Chapter 7 Bankruptcy
By Mark J. Markus, Attorney at Law
Chapter 7 bankruptcy is the "simplest" and least expensive bankruptcy filed under and is known as a "straight liquidation."
When you file a chapter 7 case, an independent "trustee" is appointed to liquidate your non-exempt assets. What this means is that any assets that you have which are not EXEMPT under applicable state or federal laws, can be sold by the Trustee in your bankruptcy case and the money distributed to your creditors according to their priority in the bankruptcy code.
Exemptions are protections for value you have in certain assets and these exemptions vary from State to State. Currently, the exemption laws of whatever State you live in when you file your bankruptcy case are the applicable exemptions. However, after October 17, 2005, it becomes far more complicated. After that date, the applicable State exemption law will be the State where you lived for the last 2 years. If you lived in more than one State in the past 2 years, then it will be the exemption laws of whatever State you lived in for the 180 day period PRIOR to the start of the last 2 years and if you lived in more than one State during that 180 day period, then it will be the State where you lived for the greater part of that 180 days.
The ultimate purpose of filing a chapter 7 bankruptcy, and for that matter any bankruptcy chapter, is to discharge your debts. Most debts are dischargeable, but some are specifically excluded from being discharged, such as certain taxes which are less than 3 years old, alimony or child support obligations, debts incurred by fraud, embezzlement, theft, etc, and student loans (unless you can prove "undue hardship"). This is not a complete or comprehensive list of which debts are or are not dischargeable in Chapter 7, but it is intended to give the reader some idea of what can be dealt with.
Eligibility for Chapter 7 at present merely requires that you have some debts and you don't have "too much" disposable income (net income minus "necessary" expenses). After October 17, 2005, however, this analysis becomes mind-numbingly complicated. There is a means-test which is a complicated analysis using primarily Internal Revenue Service expense standards for determining what your allowable expenses are (regardless of what you actually pay). This Means Test comes into play if your income for the 6 month period prior to filing your bankruptcy case is above the median income for your area. The purpose of this test is to push more debtors into Chapter 13 bankruptcy repayment plans that they cannot really afford for 36-60 months. It will be more necessary than ever to have an experienced bankruptcy professional analyze your situation to accurately advise you on your eligibility and options for any bankruptcy.
Corporations may also file Chapter 7, although they do not receive a discharge of debts after. There may still be significant benefit to the officers of the corporation to do this, as it can relieve them of personal liability for failure to prosecute any actions the corporation may have and for the liquidation and distribution of any assets the corporation has. Plus it may deter creditors of the corporation from filing unnecessary lawsuits against the corporation in the future.
About the Author:
Mark J. Markus is a Los Angeles Bankruptcy Attorney serving bankruptcy clients in Southern California
Phone: (818) 509-1173
Website: Bankruptcy in Los Angeles
