the filing fee paid, the court will schedule a hearing. This is called “the first meeting of creditors” or a “section 341(a) hearing.” It is an invitation to your creditors to question you under oath. For the most part, creditors never show; it would be a waste of their money to send someone to ask about a debt that is going to be discharged. The hearing is also an opportunity for the local trustee (an attorney from the community experienced in bankruptcy who is given the authority to oversee your case) to confirm your identity by examining a photo ID and to ask you questions to determine if you have any other items listed which you did not include in your paperwork. If the trustee can find such property, and if you cannot exempt it, they can sell it for the benefit of your creditors. The trustee is motivated to do this because they get a percentage of what they can find and sell.
After that, you need only take your financial management court and await a granting of the discharge. Once you receive notice of the discharge, your case concludes, and your fresh start begins.
