Chapter 7 Bankruptcy
Chapter 7 is one of the quickest and most comprehensive means for dealing with your debt. All of your creditors are required to participate, which allows you to obtain true debt relief when your case is over.
Chapter 7 bankruptcy is often called a “liquidation” bankruptcy.
It is available for business debt or consumer debt, but there are income-based restrictions for Chapter 7 relief if your debt is primarily consumer debt. However, as stated above, if you have no assets that are not exempt, there is nothing to liquidate.
If you do have non-exempt assets, you will surrender them to the Trustee, who will liquidate them (convert them to cash) by selling them, possibly back to you if you offer a fair price, which you must pay generally within one year of filing.
After your creditors have had an opportunity to object, if no objections are sustained, most of your debts will be discharged (some debts like those arising in divorce, student loan debt, debts arising from criminal acts, and some tax debt cannot be discharged).
Learn more about Liquidation Bankruptcy
In the video, Attorney Mike Faro discusses Liquidation Bankruptcy.
Reaffirming Debt and Keeping Assets
Generally you cannot keep property that secures a debt unless you reaffirm that debt, meaning you remain obligated to pay it (examples would be mortgages on homes or car notes). Currently, however, you can “strip” a wholly unsecured mortgage from your home and discharge the debt in bankruptcy. That means if you owe a first mortgage of $100,000, and a second mortgage of $50,000, on a home currently worth $75,000, you can strip the second mortgage and discharge the $50,000 debt, leaving you with only the $100,000 mortgage.
How Long Does Bankruptcy Take?
Under Chapter 7 it generally takes four to six months to obtain a discharge, and if you have no non-exempt assets for the Trustee to liquidate your bankruptcy would most likely close quickly thereafter. There are factors that can make discharge take longer, and assets to liquidate create a bankruptcy estate that the Trustee must administer (account for and divide among the creditors).
How Liquidation Bankruptcy Works
Liquidation means converting fixed assets into cash so that the cash can then be used to pay debt. In Chapter 7 bankruptcy, the chapter 7 trustee, sometimes referred to as the liquidating trustee, has the job of taking non-exempt property and selling it in order to get money to pay the creditors.
When you file a bankruptcy petition under any chapter of bankruptcy you have to list all of the property that you own. All assets including real estate, personal property – furniture, dishes, even the cash that you have on hand as well as the money that you have in bank accounts or retirement accounts.
Your attorney’s job is to then take that list and apply exemptions. There are some exemptions that are available under state law and some exemptions that are available under federal law. Your attorney will go through, take as much money as possible and claim exemption on it to reduce the amount of non-exempt property.
The chapter 7 trustees job in part is to review those claims of exemption and determine if they think you have over-reached and claimed more property as exempt then you are legally permitted to. If they do believe that you’ve over-reached, the trustee will file an objection to the debtors claim of exemption. The debtor can then respond to that objection and disagree and ask that the court determine whether the property is in fact exempt or is not. If the court determines that the property is not exempt then it goes in with the rest of the debtors non-exempt property. Many cases will have no non-exempt property but in cases that do have non-exempt property the Chapter 7 trustees job is to then convert that property into cash.
There are generally two ways that a Chapter 7 trustee will do this. One method is to sell the property at auction. This is commonly done with vehicles. There are vehicle auctions every week and prices are relatively stable so the trustees are relatively certain as to how much value they will get to a vehicle sold at auction. Another method is through private sale, often with vehicles also, the trustee will do a private sale most commonly back to the debtor. When the trustee sells property like a vehicle back to the debtor they will often take a discount and let the debtor purchase the property back at somewhat less than the value that they would anticipate that they would receive at the auction.
The reason for this is in a private sale to the debtor, the trustee does not have to pay cost of sale, they do not have to pay an auctioneer, they do not have to pay anybody to transport the property to the place where it would be sold. Because they save those costs, they can sell the property to the debtor for less money and still get the same amount to divide among the creditors.
In chapter 13 bankruptcy, liquidation value also comes into play. And the reason that it comes into play in a chapter 13 bankruptcy is because the payments that you make during a chapter 13 bankruptcy have to pay the unsecured creditors as least as much value as they would have received if the property were liquidated in a chapter 7 bankruptcy.
There are generally two ways that a Chapter 7 trustee will do this. One method is to sell the property at auction. This is commonly done with vehicles. There are vehicle auctions every week and prices are relatively stable so the trustees are relatively certain as to how much value they will get to a vehicle sold at auction. Another method is through private sale, often with vehicles also, the trustee will do a private sale most commonly back to the debtor. When the trustee sells property like a vehicle back to the debtor they will often take a discount and let the debtor purchase the property back at somewhat less than the value that they would anticipate that they would receive at the auction.
The reason for this is in a private sale to the debtor, the trustee does not have to pay cost of sale, they do not have to pay an auctioneer, they do not have to pay anybody to transport the property to the place where it would be sold. Because they save those costs, they can sell the property to the debtor for less money and still get the same amount to divide among the creditors.
In chapter 13 bankruptcy, liquidation value also comes into play. And the reason that it comes into play in a chapter 13 bankruptcy is because the payments that you make during a chapter 13 bankruptcy have to pay the unsecured creditors as least as much value as they would have received if the property were liquidated in a chapter 7 bankruptcy.
We proudly serve the areas of Orlando, Winter Park, Casselberry, Winter Springs, Maitland, Altamonte Springs, Lake Mary, Gotha, Apopka, Sanford and Windemere with Bankruptcy Services.
Contact our office to schedule a free Chapter 7 Bankruptcy initial consultation. Our attorneys will determine what type of bankruptcy may help you and your family with a fresh start!
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