what is chapter 7 bankruptcy
The Law Offices of Daniel M. Katzner, P.C. has helped thousands of individuals successfully file their Chapter 7 bankruptcy proceedings. If you have questions or are considering filing Chapter 7 bankruptcy, then please do not hesitate to contact our office anytime to see how one of our Bronx bankruptcy lawyers can help you resolve your difficulties and move on to better things. The following are answers to some common questions about the Chapter 7 bankruptcy process.
WHAT IS CHAPTER 7 BANKRUPTCY
Chapter 7 Bankruptcy is the simplest, most straightforward form of bankruptcy and is a legal excuse from paying most types of unsecured debts, such as credit cards and personal loans. In a bankruptcy case filed under chapter 7, you will file a petition with the Bankruptcy Court that lists all of your assets, liabilities, income and expenses, along with other relevant information. The basic idea is to show the Court that you qualify pursuant to Title 11 of the United States Code for a 'discharge' of your debts. To be eligible for a discharge In a chapter 7 bankruptcy, you will wipe out your liabilities in exchange for your surrendering any property that is not 'exempt' under the law. In most Chapter 7 cases, however, all of your property will be exempt, so you will not actually lose anything by filing. Exempt property may include cash and cash equivalents, such as income tax refunds, basic household furnishings and clothing, an automobile, most pension plans and even equity in your home. Generally speaking, almost all of the Chapter 7 cases filed by our firm are "no-asset" cases where everything our client owns is fully protected under the law and they are permitted to obtain a discharge of their debts while having no real risk to any of their property. A more complete list of exempt assets is set forth below.
Other debts like child support and secured loans usually can not be discharged in a Chapter 7 Bankruptcy. If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. In that case, you might want to consider filing a Chapter 13 Bankruptcy which provides a set period of time to catch up on secured debt payments, often while also eliminating unsecured debts as in Chapter 7.
AUTOMATIC STAY
The date your petition is filed with the Bankruptcy Court under Chapter 7, an “automatic stay” goes into effect which forces all collection actions by creditors against you to stop immediately, including telephone calls, letters, starting or continuing lawsuits, wage garnishments and bank account freezes. This stay arises by operation of law immediately upon the filing of your case and requires no judicial action. Creditors normally receive notice of the filing of the petition from the clerk of the Bankruptcy Court within about a week after the case is submitted, but the bankruptcy lawyers at the Law Offices of Daniel M. Katzner, P.C. go above and beyond this standard notice by also providing direct correspondence to any marshals or other creditors threatening action against our client's wages or other property.
EXEMPT PROPERTY
One of the schedules that is filed with a bankruptcy petition is the listing of “exempt” property. Bankruptcy law provides that an individual debtor can protect certain property from the claims of creditors even when filing a bankruptcy either because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. In New York, you are given a choice when you file bankruptcy between using either the state exemptions or using the federal bankruptcy exemptions. For a comprehensive list of property that can be protected in Bankruptcy, please see our What Happens to My Property page.
If you choose to use the federal bankruptcy exemptions, the property that may be protected includes, but is not limited to:
• $22,975.00 in equity in your home;
• $3,675.00 in equity in your car;
• $575.00 per item in any household goods up to a total of $12,250.00;
• $2,300.00 in business equipment for work such as tools, books, etc.;
• $1,225.00 in any property, plus up to an additional $11,600.00 in any property whatsoever (the "Wildcard" exemption) if the exemption in a home is not taken. This can be used to protect additional money in bank accounts, stocks, equity in vehicle,
investment property or anything else up to the value permitted;
• Your right to receive certain benefits such as Social Security, unemployment compensation, veteran’s benefits, public assistance, and pensions, is also protected by bankruptcy exemptions.
The amounts of these exemptions are adjusted periodically and are also doubled when a married couple files together. In New York, you also have the option to use the state exemptions which may be more or less generous than the federal exemptions. A complete list of the NY bankruptcy exemptions can also be found on our What Happens to my Property page.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement item.
