Considering Chapter 7 Bankruptcy? Talk to the Morris County Bankruptcy Lawyers at Ast & Schmidt, P.C.
Helping clients in Rockaway, Whippany, Budd Lake, Boonton, Denville, Morristown, Dover, Florham Park, Montville, Mount Arlington, Madison, Cedar Knolls, Flanders and the surrounding cities
Chapter 7 bankruptcy is a theoretical supervised liquidation process. In this process, a court-appointed bankruptcy trustee sells a debtor’s non-exempt assets to repay creditors in exchange for a discharge of debts owed. Chapter 7 bankruptcy is commonly referred to as straight bankruptcy or liquidation. It is the most common form of bankruptcy among individuals and families. Partnerships, sole proprietorships, and corporations are also eligible to file for Chapter 7 bankruptcy.
Credit Counseling & Debtor Education
In the 2005 revisions to the bankruptcy law, Congress added a provision that generally requires all debtors to participate in a credit counseling screening program. This determines if the debtor has the ability to have a debt repayment program proposed. An approved non-profit agency must conduct this screening process. It was widely believed that the introduction of this neutral nonprofit agency would result in a large number of people being diverted from filing for bankruptcy and entering into a debt repayment program. This requirement did not have that result. This is because it is rare for the non-profit agency to even propose a debt repayment program.
The debtor must also complete a financial management course in order to receive a discharge.
With limited exception, if the debtor does not complete a debtor education course and file the certification of completion, then the debtor will not receive a discharge. There are various ways of satisfying the credit counseling screening and financial management requirements. You can often participate via internet or telephone, rather than in person.
Bankruptcy Means Test
In the 2005 revisions to the bankruptcy law, Congress added a provision called the “Means Test”. The test determines who would be an eligible debtor under Chapter 7 without a presumption of abuse. The Bankruptcy Means Test starts with a calculation of a debtor’s individual and household average monthly income for the six months immediately preceding the month of the filing of the petition. It then compares that average income to the median family income for a household of comparable size in the state where the case is filed. If the income is under the median family income, then there is no presumption of abuse. As a result, the individual may file a Chapter 7 bankruptcy.
If the household income exceeds the median family income, then you must prepare a complicated analysis of the expenses. Some of the dollar amounts are set by the Internal Revenue Service average living expense figures based upon collections from delinquent taxpayers. Some of these figures are used throughout the US, while others are state or regional figures. Congress expected that this Means Test would cause many people considering filing a Chapter 7 to have to file a Chapter 13. It is the exceptional case when the Means Test may push people into filing for Chapter 13, when they really want to file for Chapter 7. In some instances, the timing for filing the case may impact upon the calculations for the Means Test. In other instances, a careful review of the allowable expenses may provide a way of not triggering the presumption of abuse.
To obtain bankruptcy protection under Chapter 7 of the Bankruptcy Code, you must first file a petition with the bankruptcy court. This must be in the jurisdiction where you have resided for the last 180 days, or the greater portion of the last 180 days. Your petition must contain information regarding all creditors, the amount of money you owe each creditor, and your current income, assets, and monthly living expenses.
Once you file the petition, the automatic stay becomes effective. The automatic stay prohibits most debt collection actions against you during bankruptcy proceedings. While the automatic stay is in effect, creditors cannot initiate or continue lawsuits against you. Additionally, they cannot garnish your wages, call you or otherwise take action for payments against you. Although there are exceptions to the automatic stay, it applies to most creditors and to most debts.
After the petition for bankruptcy has been filed, the bankruptcy court appoints a trustee. The trustee is responsible for conducting the Meeting of Creditors and liquidating any non-exempt assets to repay the creditors. In order to protect exempt property, a debtor must file a schedule of exempt property with the court. Such exempt property depends on the interplay between federal bankruptcy laws and state laws. For bankruptcy cases filed in New Jersey, where the debtor resided in NJ for the two years immediately preceding the date of filing, the debtor may utilize the “federal exemptions” provided for by Bankruptcy Code §522(d). These include:
- $20,200 of equity in the debtor’s residence
- $3,225 of equity in one motor vehicle
- $10,775 of value in household furnishings, household goods wearing apparel, books, held for personal use of the debtor or the debtor’s dependents, provided each item does not exceed $525 in value
- $1,350 of value in jewelry
- $1,075 plus up to $10,125 of any unused residence exemption
- $2,025 of value of tools of the trade
- Any unmatured life insurance contract
- $10,775 of cash value life insurance
In a joint filing, you can generally double the exemptions.
There are other exemptions that permit retaining the right to receive alimony, child support, veteran’s benefits, Social Security benefits and the protection for most retirement plans, including 401(k)’s, 403(b) and IRA’s.
The trustee has the right to sell all non-exempt property and then distribute the proceeds to the creditors. In most individual Chapter 7 cases, the available exemptions fully protect the debtor’s assets and the case is a “No Asset” case.
The Effect of a Chapter 7 Bankruptcy Discharge
Discharge is the technical term that forgives debts through the bankruptcy process. Once a debt has been discharged through Chapter 7 bankruptcy, the debtor is no longer personally liable for repaying that debt. Additionally, the creditor is prohibited from seeking to attempt to collect the debt. While bankruptcy discharges most debts, certain forms of debt are not dischargeable through bankruptcy. Such nondischargeable debt generally includes:
- Student loans
- Federal, and state, income taxes from the previous three years
- Criminal restitution
- Child support payments
- Alimony payments
- Court fines
- Debts fraudulently incurred and the creditor prevails in the Bankruptcy Court in proving the fraudulent conduct
When to File for Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy is often appropriate in circumstances where the debtor:
- Owes a large amount of debt that debtor cannot feasibly repay within a reasonable period of time
- Has experienced large medical debts or other unexpected debts
- Earns less than the median income in his or her state
- Income that just pays for living expenses with little or nothing left to pay debt
- Has very little, or no, non-exempt assets
If you feel that Chapter 7 Bankruptcy may be the proper solution for your financial problems, then call our firm. You need to talk to a Chapter 7 bankruptcy attorney who can answer any questions you may have and assist you with filing your bankruptcy petition. If you live in north New Jersey, there is a Morris County Chapter 7 Bankruptcy attorney at Davis Alan Ast, PC that can help. Our attorneys assist residents of Morris County and the surrounding areas with their bankruptcy issues. Please contact a Morris County Chapter 7 bankruptcy lawyer at Ast & Schmidt, P.C. today for an initial consultation without cost or obligation.