About Chapter 7
The filing of a Chapter 7 bankruptcy permits a qualified consumer debtor to discharge all dischargeable debts. This means that the debt becomes null and void. It is therefore not collectible. To determine if you qualify for a Chapter 7 discharge, the debtor must pass a means test. The means test assists the court in determining if you can in fact pay your creditors more than a mere nominal amount. For consumers who can pay something but still choose a chapter 7, there is a presumption of abuse. If the presumption arises, then you may need to consider filing under Chapter 13. In some situations, despite the presumption arising, the court may permit the Chapter 7 filing to move forward. It is important to note here that if your debt is not primarily consumer (i.e., business related) you don’t have to pass the means test to file chapter 7. If your debt is primarily consumer related debt, and you fail both prongs of the means test, and you still file chapter 7, your case may either be dismissed or converted to a Chapter 13 bankruptcy.
Assuming you pass the means test and you can file the chapter 7, a trustee will be appointed by the court to your case to investigate your assets. A meeting between you and the trustee will be scheduled to permit the trustee to examine you. At the meeting he or she will ask you some questions about your finances. The trustee is tasked with liquidating your assets. The trustee is limited to liquidating your non-exempt assets. These assets are sold and the net after sale and court costs and fees are paid are used to pay your creditors.
Certain types of debts are not dischargeable under Chapter 7: some taxes; debts for alimony; maintenance or support, for most student loan debts; and debts for money or credit obtained through the use of false financial statements – but only if the creditor files a complaint (also known as an adversary proceeding) to determine their dischargeability within the required time and proves their nondischargeability. However, to challenge student loans, the consumer is required to bring a lawsuit against the lender in bankruptcy court.
Another tricky debt is a car payment. The law treats automobile loans different from other secured debts. If you have a car loan when you file the chapter 7, the lender can repossess your vehicle unless you agree to reaffirm the debt. The reaffirmation of a debt that should be discharged is occasionally very painful to debtors.
The filing of a Chapter 7 petition automatically stays all actions and proceedings against the debtor and his or her property, except criminal proceedings, certain governmental proceedings, and certain actions for the collection of alimony, maintenance or support among others. The trustee or a creditor may file an objection to the granting of the debtor’s Chapter 7 discharge within a time set by the court. Finally, in order to obtain and retain a Chapter 7 discharge, the debtor must cooperate with the trustee. The most common grounds for denying a Chapter 7 discharge are the failure of the debtor to pay the filing fee in the Chapter 7 case, the failure of the debtor to obey an order of the bankruptcy court, and where it is shown that the debtor received a discharge within 8 years of the current petition.