The Basics of a Consumer Chapter 7 Bankruptcy, part 2 of 3Posted by William on Mar 1, 2011 in Bankruptcy, Consumer Debt, Debt Collections Defense, News | 0 comments
So now that you know what a Chapter 7 bankruptcy is and what it does, invariably the next question on the list is what happens once it is filed? Once your case is filed, it will be assigned to a bankruptcy court trustee and the bankruptcy court will issue an “automatic stay”, which basically requires all lawsuits and collection proceedings against you to stop while your bankruptcy petition is pending.
The bankruptcy court trustee is an attorney who is appointed to your case (who is separate and apart from the judge handling your case) and the trustee is charged with reviewing your petition and all other paperwork to find assets. The trustee will conduct what is called a “341a Meeting of Creditors”. The judge assigned to your case will not be present at this 341a meeting. Instead, the meeting is held at the trustee’s office. You are required to be present and answer questions.
At this 341a meeting the trustee and any creditors, who show up, get to ask you questions about your filings and finances. However, for most individuals, no creditors show up and the meeting with the trustee lasts less than five minutes. The purpose of this meeting is to allow the trustee and your creditors an opportunity to verify that everything you stated in your petition is true and that there are not any non-exempt assets that could be taken and sold in hopes of paying some money to your creditors. After this meeting, there is little else for you to do but wait for your Notice of Discharge, which will come to you in the mail.
You may be thinking that a bankruptcy where you get to unilaterally discharge your debt is simply too good to be true! Well, it is. There are a few kinks we need to tell you about.
First, not everyone is eligible for a Chapter 7 bankruptcy. Basically, your income must be below a specified amount in order for you to be eligible for a Chapter 7 bankruptcy. However, the issue of qualification is much more complicated and the court refers to it as the “Means Test”. Your attorney can review your finances and determine whether or not you and your family would be eligible for a Chapter 7 bankruptcy. For those who are not eligible for a Chapter 7 bankruptcy will usually be stuck filing a Chapter 13 bankruptcy. Many times, if after you have filed your petition, the court determines that you are not eligible for a Chapter 7 bankruptcy, it will automatically convert your bankruptcy petition to a Chapter 13 bankruptcy.
Second, in a Chapter 7 bankruptcy, you are agreeing to give up certain property and, in exchange, the court will discharge your debt. However, fear not! Each state has a list of exemptions that allow you and your family get to keep certain exempt property, which include various categories of property worth a certain amount. For most people, nearly all of their property will be deemed “exempt.” This means that you get to file for bankruptcy, keep all your property, and still have your debt discharged.
In on the off chance, you do own some property that will not be deemed “exempt,” the bankruptcy trustee may gather all the assets you have that are not “exempt” and have the property sold at an auction. The trustee will retain all the proceeds from the property sold and distribute the proceeds to your creditors in the order of priority assigned to each debt.
To be continued …
Don’t forget to check out our other blogs on this topic.
An attorney can help you determine what is and what is not exempt property and help you maximize the exemptions provided under California law. If you are interested in exploring your bankruptcy options, call a Los Angeles Bankruptcy Attorney today for a free consultation.
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