Chapter 7 Bankruptcy And Liquidation
Known as “liquidation” bankruptcy or “straight” bankruptcy, Chapter 7 is a fast-acting debt relief system that offers individuals a fresh start. This particular form of bankruptcy is attractive to individuals who suffer from large amounts of unsecured debts, such as medical bills, credit card debt, and utility expenses, as a large majority of these debts are forgiven as a result of filing.
Furthermore, filing for bankruptcy triggers an automatic stay, putting a freeze on your debt collectors and giving you some time to recover from the stress and harassing phone calls that follow missed payments.
However, Chapter 7 is not the right kind of bankruptcy for every individual. Not everyone qualifies and, if they do, there are very real and lasting implications to your credit report that you must consider before filing.
Below, find our guide to the core concepts of Chapter 7 to decide if this might be the path for you.
Before you File: Credit Counseling
Another difference between Chapter 7 cases and Chapter 13 bankruptcy are the pre-filing requirements. Most notably is the requirement of speaking to an approved credit counselor.
Because Chapter 7 filing is a very direct form of debt reduction which has a lasting negative impact on your credit report and creditworthiness, meeting with a credit counselor could potentially help clients see other, and less drastic, ways of managing their debt.
In 2005, bankruptcy law changed to include a Means Test for individuals looking to file for Chapter 7 in Ohio. This Means Test is a way to compare your current income to the median household income of similarly sized families. If you are below this median income level, then you will qualify for Chapter 7.
While you can find several online resources to calculate whether or not you will pass the test, understand that these online sources are not always representative of reality. This is because when you begin to calculate your income, there are many different categories you must factor in, such as pension plans, alimony, unemployment benefits, and acceptable expenses. As median income rates shift naturally over time, your Means Test becomes a moving target adding yet another factor to consider when filing.
As such, it is best to have a bankruptcy attorney factor in all possible income and expenses to ensure that your possibility of passing is as high as possible.
The 341 Meeting of Creditors
In Chapter 7 claims, the 341 meeting is where you first meet the bankruptcy trustee who will be working with you. The meeting is an event, normally taking place in the bankruptcy Court, where you are asked a series of questions which you must answer honestly and under the penalty of perjury.
At the meeting, your trustee will verify your identity and begin asking you a series of questions. These questions help confirm that you are not acting fraudulently and include requests to recount various assets, savings, or other financial obligations.
Working with an attorney during this time can help you prepare for some of the common questions that arise.
We have all heard the horror stories of individuals filing for Chapter 7 and suffering the trauma of losing most of their personal belongings, vehicle, and home. While this indeed happens to some, it's not necessarily a common outcome.
In the bankruptcy process individuals have a certain allowance for exemptions. These are the assets that are taken into account during the filing process-- assets you are allowed to keep. For many, this is the lifeline that prevents them from losing valuable items and potentially their place of residence.
Ohio residents filing for Chapter 7 draw from the same state-level exemptions in their bankruptcy case as individuals filing for Chapter 13. A representation of exemptions in many core areas of concern are listed below:
$145,425 in home equity of you place of residence is qualified for a homestead exemption
- Personal Property
There are several divisions of personal property and each has their own exemption amount. Those which are of most concern to bankruptcy filers are the $13,400 household goods exemption, $,1,700 jewelry exemption, and the $4,000 motor vehicle exemption.
Wages are exempt, but only to a point. The current standard is that either 30 times the minimum federal hourly wage or 75% of your disposable income is exempt. Whichever is greater is the exemption that takes precedence.
In this category you will find IRAs, Roth IRAs, private pensions, and tax exempt retirement accounts such as 401(k), 403(b), and profit-sharing.
Note for couples filing jointly that both have interest in their possessions, these exemptions apply to both individuals. This process is known as “doubling” and effectively doubles the exemption amount for which your household qualifies.
Finally, even though Chapter 7 allows you to receive a discharge on most debt amounts, there are some forms of debt that are difficult, if not impossible, to remove. These are known as non-dischargeable debt and often include the following:
- Child support
- Fines owed as a result of breaking the law
- Debt resulting from an injury of death you caused by driving while intoxicated
Note that while student loans do not make this list. While they are challenging to get rid of, there are cases where proving undue hardship could potentially have them forgiven. Unfortunately, the standard for that option is high and you will need an attorney to make your case.
Bankruptcy Attorney in Cleveland Ohio
I have been on both sides of the bankruptcy process, first as someone who filed for consumer bankruptcy, and second, as a lawyer helping people just like myself regain control of their debt.
This first-hand knowledge of the bankruptcy process allowed me to give clients the resources they need to get through the bankruptcy process and know they are not alone. Contact us at 216-241-2510 to speak with a bankruptcy expert in Cleveland, Ohio.