A Chapter 7 is the simplest type of bankruptcy because it does not require a plan to repay creditors like Chapter 13 and Chapter 11. If there are no complications in a Chapter 7 the case can be completed and you can receive your discharge in as little as a few months from the filing date. As with all chapters, a Chapter 7 bankruptcy prevents creditors from proceeding against you once the bankruptcy petition is filed. For example, the filing of a bankruptcy, Chapter 7 or otherwise, will stop all lawsuits and/or foreclosure actions from moving forward.
Qualifying for Chapter 7 – The Means Test
The key to qualifying for a Chapter 7 bankruptcy is to prove that you do not have sufficient income to make payments to your creditors. In order to proceed in Chapter 7 you must pass the “means test”, which determines whether you have any disposable income to pay creditors by looking at your monthly income and expenses. Once this is demonstrated and you decide Chapter 7 is right for you, it is important that you consult with a lawyer to make sure that you utilize the Bankruptcy Code provisions and Virginia statutes to exempt as much property as possible from the bankruptcy liquidation. This will allow you to obtain a discharge of all debts yet keep some if not all of your property.
The Bankruptcy Stay
There is also an “automatic stay” that goes into effect as soon as you file your bankruptcy case. The stay bars all creditors from proceeding against you with collection actions during the pendency of your bankruptcy case. The only way that creditors can continue with collection actions is to file a Motion for Relief from Stay in the bankruptcy court and obtain court approval to move forward with their action. The stay is important because it goes into effect automatically and immediately when your case is filed so it buys you time to come up with a plan to deal with your debt. This will allow you to focus on your bankruptcy case and work with your bankruptcy attorney without having to be distracted by a host of other matters.
Assets and Exemptions in Chapter 7
In a Chapter 7 bankruptcy, or liquidation proceeding, a trustee will be appointed to your case to review the value of your assets and see if they can sell any of your non -exempt assets for the benefit of your creditors. An individual debtor is allowed to keep certain exempt property, but to the extent there is nonexempt property of value, the chapter 7 trustee can sell it. The proceeds generated from the liquidation of assets by the bankruptcy trustee will be paid to your creditors who have filed proofs of claim in your bankruptcy case. It is important to understand that you can exempt significant property from this process and therefore retain these exempt assets. Any security interests which creditors have in your property, such as real estate mortgages or a lien on your car, will remain in place and are enforceable against the collateral (the property that is used to secure the debt) even after you have received a discharge. Therefore, even though you have no legal obligation to repay the debt, if you want to retain the property, you will have to pay whatever debt is owed on it.
What Is A Discharge?
A discharge of your debts in bankruptcy means that all of your pre-petition debts (those that existed prior to the date of your filing) are eliminated. Once you obtain a discharge, you will have no legal liability or duty to repay your debts and creditors can no longer pursue collection of these debts from you. If they do continue to pursue collection, this is a violation of federal law and will subject them to sanctions. There are a few ways that a debtor can be prevented from obtaining a discharge, one of which is if there is a finding that the Chapter 7 filing was abusive. The key to preventing the Trustee from pursuing an abusive filing is to be upfront about your financial status and to provide all necessary information in the bankruptcy schedules.