Chapter 7 Bankruptcy


How Chapter 7 Bankruptcy Works

Chapter 7 is a liquidation bankruptcy and the court appoints a trustee to oversee your case.  When you file the petition, ownership of your property is automatically transferred to an estate under the control of the trustee, whose job is to sell your property, then use the money to pay your creditors that filed proofs of claim.  You will be given the opportunity to buy back the property from the trustee at reasonable prices before it is offered for public sale.  Whatever debts that aren’t paid are discharged and the creditor can never attempt to collect the debt from you2

Exempt Property

The trustee can't sell all of your property.  The law considers some property to be necessary for you to keep in order for you to get your fresh start after bankruptcy.  In Louisiana your exemptions include the first $35,000 in equity in a home owned by you, $7,500 in equity of one car driven by someone in your household, household furnishings, kitchen appliances and utensils, clothing, and tools of your trade, among other things.  Certain qualified retirement accounts are also exempt.  I will perform a detailed analysis of your property to maximize the exemptions allowed by law.

Who Can File a Chapter 7 Bankruptcy

While persons, corporations, and other legal entities can file Ch. 7, this will focus on persons.  An individual or a married couple can file a Ch. 7 case if their household income is low enough, or their debts are mostly business related.  I will gather income and living expense information from you and do a “means test” calculation to determine if you can file a Ch. 7.

Who Should File a Chapter 7 Bankruptcy

If you are overwhelmed with debt and don’t have enough income or money to stay current with your bills, you should consider bankruptcy.  If you are current on cars, your home, and other secured debt for property you want to keep, Ch. 7 will discharge most other debts and allow you to reaffirm debts on those items you want to keep.  However, Ch. 7 does not give you additional time to catch up if you are behind on debts like house and cars.

Alternative to Chapter 7

If you do not qualify to file a Ch. 7 under the means test, or you need the ability to catch up on payments on your cars, house and other debt that you wish to keep, most individuals and married couples can file a case under Ch. 13.  

Your Discharge

The bankruptcy court will automatically grant a discharge unless someone has a basis to object and files an objection to discharge within the time limit set by the court. The discharge prevents creditors from attempting to collect any debt against you personally if it arose prior to the filing of the bankruptcy.

Some debts, including certain taxes and child or spousal support obligations aren't dischargeable. They'll survive the Chapter 7 proceedings and you'll still owe them.

Your discharge does not protect someone who signed on the loan or debt with you, unless it is your spouse and you are under the community property laws of Louisiana.