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Dec 04 Firm Articles

Chapter 7 Bankruptcy Frequently Asked Questions

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If you have questions about how Chapter 7 bankruptcy works in San Diego, you are not alone. The attorneys at Higgs Fletcher & Mack have put together this list of frequently asked questions to help guide you through the entire process.

What is Chapter 7 Bankruptcy

The three primary bankruptcy Chapters are Chapter 7, Chapter 11 and Chapter 13. Chapter 13 is an individual consumer reorganization that requires payment to creditors through a payment plan over a three to five year period. Chapter 11 is a larger scale reorganization for business (and individuals whose debts are too high for Chapter 13) that also requires payment to creditors through a payment plan. Unlike Chapter 13 and 11, Chapter 7 is a liquidation proceeding whereby Debtors that qualify liquidate there non-exempt assets in exchange for a “discharge” of most types of debt.

Who Qualifies for Chapter 7 Bankruptcy Discharge

A Chapter 7 discharge is a court order that excuses a debtor from having to pay most types of debt. A Chapter 7 discharge is only for qualifying individuals who no longer have the ability to pay their bills and are in need of a fresh start.

Can Businesses Discharge their Debt with Chapter 7

No. A business filing for Chapter 7 only liquidates its assets and does not receive a discharge like an individual does. Nevertheless, there are advantages to a business liquidating in Chapter 7 such as the automatic stay that prevents creditors from racing to collect against the debtor’s remaining assets, the avoidance of multiple suits in multiple courts and an orderly liquidation conducted by a Chapter 7 Trustee.

How does Chapter 7 Bankruptcy in San Diego Work

Bankruptcy under Chapter 7 for individuals and businesses alike starts with the filing of a bankruptcy petition with the court. The debtor must also file the required paperwork including:

  • schedules of assets and liabilities
  • monthly income
  • monthly expenses
  • a statement of financial affairs

Individual debtors may claim certain of their assets as exempt thereby protecting those assets from the bankruptcy trustee and creditors. Business debtors shut their doors and turn over the keys to the bankruptcy trustee.

Can Bill Collectors still contact me when I file for Chapter 7

The act of filing a bankruptcy petition causes the automatic stay to immediately go into effect thereby staying or preventing creditors from taking any further action to collect on most types of debt without a court order. There are limited exceptions to the automatic stay such as collecting a domestic support obligation. But for the most part any collection action such as lawsuits, eviction proceedings, foreclosures and harassing phone calls all stop once the case is filed.

Who is the Chapter 7 Trustee

Upon filing, a Chapter 7 Trustee is appointed to oversee the case. One of the Trustee’s jobs is to preside over the creditor’s meeting. The creditor’s meeting takes place approximately 30 days after the bankruptcy case is filed. That meeting is open to creditors and parties in interest who have a limited opportunity to examine the individual debtor or the business debtor’s representative. Another job of the Chapter 7 Trustee is to liquidate non-exempt assets of value. If there are no assets to distribute, the Trustee will file a report of no distribution. If there are assets that can be liquidated to make a meaningful distribution to creditors, the Trustee will notify creditors who will then have the opportunity to file claims and participate in a distribution.

How long does it take for Chapter 7 Bankruptcy to take Effect

In most cases, the bankruptcy clerk issues a discharge that is mailed to the individual debtor with notice of the discharge mailed to the listed creditors approximately 60 days after the creditor’s meeting. The discharge releases the individual debtor from virtually all of the pre-bankruptcy debts owed by the debtor. The automatic stay is replaced by a discharge injunction that prevents creditors from taking any action against the individual debtor to collect discharged debts and to collect against property claimed as exempt.

Can a Creditor challenge the Chapter 7 Discharge

A creditor can challenge the individual debtor’s discharge in two separate ways: (i) file a complaint under Bankruptcy Code section 523 asking the bankruptcy court to determine that the creditor’s specific claim cannot be discharged because the debtor is alleged to have committed some wrongdoing while incurring the debt such as submitting a fraudulent financial statement when seeking a loan; and/or (ii) file a complaint under Bankruptcy Code section 727 asking the bankruptcy court to block the debtor’s discharge completely because the debtor is alleged to committed some wrongdoing during the bankruptcy process such as lying under oath. A creditor may pursue one or both of these options but must do so by filing a complaint on or before 60 days after the date of the first creditor’s meeting.

Are there Debts Chapter 7 cannot Discharge

There are some debts that cannot be discharged. They include:

  • Alimony and child support
  • Certain taxes
  • Debts for certain educational benefit over payments or loans made or guaranteed by a governmental unit
  • Debts for willful and malicious injury by the debtor to another entity or to the property of another entity
  • Debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances
  • Debts for certain criminal restitution orders (source: Bankruptcy Basics)

Do I need a Lawyer to file for Chapter 7 Bankruptcy in San Diego? It is absolutely critical to contact a San Diego Chapter 7 bankruptcy attorney before initiating the process because of the number of variables and factors that can affect the outcome of the situation. Without legal counsel, an individual or company can be easily overwhelmed by the extensive amount of paperwork, questions and decisions it takes to process a Chapter 7 filing in San Diego.

If you are considering filing Chapter 7, you need to contact a San Diego bankruptcy attorney immediately. The sooner you contact Higgs Fletcher & Mack, the sooner we can put our San Diego Chapter 7 bankruptcy lawyers to work with you today for a better tomorrow. Fill in out our free initial contact form to start the process as soon as possible.

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