Chapter 7 Bankruptcy

The object of all bankruptcies is to obtain a discharge from your debts. Certain debts cannot be discharged in a Chapter 7 bankruptcy, such as alimony, child support, fraudulent debts, certain taxes, student loans, and certain items charged. Prior to filing for Chapter 7 or any chapter of the Bankruptcy Code, debtors are required to receive credit counseling from an approved credit-counseling agency within 180 days before filing.  A credit counseling certificate must be filed with the bankruptcy court. You must go to second credit counseling session (Financial Management Class) before receiving a discharge from the bankruptcy court.

Chapter 7 bankruptcy erases all debt that is legally capable of discharge.  Chapter 7 bankruptcy rules determine who qualifies, how to file, and what debt is eligible for discharge. There is no minimum amount of debt necessary to file for Chapter 7 bankruptcy. To be eligible for relief under Chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, a corporation or other business entity. A husband and wife may file a joint petition or individual petitions. One spouse can even file individually, without the other spouse. The required income documentation in these situations will be discussed with you.

An individual cannot file under Chapter 7 or any other chapter, if, during the preceding 180 days: (1) A prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court; or (2) The debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.

Under Chapter 7 bankruptcy rules, a debtor is ineligible if any of the following circumstances occurred:

  • A previous debt was discharged within the past eight years under Chapter 7;
  • A previous debt was discharged within the past six years under Chapter 13;
  • The debtor’s income, expenses and debt would allow for a Chapter 13 filing;
  • The debtor attempted to defraud creditors or the bankruptcy court; or
  • The debtor failed to attend credit counseling.

Prior to filing, pursuant to the Bankruptcy Code, debtors are required to furnish certain documentation including evidence of payment from employers, and all other income received 60 days before filing.  In order to qualify under income guidelines, a filer’s income must be equal to or fall below the median family income for Kansas.   If the filer’s family gross income is above the Kansas median, the bankruptcy court will require the filer to take a “means test” in order to establish eligibility for Chapter 7. The means test was designed to prevent filers with the ability to repay creditors from discharging debt.

 

Debtors who earn less than the median family income and will continue earning less than the median family income for the foreseeable future are eligible to file a Chapter 7 bankruptcy if they choose. We will run your gross pay from all sources for the six (6) months’ prior to filing and advise you if you are below the median family income. If your income is above the Kansas median family income, the Bankruptcy Code requires us to run a “means test” of your income and expenses. The means test is a complicated analysis to see if, after certain allowed expenses you have money left over (disposable income) to pay a portion of your debt to unsecured creditors. If you do have sufficient disposable income you must file a Chapter 13 bankruptcy which entails a plan to pay creditors over a 60 month period.

In all bankruptcies, debtors are required to provide information about debt, expenditures, property and the sale of prior property.

Exempt Property and The Automatic Stay

You are entitled to keep (exempt) some of your property. The attorneys at Arst & Arst, P.A. will discuss the Kansas exemptions with you what property is exempt in your case.  Upon filing your bankruptcy case, an “Automatic Stay” order goes into effect that prevents your creditors from proceeding to collect their debt without permission from the bankruptcy court. Some debts cannot be discharged. Your attorney will discuss this with you.

The Bankruptcy Trustee

A trustee will be appointed to administer your bankruptcy estate. The bankruptcy is a person who is appointed by the United States Department of Justice or in some cases, by the creditors involved in a bankruptcy case. The bankruptcy trustee does not represent you or your creditors. The trustee represents the bankruptcy estate. The trustee’s job is to obtain as much as possible for your unsecured creditors. In a Chapter 7 bankruptcy, the trustee is mostly interested in what you own and what property you claim as exempt. It is the trustee’s job to evaluate the nonexempt property, convert it to cash, and use that money to pay creditors who have valid claims.

Reaffirmation

You may wish keep certain secured debts such as your car or your furniture or house by reaffirming those debts. To do so, you must sign a voluntary “Reaffirmation Agreement”.  If you decide that you want to keep your house or your car or your furniture, and you reaffirm the debt, that debt is not discharged and you must continue to pay it as you did before you filed bankruptcy. Most reaffirmation agreements must be approved by the bankruptcy court.

Reaffirmation agreements can be set aside during the earlier of 60 days after the agreement is filed with the Court, or upon the Court’s issuance of an Order of Discharge.

The Means Test

If your income is above Kansas’s median income the Bankruptcy Code requires a means test, which is a complicated analysis of income and expenses to determine if you have disposable income to pay unsecured creditors.  If, after allowed deductions you’re below the median family income you may file a Chapter 7 bankruptcy.  If you are still above the median family income you will have to file a Chapter 13 bankruptcy. The means test determines the amount of disposable income you have to pay unsecured creditors and also determines if a Chapter 13 bankruptcy plan is feasible for you.