Bankruptcy Blog

24 October 2013

What is Chapter 7 bankruptcy?


There are different kinds of bankruptcy that can be filed to gain relief from overwhelming financial debt.  Filing bankruptcy under Chapter 7 is one of the more common routes individuals and businesses chose when seeking relief.  Generally, this kind of bankruptcy gathers the non-exempt assets of the individual or business seeking relief, sells them, and distributes the earnings to creditors who are owed money.  The person(s) or business filing is forgiven the remaining non-exempt debts and is pushed to get back on track financially with a fresh start.

When starting a bankruptcy filing under Chapter 7, an individual, couple, or business must fill out forms about monthly income, number of liabilities, types of debts, number of assets and their value and type, as well as where residence has been in the last 180 days to establish the picture of the full estate holdings and likely income.  These details allow bankruptcy professionals and the court system to begin the process of bankruptcy.  Chapter 7 bankruptcy filing will stop foreclosure, and creditor calls, lawsuits and other debt collection efforts. 

Those seeking bankruptcy relief also must meet the “means test” which assesses income levels as well as debts that will be kept, such as a mortgage, student loans, etc. can be paid with the income levels seen in the last six months’ history.  Depending on the income and remaining debts, Chapter 7 bankruptcy may or may not be the appropriate type of bankruptcy to file. 

If Chapter 7 bankruptcy is the appropriate route, the court will appoint a trustee to manage the non-exempt assets of the person or business filing.  The trustee will sell those assets, will be paid from the assets, and will distribute the remaining cash to debtors.  The remaining debts are discharged and the person(s) or business filing is forgiven the remaining non-exempt debts in order to get a fresh start financially. 

Exempt assets are defined by the federal government as well as each state, and the filer must choose which list to adhere to – the federal or state exemption list.  In Texas, up to $30,000 of personal property is protected for an individual and up to $60,000 is protected for family.  Generally, the exemption list includes social security income, retirement and pension accounts, life insurance policies, certain personal property up to certain values including athletic equipment, property up to certain values, some animals, medical savings accounts, clothing and food, up to two firearms, sacred religious items, some home furnishings, and a limited amount of jewelry.  Married couples receive separate exemptions for each individual.
Steven H. Phelps  

Steven H. Phelps

Mr. Phelps was admitted to the Texas State Bar in 1992. His early litigation practice was concentrated in the areas of business law, banking and financial services, real estate and labor law. Since 1995, Mr. Phelps enlarged his practice to include the areas of estate planning and title services and most importantly, personal bankruptcy.

Call Steven today to talk about your individual situation during a free consultation.

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