If you have fallen behind on payments to creditors or are dealing with other financial hardships, it may be beneficial for you to file a Chapter 7 Bankruptcy. The goal of Chapter 7 is to provide you with a fresh start by clearing certain of your outstanding debts. To do so, any non-exempt property and assets will be liquified to repay your creditors. While you may lose some of your assets in the process, Chapter 7 is meant to help ease the road to recovery after a bankruptcy. Furthermore, here at Modesto Bankruptcy Attorneys, our experienced attorneys take great pride in protecting all assets that a person owns so no liquidation ever occurs. To learn more about Chapter 7 Bankruptcy and whether it may be appropriate for you, please contact the team at Modesto Bankruptcy Attorneys to schedule your free consultation.
QUALIFYING FOR RELIEF UNDER CHAPTER 7
A Chapter 7 Bankruptcy is an option for a person that is seeking relief through the Bankruptcy Court, making it an option for individual debtors or joint-spouses. To file for a Chapter 7 Bankruptcy, you must not have received relief through a previous bankruptcy filing within the past 8 years (filing date to filing date). The Court also requires debtors to complete credit counseling course within 180 days prior to filing. The goal of credit counseling is to determine whether or not you need to file for bankruptcy. In some situations, it may be possible to establish a repayment directly through your creditors. The credit counseling will go through all of your options and present you with what may be best for your circumstance. You are under no obligation to choose the option that they present to you. As part of your initial bankruptcy filing you must file your certificate of completion with the Court within 15 days of your initial filing date. Our team will make sure this is filed on the same your case is filed.
In addition, you must pass the Means Test. The Means Test is designed to prevent those who earn larger wages from taking advantage of the relief available through Chapter 7. It calculates your monthly disposable income by subtracting monthly expenses from your monthly income and compares it to that of others in your area. If your monthly income is less than the median for a household of your size in your state, then you may automatically qualify to file for Chapter 7 relief. If your income is greater than the median, the test takes into account your disposable income. If your disposable income qualifies you for relief under Chapter 7, the Court will proceed by reviewing your Schedule I and Schedule J forms before continuing with your case. The Schedule is a projection of your income moving forward and the Schedule J is a projection of your expenses. If your disposable income is greater than the amount established for your area and household size, then you likely would not qualify for relief under Chapter 7. If you do not qualify for relief under Chapter 7 of the Bankruptcy Code, there are other options available to you. Instead, you may be able to qualify to file a Chapter 13, which will allow you to always keep your property while repaying certain creditors over a 3 to 5 year time period.
Income is not the only deciding factor for qualifying for Chapter 7 relief. Each filer is different and incurs different expenses. For example, consider the following scenario:
A couple is married with two young children, in addition to another child from the husband’s previous marriage who does not reside with the couple. Both spouses work full-time and earn $52,000 each, annually. Their monthly expenses include:
- 2 car payments of $600 each
- A $3,400 home mortgage
- A $300 equity line of credit, secured to the home
- $1,800 in childcare expenses
- $800 in child support
With this information, the couple could still qualify for relief under a Chapter 7
even though their income is over the median income.
In contrast, consider the following situation:
A couple is married with one young child. The husband works part-time and earns $30,000 annually, while the wife works full-time, earning $48,000 annually. The only additional expense the couple has monthly is their apartment rent of $750.
Unlike Couple #1, Couple #2 would possibly not qualify for relief under Chapter 7. While Couple #2 is earning less than Couple #1, it does not immediately qualify them for a Chapter 7 filing. The only way to determine whether Chapter 7 is an appropriate option for you is by examining your specific financial situation in full.
The team at Modesto Bankruptcy Attorneys understand the complicated qualification process for a Chapter 7 Bankruptcy filing. They will take the time necessary to analyze the specific facts of your case. Our attorneys understand complicated nuances with the Means Test and will ensure that all angles are looked when making a final determination.
