Chapter 7 Bankruptcy Parker
Parker Lawyers is a federally designated debt relief agency pursuant to Title 11 of the US Code. This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the information of a lawyer/client relationship Parker Lawyers is a federally designated debt relief agency pursuant to Title 11 of the US Code. OUR FIRM PROVIDES LEGAL ASSISTANCE AND HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE.
Chapter 7 is an orderly, court-supervised procedure by which a trustee ( the role of the trustee is further defined in this summary) collects the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. (Your specific Colorado exemptions are listed below.) There are Federal exemptions that may also apply to you case. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” Such no-asset cases are further discussed in this summary.
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court where the individual lives, or where the business debtor is organized or has its principal place of business or principal assets). In addition to the petition, in a chapter 7 bankruptcy case the debtor must also file with the court:
Chapter 7 bankruptcy provisions involve the complete liquidation of a debtor’s property, with the proceeds used to pay off the debts. However, the debtor usually retains certain property that is specifically “exempt” under State law, such as tools of one’s trade, limited equity in a car and house, and some personal effects. These exemptions are summarized in this page as well. Chapter 7 is generally the most used form of bankruptcy and is available to individuals, married couples, corporations and partnerships. See the FAQ section for more common areas of typical questions and general answers to many of the questions that you may have. A court appointed trustee reviews your case, the debts listed, your history of financial dealing and where allowed could sell some of your property and the proceeds s are distributed to creditors on a pro-rata basis and according to federal law.
Effective October 17, 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act provided for a means test that is sued to determine whether you may file a Chapter 7 bankruptcy. In applying the means test, your average income over the past six months is used and if you are above the median income in Colorado then the means test comes into play to determine if you are able to file a chapter 7action. From the income if you are above the median income as allowed ( see FAQfor a summary of the median income in Colorado) then the national set living expenses, utilities and other allowed deductions are then calculated along with mortgage payments, car payments, back taxes and past due support are deducted from your income. If you can pay at least $6,000 to unsecured creditors over five years after all of the above deductions as well as those for living expenses, you will not be allowed to file for Chapter 7 but must instead file for Chapter 13 bankruptcy. This is a very simplified rendition of the process and careful counsel with an experienced attorney is recommended.
A bankruptcy starts with the filing in bankruptcy court of the official petition and a lengthy document called a statement of financial affairs. This statement contains extensive schedules requiring a detailed list of all your debts, including:
- All priority debts (including taxes)
- All “secured” debts (including home mortgages and auto loans) that have property as “collateral”
- All unsecured debts of any kind, both that are certain as well as claims that might be suspect by a third party creditor.
Other information that must be provided on the Statement of Financial Affairs includes:
- The names and addresses of the creditors
- A list of all assets, including real estate and all forms of personal property
It is extremely important that the Statement of Financial Affairs be completed accurately. Debts that are not listed in the statement may not be discharged at the completion of the bankruptcy proceeding. Failing to list assets in an attempt to hide them from creditors may result in serious consequences, including the denial of discharge or charges of bankruptcy fraud.
Creditors are immediately prevented from trying to collect on your debts through the automatic stay that goes into place at the time that your case is filed. This is the time that your petition is filed with the court and not from a mere appointment with your attorney. The stay is designed to preserve your property and to give you a break from litigation.
Anyone you owe – or anyone who wants to continue collection proceedings during the bankruptcy process – must show the bankruptcy judge, after a hearing, that there is “cause” to be allowed to continue with collection action (for instance, by showing that the property might deteriorate in value during the bankruptcy process). The processes to seek such relief is generally initiated by the creditor filing with the court a Motion for Relief from Stay and once again see the FAQ section for more information on this process.
The trustee takes control of any property you are not allowed to keep. Most chapter 7 cases are no-assets cases which mean that the debtor has no assets beyond what is allowed to all debtors by federal and state law. A summary of many of the assets that one is able to keep is listed below (see What Can I Keep and also see FAQ to this site). Make sure that you understand that the levels below speak as to the net equity that you have in the property and not the current value. Equity is generally defined to mean the value less the debt against the property. If there is a sale of your property, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims, according to the priority of the claims (with claims that are “secured” by property being paid first). Any wages you earn after you file the case are yours, beyond the reach of creditors who had claims on the date you filed for bankruptcy.
After the bankruptcy is filed, you must appear at the “first meeting of creditors” (also called a section 341 hearing). At this hearing that is usually within 30 days after you file the trustee will ask you questions under oath about your property and debts. Creditors can also question you on those subjects, but seldom do.
After the 341 meeting you still have a duty to cooperate with the trustee in providing any requested information as well as needing to complete the debtor education class.
Creditors have 60 days after the 341 meeting to convince the bankruptcy court you shouldn’t be allowed to discharge your debts.
The trustee may review your income and expenses to see if you have enough money left after your current living expenditures to pay something to creditors.
What Can I Keep?
Under Colorado bankruptcy laws, you may keep:
- Equity in your home or sale proceeds if sold within the year prior to bankruptcy, up to $45,000
- Farm machinery, tools and livestock, up to $25,000
- Household goods, up to $3,000
- Jewelry and watches, up to $1,000
- Cash surrender value of an insurance policy, up to $50,000
- Equity in motor vehicle or a bicycle, up to $3,000 or $6,000 if elderly or disabled
- Personal books and family pictures, up to $1,500
- Tools of the trade up to $10,000.00
- Professional library, up to $3,000
- Provisions and fuel, up to $600
- Work related tools, books, supplies, electronics and so forth
- Wearing apparel, up to $1,500
- Any amount in an IRA, 401(k) or pension plan
- Right to receive certain benefits such as social security, unemployment compensation, veteran’s benefits, public assistant and pensions regardless of the amount
- Burial sites
- Income tax refunds earned as Earned income tax credits and other exceptions may not allow you to keep such a refund
A bankruptcy does not cancel out voluntary liens, like mortgages and deeds of trust, or tax liens. So the lender still has the right to foreclose if you do not pay. If you pay, everyone is happy. Remember, that the lender often does not want the property; it wants you to pay regularly on the loan. Foreclosure is a last resort for the lender if it concludes it can’t get the owed money any other way.
If you still owe money on the car, you can choose to reaffirm (see discussion on reaffirmation in the FAQ section) the debt to the secured lender by continuing to make the agreed-upon payments. You can also “redeem” the car by buying it from the secured creditor in a single payment for its present value. If you choose, you can surrender the car and be free of any obligation to pay for it.