Chapter 7

Chapter 7 is known as a liquidation or straight bankruptcy.  It is typically used by those with a large amount of unsecured debt and/or those who wish to surrender some of their secured debt items (typically houses and cars).  A Chapter 7 Discharge will eliminate your dischargeable debts and allow you to have a fresh start, choosing which secured debts you wish to keep paying.
Chapter 7 cases are reviewed by the United States Trustee's office for abuse.  If you make too much money, your case can be dismissed or converted to Chapter 13.
If you own any non-exempt property, that property is given to the bankruptcy trustee who can sell it and give the money to your creditors.  Most debtors do not own any non-exempt property and thus can keep all of their property after a bankruptcy.
 
Chapter 7 is often what people think of when they think of the word "bankruptcy."  The term liquidation can be misleading, because people often assume that all of their assets are liquidated in a bankruptcy, but in fact, only NON-EXEMPT assets are liquidated. For the average debtor, non-exempt assets usually are things like airplanes, boats, extra cars (more than 1 per adult driver), extra homes, large savings or stock accounts, and so on. EXEMPT ASSETS (assets you get to keep after bankruptcy) include things like your home, household furniture, clothing, jewelry, one car or truck per adult driver, pets, retirement accounts. The exemptions are so good that in 15+ years of bankruptcy I have only had two cases where they had to give the trustee property.
 
Myth:
The government comes to your home, searches it, and takes your property, kicks you out of the house, and leaves you homeless in the street with only the clothes on your back.
Fact:
No one will come to your home. Bankruptcy is a fairly simple process involving a visit to your attorney, who files paperwork for you, and usually just one appearance at the bankruptcy court to meet with the trustee (the man who takes possession of your non-exempt assets). In more complicated cases, there can be other court appearances, but your attorney should be able to predict those for you and explain them to you in the initial consultation.
 
What does a Chapter 7 do for me?
Chapter 7 is a liquidation, as described above. Your non-exempt assets (if any) are given to a trustee who sells them to pay your creditors. You have the option of paying secured creditors (home, vehicles, etc.) or giving them back the collateral and owing nothing. Secured debts are usually reaffirmed, which means you sign an agreement to keep paying the same payments as before the bankruptcy, and the creditor agrees to let you keep the collateral. From case filing to discharge, the whole process usually takes about 4 months. Filing of Chapter 7 stays on your credit report up to 10 years, and it is your responsibility to rebuild your credit rating (if you so desire) by taking out small loans and paying them on time, plus remaining current on any debts which survive the bankruptcy.
In a typical Chapter 7, your unsecured debt is discharged, meaning that you can voluntarily repay it if you wish, but the creditors can never collect on it, never report it as delinquent, and never turn it over to collection agents. Unsecured debt is most credit cards, medical bills, signature loans, mail order, old repossessions, and so on. Chapter 7 typically does not discharge the liens on your secured debt, nor does it usually discharge priority debt such as certain taxes, family obligations, and student loans. A complete list of non-dischargeable debts can be seen at 11 U.S.C. 523.
 
What is an "automatic stay?"
The automatic stay works like a shield to protect you from your creditors while you are involved in Chapter 7. The Chapter 7 shield does not protect your co-debtors (except your spouse if he/she files jointly with you). During a Chapter 7, your creditors cannot contact you, harass you, collect money from you, report to credit reporting agencies, cut off your utilities, fire you from your job for filing, kick you out of your home, repossess your belongings, and so on. If this is your first bankruptcy case, the automatic stay lasts the entire time you are in your Chapter 7, and there are only limited ways a creditor can "lift" the automatic stay.
 
How do I pay for this?
Usual attorney's fees range from $1,500 and up per case, and the government charges you $335 to file the case, so you are looking at an initial cash payment up front of at least $1,835 depending on the complexity of your case. Many attorneys will open a file for you for a very small down payment and allow you to refer your creditor collection calls to the attorney. You then make payments on the balance and file your case when you pay the entire up-front cost.
 
How do I determine if I should file?
You should consult an attorney and discuss your situation. As a general rule, if you owe less than the attorney fees and court costs, you probably should not file Chapter 7. However there are always exceptions (for example you may have contingent liability or other factors to make bankruptcy a good alternative despite a small amount of "debt.") An attorney should be able to review your situation and advise you accordingly. Furthermore, you should demand to be seen by an attorney, not a legal assistant, paralegal, or secretary. Only an attorney can legally give you this advice. If a law firm tries to force you to see a legal assistant, paralegal, or secretary for your initial consultation, you can file a complaint with the State Bar of Texas.
My office will give you a free consultation to advise you. The consultation is both free and confidential. You can make an appointment by calling 254-752-GARY (4279).
Clients are seen by appointment only, so please call in advance.
By Act of Congress and Signature of the President:
 We are a Debt Relief Agency. We help people file for bankruptcy.
Please realize the information contained on this web site should not be construed as legal advice nor does it create an attorney-client relationship between us. It is simply here as a means for me to provide you some basic information for you to use when deciding on whether or not you need to hire an attorney. Because each case is different, it would be impossible for us to provide legal advice on a web site.
Gary Cunha, P.C., Attorney and Counselor at Law
100 N. 6th #604, Waco, TX 76701 254-752-4279
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