THE CHAPTER 7 PROCESS
To begin a Chapter 7 Bankruptcy, you must file a series of paperwork with your local Bankruptcy Court. If you are married, you and your spouse may choose to file jointly but are under no requirement to. By filing jointly, you are only required to submit one set of paperwork and pay only one court filing fee. Once the first form, the Voluntary Bankruptcy Petition, has been filed, your case will formally begin and the Automatic Stay will be enacted. This will prevent creditors from taking any further actions against you and allow you to continue on your road to recovery. The rest of your paperwork summarizes all of your assets, liabilities, current income, monthly payments, contracts with other parties, and all other financial matters. The Court will appoint a Trustee to your case who will be provided with a copy of the paperwork. The Trustee’s role is designed to manage your case from this point forward.
Modesto Bankruptcy Attorneys has been practicing Chapter 7 Bankruptcy in this specific district, Eastern District of California, dating back to 2010 and will use that experience to provide you the best outcome possible.
Once the initial petition has been filed, pursuant to Bankruptcy Code 11 U.S.C. § 521, you are required to provide certain additional documents to the Chapter 7 Trustee. Our office has extensive knowledge of what documents are required and will streamline the process to complete this on your behalf.
Moreover, the Trustee will hold a Meeting of Creditors within 21 to 40 days of the original filing. This Meeting of Creditors is also often referred to as the 341 Hearing. Even though the name suggests that it will be a meeting filled with your creditors, it is actually rare that creditors even attend. The goal of this meeting is to confirm that all of the information you have provided to the Court is accurate and to determine whether any assets will need to be liquidated. Moreover, to help verify the paperwork and your testimony, the Trustee and your creditors (if present) have the opportunity to ask you questions related to your financial matters, which you are required to answer truthfully under oath. If the Trustee does not feel any more information is needed, the Meeting will be conducted and your filing will continue until you have been awarded a discharge upon completion of all requirements.
After the Trustee has concluded the Meeting of Creditors, the liquidation process would begin if your case is determined to be an asset case. Through this, the Trustee will sell all unexempt property possessed by the debtor in an attempt to pay off any outstanding debts. However, it is more common for clients of Modesto Bankruptcy Attorneys to be considered no-asset cases. In these cases, the Trustee will allow the debtor to keep all of his or her assets and will not liquidate anything.
Generally within 3-5 months of the initial filing, the Court will issue a discharge signifying the second-to-last step of your Chapter 7 case. Specific unsecured debts, such as credit card debt, personal loans, deficiency balances, old lease agreements, and medical bills, will be eliminated. Creditors will no longer be able to continue collection attempts against you and will be notified of your discharge. You will continue to be responsible for any non-dischargeable debts, such as child support, student loans, most taxes, or fees resulting from a crime. Additionally, any cosigners who have not filed for relief will continue to be financially responsible, even if you have had the debt discharged for yourself. If the Court finds that you have provided false information or failed to disclose certain information, they may deny your discharge. As long as you cooperate with the Court’s orders, you are likely to receive your discharge within approximately 60-90 days after the Meeting of Creditors has occurred. The Court holds the power to revoke a discharge at any point after the case has concluded if any fraudulent activity has been found to have occurred.
The final step in the Chapter 7 process generally occurs very quickly after the discharge has been entered. The court will officially close the case by issuing a Final Decree. This closes your case and confirms that there is nothing left to do in your Chapter 7 case.
A Chapter 7 filing requires for all property and assets to be sold through a liquidation process in order to repay any outstanding debts, unless the property/assets are exempt. You have the opportunity to list some property as exempt on Schedule C and prevent it from being liquidated. Property considered to be exempt varies from the Federal level to state-by-state. In California, you have the opportunity to choose between using 703 Exemptions or 704 Exemptions. Moreover, you must have lived in California for the prior 2 years to be eligible for these exemptions.
703 Exemptions are only applicable in Bankruptcy Law and cannot be used in other situations where you are at risk of losing your property to creditors.
Examples of 703 Exemptions include:
- Motor Vehicle Exemption (703.140(b)(2))
You may list up to $5,850 of vehicle coverage as exempt.
- Clothing, Household Necessities, Pets, Personal Items, Crops (703.140(b)(3))
For each item listed, up to $725 per item may be protected.
- Jewelry (703.140(b)(4))
Up to $1,750 worth of jewelry may be listed as exempt.