You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you have only $10,000 in equity. You can fully protect the $50,000 home with a $10,000 exemption.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy. If you have other questions about what will happen to your home or car when you file a a Chapter 7 bankruptcy, you can contact one our Chapter 7 Bronx attorneys or read more here.
MEETING OF CREDITORS
A “meeting of creditors” is usually held 20 to 40 days after the bankruptcy petition is filed with the Bankruptcy Court. The debtor must attend this meeting and is accompanied by one of our Bronx bankruptcy attorneys. Creditors may also appear and ask questions regarding the debtor’s financial affairs and property, but in practice almost never do. The trustee, who is an attorney appointed by the U.S. Department of Justice to review bankruptcy cases, will also attend this meeting and question the debtor to confirm that the information listed in their petition is accurate. For a list of the questions that are most often asked at the Meeting of Creditors, please see our Do I Have to go to Court section. Debtors residing in the Bronx and Manhattan will file their bankruptcy case in the Southern District of New York and the meeting is almost always held at 80 Broad Street, 4th Floor, New York, New York. This is not a courthouse, but rather an office building where the trustee will be seated at a desk in the front of a large room and will then call Debtors up one by one with their attorneys. The questions then asked are designed to verify that the information listed in the bankruptcy petition is accurate and that you qualify for relief under Chapter 7.
It is important for the debtor to cooperate with the trustee and both be truthful and provide any documents that the trustee requests. Fortunately, in most cases, all of the questions and all of financial records sought, like income tax returns and pay stubs, are requested and reviewed by our attorneys before your bankruptcy case is even filed with the Court. The trustee is also required to examine the debtor at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy, including the effects on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge and the effect of reaffirming a debt. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors.
CHAPTER 7 TRUSTEE
Upon filing of the chapter 7 petition, an impartial case trustee is appointed by the United States Trustee to administer the case and liquidate the debtor’s nonexempt assets, if any. If, as is often the case, all of the debtor’s property is exempt or secured by liens, there will be no distribution to unsecured creditors. Typically, most chapter 7 cases involving individual debtors are “no asset” cases. In the typical no asset consumer chapter 7 case, there is no need for creditors to file proofs of claim because there are no assets of the debtors that will be liquidated and distributed to them. If the trustee later recovers assets for distribution to unsecured creditors, creditors will be given notice of that fact and additional time to file proofs of claim.
The commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all the debtor’s property and no assets may be transferred while the case is pending.
CHAPTER 7 DISCHARGE
A discharge releases the debtor from personal liability for discharged debts and prevents the creditors who were owed those debts from taking any action against the debtor or his property at anytime thereafter. The bankruptcy law regarding the scope of a chapter 7 discharge is complex and debtors should consult one of our Bronx lawyers to discuss what debts can be eliminated in bankruptcy prior to filing. In most cases, unless a complaint has been filed objecting to the discharge of a debt or the debtor has filed a written waiver, the discharge will be granted to a chapter 7 debtor about four months after the initial filing.
The grounds for denying an individual debtor a discharge in a chapter 7 case are very narrow and are construed against a creditor or trustee seeking to deny the discharge. Among the grounds for denying a discharge to a chapter 7 debtor are that the debtor failed to keep or produce adequate financial records; the debtor failed to explain satisfactorily any loss or transfer of assets; the debtor committed a bankruptcy crime such as perjury or hiding property; the debtor failed to obey a lawful order of the bankruptcy court; or the debtor fraudulently transferred, concealed, or destroyed property that would have become property of the estate.
Most claims against an individual chapter 7 debtor are discharged. A creditor whose unsecured claim is discharged may no longer initiate or continue any legal or other action against the debtor to collect the obligation. A discharge under chapter 7, however, does not discharge an individual debtor from certain specific types of debts listed in section 523 of the Bankruptcy Code. Among the types of debt which are not discharged in a chapter 7 case are alimony and child support obligations; certain taxes; debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity; debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for criminal restitution orders. To the extent that these types of debts are not fully paid in the chapter 7 case, the debtor is still responsible for them after the bankruptcy case has concluded.
