Of all the bankruptcy chapters, Chapter 7 is perhaps the easiest and simplest. It is sometimes referred to as “complete bankruptcy” or “liquidation bankruptcy” (although something is rarely liquidated). It does not involve any repayment plan; it simply discharges (eliminates the obligation to pay) any debt that is dischargeable, and what is not dischargeable is left to the debtor. For that reason, Chapter 7 provides relief to those who simply need to eliminate credit card, medical or unsecured personal loan debt.
Chapter 7 Bankruptcy Basics
Not everyone is eligible for Chapter 7 bankruptcy. To qualify, your household income must be below the Texas median income for a family of your size. For example, for a family of 4, household income before taxes must be less than $89,196.
The graph of median household income accounts for all sources of income except income received from pandemic assistance and social security income. If your household’s gross income is above average (or “above average”), you may still qualify for a Chapter 7 by deducting certain expenses.
In this case, your lawyer will perform a complex calculation, following certain laws and determinations about the expenses that can be deducted. If Chapter 7 is still out of reach, Chapter 13 may be a good solution in your case. It is important to discuss with your attorney all of your options for debt relief.
We have already said that it is rare for anything to be liquidated in a Chapter 7 bankruptcy. The reason for this is a part of the bankruptcy code called “exemptions”. The exemptions are like umbrellas, made to protect your belongings from liquidation. The exemptions are generous and apply to all your belongings: cars, household goods, real estate, etc.
In Texas, we can choose between federal and Texas exemptions. Texas exemptions are more generous for real estate, but federal exemptions are more generous for bank account balances. Your attorney will do a complete analysis to determine which exemptions are best for your case. If anything in your case needs to be liquidated, your attorney will likely be able to tell you prior to filing if any of your assets are at risk.
Your Chapter 7 bankruptcy will last approximately 3 months (90 days). You will present your case with the assistance of your attorney. When you file, you will have listed all of your assets (however small) and all of your debts, all of them. Sometimes people want to stick to one credit card. However, under bankruptcy law, you cannot “extol” what you keep and what you discharge.
In fact, if you do not inform your attorney about a credit card, it is very likely that the creditor will find out about the bankruptcy filing anyway and disable all collection capabilities. Approximately one month after your filing, there will be a hearing, called a “341 Hearing” or “Meeting of Creditors”. This hearing is conducted by the Trustee in your case, and is the time when you swear under oath to the accuracy of your bankruptcy petition and schedules. Creditors rarely appear in consumer cases, but it is called a Meeting of Creditors because creditors are invited to appear and ask questions of the debtor under oath.
You can expect a discharge approximately 60 days after the 341 Hearing. At that time, all dischargeable debts are discharged and you are no longer obligated to pay them. Talk to your attorney about what debts are discharged and what debts you will have to continue to pay. With three (3) exceptions, the ownership of the property you acquire after the filing date of the original petition will not be affected by the previously filed bankruptcy petition or the claims of your creditors. Exceptions are as follows:
- Assets inherited within 180 days (6 months) after the filing of the bankruptcy petition.
- Life insurance proceeds or death benefit proceeds purchased within 180 days (6 months) of the filing of the claim.
- Property interests acquired through a property settlement or divorce decree within 180 days (6 months) after the filing of the petition.
If you learn that you are entitled to receive any of these types of assets within 6 months of filing bankruptcy, it is essential that you tell your attorney immediately.
Chapter 7 of the Bankruptcy Act is intended to provide relief to individuals who are burdened by consumer debt. If you are unable to make ends meet, or reach your financial goals, under the weight of your debts, call our specialized attorneys to schedule a case evaluation, where we can determine if bankruptcy can help you.
In case you have additional questions about the potential benefits of Chapter 7 Bankruptcy, or about your specific case, you may contact us at (855) 502-0555. After a short 10 minute evaluation of your case via telephone, we will let you know what options you have. You can also follow us on our social networks so you won’t miss our weekly broadcasts via Facebook, YouTube and Twitch.