- Wildcard Exemption (703.140(b)(5))
In contrast to 704 Exemptions, 703 Exemptions allow for up to $28,350.00 to be used towards listing any property of your choice as exempt. The 704 Exemptions do not provide this exemption.
- Materials Required for Business (703.140(b)(6))
If your business requires any specific tools or materials, you may be able to file up to $8,725 worth as exempt.
- Health Aids Necessary for Survival (703.140(b)(9))
- Public Benefits (703.140(b)(10))
This includes any government-issued benefits, such as unemployment or Social Security, in addition to alimony and child support, if applicable.
- Personal Injury & Wrongful Death Recovery (703.140(b)(11))
- Pensions (including tax-exempt retirement accounts)
Examples of 704 Exemptions include the following:
- Motor Vehicle Exemption (704.010)
California allows for the protection of motor vehicles and auto insurance coverage for up to $3,325, regardless of whether you are a single filer or married.
- Clothing, Food, Home Necessities (704.020)
- Home Improvement (704.030)
Up to $3,500 of materials for repairing or renovating a home may be filed as exempt.
- Jewelry, Family Heirlooms, Artwork (704.040)
Up to $8,725 of family heirlooms, jewelry, and artwork may be listed as exempt.
- Health Aids Necessary for Survival (704.050)
- Materials Required for Occupation (704.060)
If your job requires any specific tools or materials, you may be able to file up to $8,725 worth as exempt.
- Wages (704.070)
For wages earned within 30 days of your bankruptcy filing, up to 75% of the amount earned may be filed as exempt.
- Social Security and Other Government Payments (704.080)
For single filers, up to $3,500 of Social Security payments and $1,750 of other benefits may be considered exempt. For married couples, these amounts may be up to $5,250 of Social Security and $2,600 of other benefits. Examples of public benefits include unemployment, workers’ compensation, and financial aid.
- Personal Injury & Wrongful Death Recovery (140 & 704.150)
This includes tax-exempt accounts, such as 401(k) retirement accounts, retirement benefits, and pensions earned through public or county employment.
- Homestead Exemption (704.730)
Can be used on a single-family home or even a mobile home. The amount of protection varies depending on your situation. For example, if you are a single filer, live at the home by yourself, and are not disabled, up to $75,000 of the equity may be protected, whereas if you have a family and are the only property owner, up to $100,000 worth of the equity may be protected. If you are either over the age of 65 or are physically or mentally disabled, you can protect up to $175,000 of equity.
While the goal of exemption codes is to allow you to retain some of your assets and property during your bankruptcy filing, certain assets cannot be listed as exempt and may be liquidated by the Trustee. These assets will be used to clear any outstanding balances. Our goal at Modesto Bankruptcy is always to protect all assets belonging to the person filing.
HOW MUCH WILL IT COST TO FILE A CHAPTER 7?
Filing for bankruptcy relief is not free. In addition to attorney fees, which vary depending on the facts of your case, the Court requires an initial filing fee of $245, in addition to a $75 administrative fee and $15 trustee charge. These fees must be paid to the Court Clerk upon filing or under an installment agreement post-filing. If paid post-filing, all four installments must be paid within 120 days of the initial filing. If you fail to comply and pay the Court's fees, your case may be dismissed as a result. In certain situations, the Court may waive the fees. For example, if your income is 150% lower than the poverty level, the Court may not require you to make payments.
Moreover, the credit counseling course that you are required to take pre-filing could cost you $10-$25. You will also need to complete a post-filing course, called a personal financial management course, will also run approximately $10-$25.
HOW CAN WE HELP?
If you are behind on debts owed to creditors, contact Modesto Bankruptcy Attorneys today to schedule free consultation. By speaking with us, we will analyze your situation to determine what your best option is. With our extensive knowledge of the Bankruptcy Code, we will be able to apply it to your best scenario.
We help clients in the following areas: Modesto, Stockton, Turlock, Ceres, Empire, Escalon, Hughson, Lathrop, Linden, Manteca, Oakdale, Patterson, Ripon, Riverbank, Salida, Tracy, Waterford.