WHAT IS CHAPTER 7 BANKRUPTCY
Chapter 7 Bankruptcy is the simplest, most straightforward form of bankruptcy and is a legal excuse from paying most types of unsecured debts, such as credit cards and personal loans. In a bankruptcy case filed under chapter 7, you will file a petition with the Bankruptcy Court that lists all of your assets, liabilities, income and expenses, along with other relevant information. The basic idea is to show the Court that you qualify pursuant to Title 11 of the United States Code for a 'discharge' of your debts. To be eligible for a discharge In a chapter 7 bankruptcy, you will wipe out your liabilities in exchange for your surrendering any property that is not 'exempt' under the law. In most Chapter 7 cases, however, all of your property will be exempt, so you will not actually lose anything by filing. Exempt property may include cash and cash equivalents, such as income tax refunds, basic household furnishings and clothing, an automobile, most pension plans and even equity in your home. Generally speaking, almost all of the Chapter 7 cases filed by our firm are "no-asset" cases where everything our client owns is fully protected under the law and they are permitted to obtain a discharge of their debts while having no real risk to any of their property. A more complete list of exempt assets is set forth below.
Other debts like child support and secured loans usually can not be discharged in a Chapter 7 Bankruptcy. If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. In that case, you might want to consider filing a Chapter 13 Bankruptcy which provides a set period of time to catch up on secured debt payments, often while also eliminating unsecured debts as in Chapter 7.
AUTOMATIC STAY
The date your petition is filed with the Bankruptcy Court under Chapter 7, an “automatic stay” goes into effect which forces all collection actions by creditors against you to stop immediately, including telephone calls, letters, starting or continuing lawsuits, wage garnishments and bank account freezes. This stay arises by operation of law immediately upon the filing of your case and requires no judicial action. Creditors normally receive notice of the filing of the petition from the clerk of the Bankruptcy Court within about a week after the case is submitted, but the bankruptcy lawyers at the Law Offices of Daniel M. Katzner, P.C. go above and beyond this standard notice by also providing direct correspondence to any marshals or other creditors threatening action against our client's wages or other property.
EXEMPT PROPERTY
One of the schedules that is filed with a bankruptcy petition is the listing of “exempt” property. Bankruptcy law provides that an individual debtor can protect certain property from the claims of creditors even when filing a bankruptcy either because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. In New York, you are given a choice when you file bankruptcy between using either the state exemptions or using the federal bankruptcy exemptions. For a comprehensive list of property that can be protected in Bankruptcy, please see our What Happens to My Property page.
If you choose to use the federal bankruptcy exemptions, the property that may be protected includes, but is not limited to:
• $22,975.00 in equity in your home;
• $3,675.00 in equity in your car;
• $575.00 per item in any household goods up to a total of $12,250.00;
• $2,300.00 in business equipment for work such as tools, books, etc.;
• $1,225.00 in any property, plus up to an additional $11,600.00 in any property whatsoever (the "Wildcard" exemption) if the exemption in a home is not taken. This can be used to protect additional money in bank accounts, stocks, equity in vehicle,
investment property or anything else up to the value permitted;
• Your right to receive certain benefits such as Social Security, unemployment compensation, veteran’s benefits, public assistance, and pensions, is also protected by bankruptcy exemptions.
The amounts of these exemptions are adjusted periodically and are also doubled when a married couple files together. In New York, you also have the option to use the state exemptions which may be more or less generous than the federal exemptions. A complete list of the NY bankruptcy exemptions can also be found on our What Happens to my Property page.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement item.
You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you have only $10,000 in equity. You can fully protect the $50,000 home with a $10,000 exemption.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy. If you have other questions about what will happen to your home or car when you file a a Chapter 7 bankruptcy, you can contact one our Chapter 7 Bronx attorneys or read more here.
