The MLG Blog

Chapter 7 bankruptcy basics

October 12, 2009

Chapter 7 Liquidation
A chapter 7 case is a liquidation case, your assets and debts will be gathered and listed on your petition and the trustee will be appointed and be charged with paying your creditors with your assets if possible

Chapter 7 places limits upon who can file based on the income of the debtor
If the debts are primarily consumer debt the debtor must pass a “means-test” before they are allowed to file a chapter 7
The test takes in to account monthly income and expenses and number of dependants in the family
If the debtor fails the means test they may be forced in to a chapter 13 bankruptcy
If the debts are primarily business debt the debtor does not have to pass a means test and generally any amount of debt can be discharged in chapter 7

Exemptions are applied to specific assets allowing the debtor to keep some property though the bankruptcy process
Please refer to the exemption list enclosed with this letter for all of the exemptions available to debtors

If an asset falls within one of the exemption categories and the value of that asset is below the exemption amount the debtor keeps the asset
If the value of the asset is above the exemption amount the debtor has 2 options
1) Pay the trustee for the amount over the exemption
2) Surrender the asset. The asset will then be sold and the debtor will get the exemption amount in cash from the sale of the asset.

After the petition is filed a “first meeting of creditors” is scheduled. This is commonly referred to as a 341 meeting because of bankruptcy code section 341 which mandates that this meeting take place.
The meeting is scheduled for a date around 30 days from when the petition was filed
The trustee puts the debtor under oath and asks questions relating to the petition that was filed
Generally these meetings are quick and easy and are over in about 5 minutes

Overall chapter 7 is more attractive to most debtors as they receive a discharge of the debts that are unpayable much quicker than chapter 11 or 13. If a business owner needs to file bankruptcy and does not wish to continue the business it is usually advisable to close the business down and file a chapter 7 for the individual.
Once a chapter 7 discharge has been ordered the debtor may not file another chapter 7 for eight years. However chapter 11 and 13 bankruptcies are usually available for a debtor that has filed a chapter 7 within the previous eight years
The cost of a chapter 7 varies depending upon the debtors situation, but as a very general rule chapter 7 bankruptcies will cost the debtor anywhere from $1500 to $3000 with a $299 filing fee. It is very important to remember that your costs may vary from this range


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