Chapter 7 Bankruptcy is a liquidation bankruptcy meant to erase debts that can be legally erased.
The Bankruptcy Code has a special chapter – (Chapter 7), that talks about the liquidation (sale) of a debtor’s assets as well as the distribution of those assets to creditors. Not all assets are subject to liquidation. Chapter 7 affects non-exempt assets/property only.
If you live in Austin TX, and need to file for bankruptcy to discard some debts, you need to understand the rules. Here are the main categories of Chapter 7 bankruptcy rules.
There are income rules that must be met for a person to qualify to file for Chapter-7 bankruptcy. The main qualification rule revolves around income. The income of the person filing must be below or equal to the average income of filers in that state. For instance, your income must be within the required range as per the Austin TX median income guidelines.
All states have income guidelines. If your income doesn’t meet these guidelines i.e., it is above the median income guidelines in the state, you can still file if you take a means test and are found eligible for Chapter-7 bankruptcy.
Means Test Rules
Individuals who file for Chapter 7 but have income that surpasses the average income in the state must go through a means test. The purpose of this test is to prevent individuals who can repay creditors from being able to discharge their debt. Means tests check a debtor’s income and debt from previous months. If you have some substantial amount left over that can be channeled to paying creditors, you will likely fail the means test. Individuals who fail to meet the means test rule can file for another bankruptcy i.e., chapter 13 which usually results in a payment plan as opposed to discharging debt.
Who can and can’t file for Chapter 7? You can’t file for Chapter-7 bankruptcy if you have filed for bankruptcy again and had your debt discharged in the past 8 years. Also, if your debt, income, and expenses allow you to file for Chapter 13, you lose eligibility for Chapter 7. Individuals who are found guilty of attempting to defraud their creditors or bankruptcy court also lose eligibility. Chapter 7 is also reserved for individuals who agree to go for credit counseling.
Once you are eligible, there are rules for filing. As mentioned above, you must go through credit counseling before filing. The counseling also needs to be done by an approved agency. Filing fees should also be paid. To know the exact amount charged in Austin, Texas, check the DOJ website with a list of Trustee offices.
Charges aside, there are rules on providing information. You must provide your income, expenses, debt, and creditor holding information. You are also required to disclose if you have sold property recently/before filing and the exempt property you have. Exempt property may vary by state. However, furniture, cars, and clothing are generally exempt.
After filing, there are rules protecting you from being harassed by creditors, among other creditor actions like attempting to collect debt. Bankruptcy court issues an automatic stay order after you file for Chapter 7, protecting you during a bankruptcy process.
Generally, the automatic stay rules protect you from filing of liens, wage garnishment, and seizure of your personal property (i.e., car, house, bank account, etc.). An automatic stay order seizes to protect someone when the bankruptcy court has dismissed a case.
Bankruptcy courts appoint individuals known as trustees for every case. Their work is overseeing bankruptcy cases. For instance, they ensure debtors file the required documents, determine the viability of non-exempt property to pay creditors, and decide which non-exempt property is kept by a debtor.
Creditor Meeting Rules
The rules governing Chapter 7 bankruptcy procedures require trustees to meet with creditors. The meeting is meant to facilitate a review of applicable paperwork and other relevant documents. Debtors who skip creditor meetings risk having their bankruptcy cases dismissed. Debtors are also required to furnish trustees with the necessary documents ahead of a creditor meeting. The documents include a copy of recent income tax returns availed a week before the meeting.
If a debtor establishes the presence of viable non-exempt property, such property may be given up. Alternatively, debtors can provide a cash equivalent of their non-exempt property.
Rules Governing Discharge of Debt
A discharge hearing must be held after a creditor’s meeting. The bankruptcy court holds the hearing to discharge unsecured debt. Secured debt is treated differently. When a bankruptcy process begins, debtors are supposed to pay their creditors, return the property to creditors, or agree to new contracts. Chapter 7 requires debtors to repay some debt.
It’s worth noting that some debts can’t be discharged by bankruptcy. This debt includes; tax debt, child support, student loans, and debt created fraudulently. However, there are exceptions to these rules. For instance, a student loan can be discharged if it is proven that you are facing undue hardship. The same applies to tax debt if you meet the federal tax debt discharge criteria. After discharge, creditors are supposed to refrain from attempting to collect expunged debt.
While the main rules of Chapter-7 bankruptcy have been covered above, there are more rules to consider. There’s also more to Chapter 7 and bankruptcy in general.
Since bankruptcy rules can differ from state to state, the importance of seeking legal assistance from a seasoned Austin TX bankruptcy attorney can’t be overemphasized. You shouldn’t decide on bankruptcy before talking to a professional. There are many options to consider, including talking with creditors.
While filing may get rid of debt, the effects of the process are dire. Bankruptcy remains in a person’s credit history affecting their access to credit. A bad credit history can also affect a person’s access to certain opportunities. What’s more, the process is complicated, and small mistakes can be costly. Bankruptcy cases are dismissed for small mistakes.
You should talk to the best bankruptcy attorney you can find in Austin TX to ensure you make the best decision, save time and resources.
Percent Of Chapter 7 Bankruptcies That Are Dismissed