WHAT IS CHAPTER 7 BANKRUPTCY?

In Chapter 7, a business or individual debtor obtains a discharge of all debts. A discharge is a court order releasing the debtor from his or her debts. In other words, the debt is wiped out and the debtor no longer owes the creditor any money.  A Bankruptcy Trustee [appointed by the court] administers the case and determines if the debtor has assets to pay creditors or if the debtor has no assets to pay creditors.

WHAT YOU GET TO KEEP IN CHAPTER 7

An individual debtor or a business debtor operating as a “sole proprietor” usually does not have assets that the trustee liquidates because they are “exempt” under state law. In California, exemptions of assets are provided by two sets of statutes: California Code of Civil Procedure Section 703.140(a) and Code of Civil Procedure Section 704.010 (and following sections).

The trustee in charge of your bankruptcy case will sell off your assets which are not exempt. The tabulation of your exemptions obviously should be made prior to bankruptcy filing by an attorney capable of applying the California statutes on exemptions to your assets. This is an integral part of the bankruptcy planning process. Make a mistake in tabulating your California exemptions and you may lose your residence, car, bank accounts, etc.

In general, you may keep your home and car in Chapter 7 bankruptcy if you wish to do so and you are current on your monthly finance payments.  A Chapter 7 debtor’s discharge will be denied if the debtor received a Chapter 7 or 11 discharge in a previous case filed within 8 years of the current case.

NEW BANKRUPTCY LAW

The new bankruptcy law imposes the additional requirement that you must now obtain a briefing from an approved nonprofit credit counseling agency within 180 days of your bankruptcy filing.

Under the new bankruptcy law, there are two levels of qualification. First, there is the “means test” (based upon gross income). The individual (and or his/her family) must not have gross income (computed for the most recent 6-month period) over the median income of the state of residence as specified in the census data.

If that individual earns more gross annual income than the census data from the state that he or she lives, then he or she cannot maintain sufficient current net monthly income (when taking into account federal and local guidelines for allowable expenses) to pay creditors a specified amount of money over five years.

As part of the bankruptcy planning process, the Law Offices of Keith F. Carr can compute the appropriate figures and give you a legal opinion as to your compliance with the new bankruptcy law. How are you going to determine your own compliance under bankruptcy law? Do you trust a paralegal to do this for you?