MEETING OF CREDITORS
A “meeting of creditors” is usually held 20 to 40 days after the bankruptcy petition is filed with the Bankruptcy Court. The debtor must attend this meeting and is accompanied by one of our Bronx bankruptcy attorneys. Creditors may also appear and ask questions regarding the debtor’s financial affairs and property, but in practice almost never do. The trustee, who is an attorney appointed by the U.S. Department of Justice to review bankruptcy cases, will also attend this meeting and question the debtor to confirm that the information listed in their petition is accurate. For a list of the questions that are most often asked at the Meeting of Creditors, please see our Do I Have to go to Court section. Debtors residing in the Bronx and Manhattan will file their bankruptcy case in the Southern District of New York and the meeting is almost always held at 80 Broad Street, 4th Floor, New York, New York. This is not a courthouse, but rather an office building where the trustee will be seated at a desk in the front of a large room and will then call Debtors up one by one with their attorneys. The questions then asked are designed to verify that the information listed in the bankruptcy petition is accurate and that you qualify for relief under Chapter 7.
It is important for the debtor to cooperate with the trustee and both be truthful and provide any documents that the trustee requests. Fortunately, in most cases, all of the questions and all of financial records sought, like income tax returns and pay stubs, are requested and reviewed by our attorneys before your bankruptcy case is even filed with the Court. The trustee is also required to examine the debtor at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy, including the effects on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge and the effect of reaffirming a debt. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors.
CHAPTER 7 TRUSTEE
Upon filing of the chapter 7 petition, an impartial case trustee is appointed by the United States Trustee to administer the case and liquidate the debtor’s nonexempt assets, if any. If, as is often the case, all of the debtor’s property is exempt or secured by liens, there will be no distribution to unsecured creditors. Typically, most chapter 7 cases involving individual debtors are “no asset” cases. In the typical no asset consumer chapter 7 case, there is no need for creditors to file proofs of claim because there are no assets of the debtors that will be liquidated and distributed to them. If the trustee later recovers assets for distribution to unsecured creditors, creditors will be given notice of that fact and additional time to file proofs of claim.
The commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all the debtor’s property and no assets may be transferred while the case is pending.
CHAPTER 7 DISCHARGE
A discharge releases the debtor from personal liability for discharged debts and prevents the creditors who were owed those debts from taking any action against the debtor or his property at anytime thereafter. The bankruptcy law regarding the scope of a chapter 7 discharge is complex and debtors should consult one of our Bronx lawyers to discuss what debts can be eliminated in bankruptcy prior to filing. In most cases, unless a complaint has been filed objecting to the discharge of a debt or the debtor has filed a written waiver, the discharge will be granted to a chapter 7 debtor about four months after the initial filing.
The grounds for denying an individual debtor a discharge in a chapter 7 case are very narrow and are construed against a creditor or trustee seeking to deny the discharge. Among the grounds for denying a discharge to a chapter 7 debtor are that the debtor failed to keep or produce adequate financial records; the debtor failed to explain satisfactorily any loss or transfer of assets; the debtor committed a bankruptcy crime such as perjury or hiding property; the debtor failed to obey a lawful order of the bankruptcy court; or the debtor fraudulently transferred, concealed, or destroyed property that would have become property of the estate.
Most claims against an individual chapter 7 debtor are discharged. A creditor whose unsecured claim is discharged may no longer initiate or continue any legal or other action against the debtor to collect the obligation. A discharge under chapter 7, however, does not discharge an individual debtor from certain specific types of debts listed in section 523 of the Bankruptcy Code. Among the types of debt which are not discharged in a chapter 7 case are alimony and child support obligations; certain taxes; debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity; debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for criminal restitution orders. To the extent that these types of debts are not fully paid in the chapter 7 case, the debtor is still responsible for them after the bankruptcy case has concluded.