THE “LIQUIDATION” BANKRUPTCY
Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy or straight bankruptcy. It discharges most of your debts, but you might have to liquidate or sell some of your property to pay your creditors, if the equity in property that you have an interest in is over the state exemption dollar amount. The Chapter 7 bankruptcy process usually takes about six (6) to nine (9) months to complete.
Eligibility for a Chapter 7
You won't be able to file a Chapter 7 if you already received a Chapter 7 bankruptcy discharge in the last eight (8) years. (Six (6) years if you received a discharge through a Chapter 13 bankruptcy.) If your income is above the state median income, you must complete a “Means Income” test to determine the amount of “disposable income” you have. If there isn't disposable income, then you may still be able to file a Chapter 7 bankruptcy.
Bankruptcy Forms
Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee's office. These agencies are allowed to charge a fee for their services, but they must provide counseling for free or at reduced rates if you cannot afford to pay. In addition, you must pay the filing fee and file many forms that include information about your assets, debts, monthly income and expenses.
The Automatic Stay
Filing for bankruptcy puts into effect an “automatic stay.” The automatic stay or injunction order, immediately stops most creditors from collecting debts including, garnishing wages, repossession of vehicles, mortgage foreclosure, pending lawsuits/judgments and collection phone calls.
The Bankruptcy Trustee
The court appoints a “trustee” to oversee your case. The Chapter 7 trustee is responsible for making sure that all creditors are treated fairly in the bankruptcy process. The trustee will look over the paperwork filed and determine if there is any “nonexempt” property that can be sold to pay the creditors.
In a Chapter 7, you are allowed to claim certain “exemptions” regarding property. In the state of Indiana, you may claim the following exemptions: Residence $17,600 (individual), personal property $9,350 (individual), checking or savings accounts $350.00 (individual), pre-tax retirement accounts 100% exempt. There are additional state exemptions that are applicable to certain retirement accounts.
The Creditors Meeting
A week or two after you file, you and all the creditors listed in your bankruptcy papers will receive a notice that a “creditors meeting” has been scheduled. The bankruptcy trustee runs the meeting and asks you questions about your bankruptcy and the papers that were filed. The trustee will determine if there are any assets that can be sold for the benefit of your creditors. In most Chapter 7 cases, the trustee determines that there are no assets to liquidate.
How Your Secured Debts Are Treated
A “secured debt” is one that a creditor has a lien on collateral and can take if you don't pay the debt. An example is a house or car. If you want to keep the collateral that the debt is secured on, you must be current on the account. The secured debts continue to get paid outside the bankruptcy. A creditor may ask you to “reaffirm” this secured debt. The reaffirmation agreement is a contract you sign with your creditor during the bankruptcy process that states you want to reobligate your liability on the secured note and therefore you should retain possession of the collateral.
Bankruptcy Discharge
At the end of the bankruptcy process, most of your debts are wiped out or discharged by the court. Examples of debts that would survive a Chapter 7 Bankruptcy discharge include child support, tax liability, student loans, and debts arising from fraud or misrepresentation.
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