Chapter 7 – Questions



What is a Chapter 7 bankruptcy?
Chapter 7 is a trade off for the clean, relatively debt-free, fresh start, also known as “liquidation” bankruptcy, a tool to cancel your debt.  The process may take about three to five months. Chapter 7 bankruptcy can be filed by either an individual or a corporation but it is not available to everyone. The new bankruptcy law provides clear criteria that dictates who will be allowed to stay in Chapter 7 and who will be required to use Chapter 13.



How do I retain an attorney to file for bankruptcy?
The first step is to schedule a consultation with an associate of our firm to evaluate which chapter would suit you best.



What are the fees to file chapter 7 bankruptcy?
The court charges a filing fee of $299 and attorney fees are determined at the time of your consultation.



What do I need to provide in order to file a chapter 7 bankruptcy?
When you retain you will be provided with a detailed letter which includes a list of the documentation required. The required documents include:

    • Client intake form
    • Tax returns for the previous 2 years
    • All payment advices for the prior 6 months
    • Certificate of Credit Counseling (pre-bankruptcy course)



How do I qualify for chapter 7 bankruptcy?

The means test uses a formula to calculate whether debtor(s) have the ability to re-pay unsecured creditors a portion of the debt owed from the debtor(s) excess income (deemed by federal standards of necessities). Your income is determined based on your 6 month average prior to filing and gives qualified deductions from your gross income such as income taxes, mortgage payments, and car payments. If your CMI (Current Monthly Income) is below the median household income (deemed by federal standards) you will qualify for a chapter 7 bankruptcy. In California, the current median income is based upon household size as follows:

    • 1 person = $49,182
    • 2 person = $65,097
    • 3 person = $70,684
    • 4 person = $79,971
    • 5 person = $86,871
    • 6 person = $93,771
    • 7 person = $100,671
    • 8 person = $107,571



What is considered secured debt vs. unsecured debt and how does it affect my filing for chapter 7 bankruptcy?
A secured debt consists of debt secured by collateral such as a home or vehicle. Unsecured debt is a debt not supported by collateral or the amount by which a debt exceeds the value of collateral such as credit card debt. You may elect to keep your home and/or vehicle providing that your payments are current at the time of filing and remain current pursuant to the original agreement with the creditor.



What is a reaffirmation agreement?
A reaffirmation agreement is an agreement between a debtor and a creditor that, in lieu of discharging the debt, renegotiates the terms of said debt. It is most commonly used for secured property in a bankruptcy, such as a car. In a case like that, the lender will send over a proposed agreement that re-affirms that the debtor will continue to make payments on the property, in lieu of the property being liquidated or the debt discharged. All reaffirmation agreements must be approved by the court.



How will a chapter 7 bankruptcy affect my credit?
Bankruptcy filings remain on one’s credit report for 10 years. If one has not been able to pay their bills the credit report will reflect a poor credit score. Upon receiving a discharge, a person is in better standing to pay their current bills and will begin to get new credit and increase their credit score.



What happens after the 341 meeting?
In the vast majority of Chapter 7 cases, the hearing marks the last step in the process that involves the petitioner. The petitioner then waits about three months to receive his or her discharge letter. There may be some ministerial steps; the filer may elect to reaffirm some debts. The normal reason to do this is to keep property, such as cars, on which the creditor has a lien and which a creditor could take.  You should get the advice of your lawyer before signing such documents.



What happens if I forget to list something in my bankruptcy petition?
Sometimes in the stress and rush of preparing the bankruptcy petition, a person will find that he/she forgot to list a debt or an asset.  This can be easily overcome, if it is discovered shortly after filing the petition, by adding an amendment to the petition.  If it is found later, it can be a larger problem.  The trustee or a creditor may conclude you were trying to hide the asset.  And if the case has been closed without a creditor being listed, you might not have that debt discharged.  Normally, only creditors listed in the bankruptcy have their debts done away with.  Even in such a case, there may be ways around this, but it is far better and safer to be very thorough when you supply information for the court in the original filing.



Other problems in the bankruptcy you should be aware of:
Sometimes hospitals will refuse to release medical information because their debt was discharged in a bankruptcy. Other times creditors, or someone who purchased the debt, will try to collect on a debt that was listed and discharged in a bankruptcy. Lenders may refuse to grant a loan until you prove that a given debt was discharged in your bankruptcy. (This often occurs because the credit report is not complete or correct). Most of these problems can be overcome if you are careful to hold on to your discharge letter and petition.

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