A Chapter 7 filing under the Bankruptcy code is often referred to as a "liquidation" or a liquidating case. While liquidation might not sound ideal to most persons who want to keep their residence, automobiles, and other property, a Chapter 7 filer does not have monthly payments to pay out to a bankruptcy trustee over time, unlike in a Chapter 13 or Chapter 11 case. Most debts are dischargable in Chapter 7, excepting student loans, domestic support obligations, and recent tax debt. Chapter 7 filers enjoy immediate and permanent debt relief. Most Chapter 7 cases take about 100 days, filing to discharge.
Before you can file a Chapter 7 case, you must qualify. Qualifying means in part that you satisfy the Chapter 7 Means Test. While beyond the scope of this brief discussion, the Chapter 7 Means Test can be complicated, and just because a filer or married filers have a high income does not mean that you will not meet the Chapter 7 Means Test or not qualify. With a brief review of your income and expenses, I can tell you if you meet the Chapter 7 Means Test.
A Chapter 7 filer is entitled to keep certain property during and after the case. When a Chapter 7 case is filed, an estate is created, and a bankruptcy trustee is appointed to the case. Part of the bankruptcy trustee's duties are to collect assets which belong to the estate and which are not "exempted" by the filer. There are Federal exemptions and Michigan exemptions, and one has to chose one or the other. Federal exemptions are generally more generous, allowing joint-filers to exempt up to $45,950 in equity in a residence; $3425 per person in equity for an automobile(s); and, other exemptions such as tools of the trade and household goods. The exception to the rule that Federal exemptions are more generous is the where a person can exempt $30,000 for a residence, increasing to $45,000 if the person is over 65 or disabled. Certain qualifying retirement accounts can be exempted in nearly any amount. Part of any bankruptcy attorney's job is to make sure that the client takes full advantage of the full amount of all available exemptions.
Q. Will filing a Chapter 7 bankruptcy affect my credit score, and if so, for how long?
A. Yes. Most persons filing already have a poor credit score (or are about to). Some persons with a very poor credit score will notice a increase to the low 500s. Persons with some kind of continued installment payments after the case (such as retaining a mortgage or car loan) will have a significantly higher score in two years.
Q. How much does Chapter 7 cost?
A. The Court filing is currently $335. I charge a flat fee which varies based on the complexity of the case.
Q. Can filing a Chapter 7 case stop a foreclosure?
A. Yes, but it has to filed before the date of the Sheriff's sale. However, Chapter 7 does not allow a person in foreclosure to restructure mortgage payments. A person who needs significant time to make mortgage payments current might be a better candidate for Chapter 13 or Chapter 11.
Q. Can filing a Chapter 7 stop wage and bank garnishments?
A. Yes. Upon filing a case, all actions, including lawsuits, garnishments and levies will be immediately stopped.
Q. Who recieves notice that I filed for bankruptcy?
A. Anyone that you owe money to is listed in the bankruptcy schedules and receives notice.
Q. Will my employer or neighbors be notified that I filed a Chapter 7?
A. No, not unless you owe them money. Bankruptcy filings are often published in a county's legal news, such as the Washtenaw County Legal News, but these newspapers are read mostly only read by debt collectors and legal professionals.
Q. What kinds of things can get me in trouble in bankruptcy?
A. Not disclosing all assets and income. Transferring assets to another person before the bankruptcy and not disclosing the transfer. Using credit cards for luxury items or gambling knowing that you are going to file for bankruptcy. These are some of the larger issues that can cause a client significant trouble.