Chapter 7 Bankruptcy FAQ

What is Chapter 7 and how does it work?
Chapter 7 is that part (or chapter) of the Bankruptcy Code that deals with liquidation. The Bankruptcy Code is that part of the federal laws that deal with bankruptcy. A person who files under Chapter 7 is called a "Debtor". In a Chapter 7 case, the debtor must turn his or her non-exempt property, if any exists, over to a Bankruptcy Trustee, who then converts the property to cash and pays the Debtor's creditors. In return, the Debtor receives a "Chapter 7 Discharge", if he or she pays the filing fee, is eligible for such a discharge, and obeys the orders and rules of the court.

What is a Chapter 7 discharge?
It is a court order releasing the Debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the Debtor is released from and does not have to pay. Some debts, however, are not dischargeable under chapter 7, and some persons are not eligible for a chapter 7 discharge.

What debts are not dischargeable under Chapter 7?
All debts of any kind or amount, including out-of-state debts, are dischargeable under chapter 7 except the debts listed below. The following is a list of the most common debts that are not dischargeable under chapter 7:

Most tax debts and debts that were incurred to pay federal tax debts.
Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement if the creditor files a complaint in the case (included here are debts for luxury goods or services and debts for cash advances made within 60 days before the case is filed).
Debts not listed on the debtor's chapter 7 forms, unless the creditor knew of the case in time to file a claim.
Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the case.
Debts for alimony, maintenance, or support and, if the creditor files a complaint in the case, certain other divorce-related debts including property settlement debts.
Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the lease.
Debts for certain fines or penalties.
Debts for educational benefits and student loans are not dischargable unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents.
Debts for personal injury or death caused by the debtor's operation of a motor vehicle while intoxicated.
Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.

What persons are not eligible for a Chapter 7 discharge?
The following persons are not eligible for a chapter 7 discharge:

A person who has been granted a discharge in a chapter 7 case filed within the last six years.
A person who has been granted a discharge in a chapter 13 case filed within the last six years, unless 70 percent or more of the unsecured claims were paid off in the chapter 13 case.
A person who files a waiver of discharge that is approved by the court in the chapter 7 case.
A person who conceals, transfers, or destroys his or her property with the intent to defraud his or her creditors or the trustee in the chapter 7 case.
A person who conceals, destroys, or falsifies records of his or her financial condition or business transactions.
A person who makes false statements or claims in the chapter 7 case, or who withholds recorded information from the trustee.
A person who fails to satisfactorily explain any loss or deficiency of his or her assets.
A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated.

What persons are eligible to file under Chapter 7?
Any person who resides in, does business in, or has property in the United States may file under chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds.

How much is the Chapter 7 filing fee and when must it be paid?
The filing fee is $200 for either a single or a joint case. If a debtor is unable to pay the filing fee when the case is filed, it may be paid in installments, with the final installment due within 120 days. The period for payment may later be extended to 180 days by the court, if there is a valid reason for doing so. The entire filing fee must ultimately be paid, however, or the case will be dismissed and the debtor will not receive a discharge. The fee charged by the debtor's attorney for handling the chapter 7 case is in addition to the filing fee.

May a husband and wife file jointly under Chapter 7?
Yes. A husband and wife may file a joint petition under chapter 7. If a joint petition is filed, only one set of bankruptcy forms is needed and only one filing fee is charged.

When should a Chapter 7 case be filed?
The answer depends on the status of each individual debtor's dischargeable debts, the nature and status of the debtor's non-exempt assets, and the actions taken or threatened to be taken by the debtor's creditors. Consultation with an attorney at our firm is highly advisable so that we may properly counsel you as to your own individual situation.

How does filing under Chapter 7 affect a person's credit rating?
It will usually worsen it, if that is possible. However, some financial institutions openly solicit business from persons who have recently filed under chapter 7, apparently because it will be at least six years before they can again file under chapter 7. If there are compelling reasons for filing under chapter 7 that are not within the debtor's control (such as an illness or an injury), some credit rating agencies may take that into account in rating the debtor's credit after filing.

May employers or governmental agencies discriminate against persons who file under Chapter 7?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under chapter 7. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses (including a driver's license), permits, student loans, and similar grants because that person has filed under chapter 7.

Does a person lose all of his or her property by filing under Chapter 7?
Usually not. Certain property is exempt and cannot be taken by creditors, unless it is encumbered by a valid mortgage or lien. A debtor is usually allowed to retain his or her unencumbered (or unsecured) exempt property in a chapter 7 case. A debtor may also be allowed to retain certain encumbered (or secured) exempt property. Depending on the law of the local state, property that is exempt in a chapter 7 case may be either property that is exempt under state law or property that is exempt under the Bankruptcy Code.

How long does a Chapter 7 case last?
A chapter 7 case begins with the filing of the case and ends with the dosing of the case by the court. If the debtor has no non-exempt assets for the trustee to collect, the case will most likely be dosed shortly after the debtor receives his or her discharge, which is usually about 4-6 months after the case is filed. If the debtor has non-exempt assets for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his or her other duties in the case. Most consumer cases with assets last about six months, but some last considerably longer.

What is the role of Hyatt Legal Services when it represents a debtor in a Chapter 7 case?
We perform the following functions in the chapter 7 case of a typical consumer debtor:

Analyze the amount and nature of the debts owed by the debtor and determine the best remedy for the debtor's financial problems.
Advise the debtor of the relief available under both chapter 7 and chapter 13 of the Bankruptcy Code, and of the advisability of proceeding under each chapter.
Assemble the information and data necessary to prepare the chapter 7 forms for filing.
Prepare the petitions, schedules, statements and other chapter 7 forms for filing with the bankruptcy court.
Assist the debtor in arranging his or her assets so as to enable the debtor to retain as many of the assets as possible after the chapter 7 case.
Filing the chapter 7 petitions, schedules, statements and other forms with the bankruptcy court, and, if necessary, notifying certain creditors of the commencement of the case.
If necessary, assisting the debtor in reaffirming certain debts, redeeming personal property, setting aside mortgages or liens against exempt property, and otherwise carrying out the matters set forth in the debtor's statement of intention.
Attending the meeting of creditors with the debtor and appearing with the debtor at any other hearings that may be held in the case.
If necessary, preparing and filing amended schedules, statements, and other documents with the bankruptcy court in order to protect the rights of the debtor.
If necessary, assisting the debtor in overcoming obstacles that may arise to the granting of a chapter 7 discharge.

The fee paid, or agreed to be paid, to an attorney representing a debtor in a chapter 7 case must be disclosed to and approved by the bankruptcy court. The court will allow the attorney to charge and collect only a reasonable fee.

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