Chapter 7 Bankruptcy
Fresh Start
One of the primary purposes of filing a chapter 7 bankruptcy is to
discharge certain debts to give you a "fresh start." You have
no liability for discharged debts.
A chapter 7 bankruptcy case begins with your attorney filing a petition with the bankruptcy court. In addition to the petition, the attorney will file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases.
In order for the attorney to complete the Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, you must provide the following information:
- A list of all creditors and the amount and nature of their claims;
- The source, amount, and frequency of your income;
- A list of all of you property; and
- A detailed list of your monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a
joint petition, separate
individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing
spouse is required so that the court, the trustee and creditors can evaluate the household's financial
position. At our first meeting we will provide
you with forms that will assist you in providing the needed information and a list of all required documents.
Among the schedules you will file is a schedule of "exempt" property. The Bankruptcy Code
allows you to protect property from the
claims of creditors because it is exempt under Ohio law. Examples of Ohio’s exemptions include the
complete protection of all federal tax refunds to the
extent they represent either earned income credits or child tax credits; up to the maximum exemption of $20,200 in
equity in residential real estate;
$400 in cash or bank deposits; $10,775 in household goods and furnishings, $3,225 in equity in a car; a “wild card” of $1,075 to be used on any property;
and many others, including virtually all pension and retirement plans. The exemptions are double if you file jointly with your spouse.
As your attorney we must provide the case trustee with a copy of the tax return or transcripts for the most recent tax year for
which a return was filed, as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case
began), evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in
income or expenses after filing.
Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against the you or your property. The stay
arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits,
foreclosures, sheriff sales, wage garnishments, bank attachments, automobile repossessions, or even telephone calls demanding payments. The bankruptcy
clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by you.
Between 30 and 40 days after the petition is filed, the case trustee (described below) will hold a meeting of creditors which is called a 341 meeting. You must attend the meeting and answer questions regarding your financial affairs and property. During this meeting, the trustee puts you under oath, and both the trustee and creditors may ask questions -- although it is rare for creditors to appear at this meeting. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions. It is important for you to cooperate with the trustee and to provide any financial records or documents that the trustee requests. An attorney from our office will accompany you to this meeting.
When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee. If all of your assets are exempt or
subject to valid liens, the trustee will normally file a "no asset" report with the court, and there will be no distribution to unsecured creditors.
Most chapter 7 cases are no asset cases. The primary role of a chapter 7 trustee in an asset case is to liquidate your nonexempt assets in a manner that
maximizes the return to your unsecured creditors. The trustee accomplishes this by selling your property if it is free and clear of liens (as long as the
property is not exempt) or if it is worth more than any security interest or lien attached to the property and any exemption that you have in the
property. The trustee may also attempt to recover money or property under the trustee's "avoiding powers." The trustee's avoiding powers include the
power to: set aside preferential transfers made to general creditors within 90 days before the filing of the petition; preferential transfers (payments)
made to relatives within one (1) year before the filing of the petition; undo security interests and other pre-petition transfers of property that were
not properly perfected under non-bankruptcy law at the time of the filing of the petition; and pursue non-bankruptcy claims such as fraudulent conveyance
remedies available under state law. In addition, if the debtor is a business rather than an individual, the bankruptcy court may authorize the trustee to
operate the business for a limited period of time, if such operation will benefit creditors and enhance the
liquidation of the estate.
Your primary concern in a chapter 7 case is to retain exempt property and to receive a discharge that covers as many debts as possible. A discharge releases you from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against you. Your discharge should cover most, if not all, of your debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against you to collect a discharged debt. But not all debts are discharged in chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by you to another entity or to the property of another entity, debts for death or personal injury caused by your operation of a motor vehicle while you were intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. You will continue to be liable for these types of debts to the extent that they are not paid in the chapter 7 case. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by you to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable.
Generally, you receive a discharge in more than 99 percent of chapter 7 cases. In most cases the bankruptcy court will issue a discharge order 60 to 90 days after the date first set for the meeting of creditors. The grounds for denying you a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny you a discharge if it finds that you: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management.
The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or the U.S. trustee if the discharge was obtained through fraud by
you, if you acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender
the property to the trustee, or if you (without a satisfactory explanation) make a material misstatement or fail to provide documents or other information in
connection with an audit of your case.
Although an individual chapter 7 case usually results in a discharge of debts a bankruptcy discharge does not extinguish a lien on
property. Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on your
circumstances, if you wish to keep certain secured property (such as an automobile), you may decide to "reaffirm" the debt. A reaffirmation is an agreement
between you and the creditor that you will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged
in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as you continue to pay
the debt. If you decide to reaffirm a debt, you must do so before the discharge is entered. You must sign a written
reaffirmation agreement and file it
with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures. Among other things, the disclosures must
advise you of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that your personal liability for that debt will
not be discharged in the bankruptcy. The disclosures also require you sign and file a statement of your current income and expenses which shows that the
balance of income after paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a
presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement. We strongly discourage our clients from entering into
reaffirmations. If a reaffirmation is a possibility in your case we will discuss the pros and cons with you.
You cannot file under chapter 7 or any other chapter, if during the preceding 180 days a prior bankruptcy petition was dismissed due to your willful failure to appear before the court or comply with orders of the court and the court includes a “180 day bar” in its order of dismissal, or you voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
You can not file a chapter 7 bankruptcy and receive a discharge if a discharge was obtained in a prior chapter 7 bankruptcy case filed within eight (8) years.
Your ability to receive a discharge in a chapter 7 bankruptcy is subject to a
“means test”. If your
"current monthly income" is
more than the Ohio median income for your family size, the Bankruptcy Code requires application of a "means test" to determine whether the chapter 7
filing is abusive. Abuse is presumed if your aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i)
$10,950, or (ii) 25% of your non-priority unsecured debt, as long as that amount is at least $6,575. You may rebut a
presumption of abuse only by a
showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless you overcome the presumption of abuse,
the case will generally be converted to chapter 13 (with your consent) or will be dismissed.
You may not file a chapter 7 bankruptcy unless you have, within 180 days before filing, received
credit counseling from an approved credit counseling agency. We will assist you in signing up for and
completing this counseling. There is a second Financial Management” course you will need
to complete after your case is filed, in order to obtain a discharge of your debts. We will also assist you in signing up for and completing this course.
The companies that offer these courses have been approved by the United States Justice Department. Both can be completed by telephone or over the internet.
The Credit Counseling takes ten (10) minutes to one (1). The Financial Management course takes two (2) hours.