Bankruptcy laws provide individuals seeking debt relief two main avenues to that relief: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, often called liquidation or straight bankruptcy, is the most common form. In Chapter 7 debts like credit cards, medical bills, and utility bills can usually be completely discharged or wiped out. Bankruptcy courts may use some property to repay creditors; however, bankruptcy laws allow individuals to keep many of their most valuable assets.
Qualifying for Chapter 7 Bankruptcy: The Means Test
Your Minneapolis Chapter 7 bankruptcy lawyer will assist you in assessing your qualification for Chapter 7. Your family’s household income is the basis for qualification for Chapter 7. To be eligible, your household income from all sources is subject to a “means test.” The “means test” compares your household income to the state median income for families the same size as yours. If your household income is lower than the median state income, you automatically pass the means test and qualify for Chapter 7.
If your household income is over the state median income, you may still qualify for Chapter 7, but further calculations are necessary. These reduce your income by certain expenses the court allows for housing, childcare, and other pre-determined categories. After this second analysis, if your income is still too high to qualify, you may be able to file for bankruptcy under Chapter 13, which will require you to fund a Chapter 13 repayment plan.
Filing the Chapter 7 Petition
You will meet with your attorney and go over details regarding your assets, debts, and recent financial transactions. Once this review is complete, your attorney will prepare and review with you the Petition. The Petition lists information about you, your debts (both secured and unsecured), real and personal property, and other important information. You must list all your debts and all your assets. This packet, upon your consent, will be filed with the bankruptcy court.
The Automatic Stay
The moment the court files your Petition, the “automatic stay” becomes effective. This stops (stays) most collection actions against you or your property during the pendency of your case. There are exceptions for certain types of debts.
The Bankruptcy Estate and Exemptions: What property can you keep?
The filing of your Petition creates a bankruptcy “estate.” The estate includes all your property listed in your Petition. However, there are exemptions that allow you to keep certain types of property up to certain values (that vary by state). In fact, claiming all your property as exempt will render your bankruptcy estate essentially worthless.
If you have property that exceeds the value allowed for exemptions, then the estate technically becomes the temporary legal owner of this property. The bankruptcy trustee oversees the estate property and has the ultimate say in how to handle the property.
There are exemptions, within certain limits, for your homestead, a vehicle, retirement accounts, jewelry, household goods, tools used in your trade, and other personal property, including bank accounts. Your bankruptcy attorney can help you better understand what you may be able to protect (exempt) in your bankruptcy.
Chapter 7 Trustee and Meeting of Creditors
After the bankruptcy court files your petition, it will send a notice to all your creditors, other interested parties, and you, the debtor. This notice will identify the trustee assigned to your case and the date of the meeting of creditors (also called the 341 meeting). In general, the 341 meeting happens approximately 20-40 days after filing the bankruptcy petition. At this meeting, the trustee will ask a series of questions about the information contained in your petition. The questions may relate to your assets, debts, and any other additional information.
Secured debt is a debt where collateral, such as a car or house, is provided in exchange for a loan. The creditor can recover some value of the borrower defaults using collateral. A Chapter 7 bankruptcy wipes out your personal liability on dischargeable debts. However, including your mortgage and car loans, bankruptcy will not remove a lien on your property. If you want to keep secured property after bankruptcy a lender may require you to reaffirm the debt. Reaffirming a debt is signing a new agreement that makes you liable for the debt again. You should consider debt reaffirmation only after thorough evaluation on your options.
Chapter 7 Discharge
Generally, debt discharge happens 60-120 days after the original date of the meeting of creditors and all other court requirements have been met. The filing of the discharge does not close the case. A case may remain open for a short or long period of time depending on the facts of your case. However, the discharge order releases you (and your spouse if a joint filling) from personal liability for most debts.
Full consultation will help you understand and determine what property you will get to keep, whether you should sign a reaffirmation agreement, and which debts will be discharged. Schedule your consultation with Minneapolis Chapter 7 bankruptcy attorney Gregory J. Wald by calling (952) 921-5802.