What is a Chapter 7 Bankruptcy?
A chapter 7 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under chapter 7 of the bankruptcy code. Chapter 7 is the part (or chapter) of the bankruptcy case that deals with liquidation. The bankruptcy code is a federal law that deals with bankruptcy. A person who files a chapter 7 bankruptcy case is called a debtor. In a chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor’s creditors. In return, the debtor receives a chapter 7 discharge, if he or she pays the filing fee, is eligible for the discharge and obeys the orders and rules of the bankruptcy court.
A chapter 7 bankruptcy discharge is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is a debt that the debtor is released from and does not have to pay.
A chapter 7 discharge is obtained by filing and maintaining a chapter 7 bankruptcy case and being eligible for a chapter 7 discharge. However, not all debts are discharged by a chapter 7 discharge. Certain types of debts are by law not dischargeable under chapter 7 bankruptcy and debts of this type will not be discharged even if the debtor received a chapter 7 discharge.
As to the dischargeability of debt, all debts of any type or amount, including out-of-state debts, are dischargeable in a chapter 7 case except for the types of debts that are by law non dischargeable in a chapter 7 case. The following is a list of the most common types of debts that are not dischargeable in a chapter 7 bankruptcy case:
- Most tax debts and debts that were incurred to pay non-dischargeable federal tax debts.
- Debts for obtaining money, property, services or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the bankruptcy case.
- Debts not listed on the debtor’s chapter 7 forms, unless the creditor knew of the bankruptcy case in time to file a claim.
- Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the bankruptcy case.
- Debts for domestic support obligations, which include debts for alimony, maintenance, or support and certain other divorce-related debts (including property settlement debts.)
- Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the bankruptcy case.
- Debts for certain fines or penalties.
- Debts for most educational benefits and student loans, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents.
- Debts for personal injury or death cause by the debtor’s operation of a motor vehicle, or aircraft while intoxicated.
- Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.
Not everyone is eligible to file for Chapter 7 bankruptcy protection. In order to determine eligibility for Chapter 7 bankruptcy protection, a person must undergo what is known as means testing. Means testing is a method of determining a person’s eligibility to maintain a chapter 7 case. Under means testing, if a person whose current monthly income from all sources (multiplied by 12) exceeds the median annual income for their state and family size, (as reported by the US Census Bureau), that person must show he or she is not able to pay a minimum of $109.58 per month for 60 months to his or her unsecured creditors from his or her disposable monthly income in order to be eligible to maintain a chapter 7 case.
Median Income for Georgia
|Household Size||Median Income|
Disposable monthly income is a person’s current monthly income from all sources less the person’s permitted current monthly expenses. The chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay $109.58 per month or more to unsecured creditors for 60 months will be dismissed or converted to chapter 13 bankruptcy unless special circumstances exist.
Every person who files a chapter 7 bankruptcy case must file a document called a “Statement of Current Monthly Income and Means Test Calculation.” This document, when completed and filed, shows the person’s current monthly income and the current monthly expenses that the person is allowed to claim.
The person may also be questioned about his or her income and expenses at the meeting of creditors. From these sources a person’s current monthly disposable income is calculated. This figure is then used to determine the amount of the monthly payment that the person can afford to make to his or her unsecured creditors. If the amount of this monthly payment is above a certain figure (usually $109.58), the person will almost always be disqualified from maintaining a chapter 7 bankruptcy case and the case will be dismissed, or with the person’s consent, converted to chapter 13.
The Statement of Current Monthly Income and Means Test Calculation filed by the person will initially show whether the person is able to make monthly payments to unsecured creditors in the amount required for ineligibility. If so, the clerk of the bankruptcy court will send a notice to all creditors that a presumption of abuse has arisen in the case. The United States trustee then has until 10 days after the meeting of creditors to file a statement as to whether a presumption of abuse exists in the case. Then the United States trustee or any creditor can move to dismiss the case. The bankruptcy judge will ultimately decide whether the case should be dismissed.
When the chapter 7 bankruptcy case is filed by an ineligible person, under bankruptcy terminology that person is said to have abused the chapter 7 bankruptcy laws. When a person whose current monthly disposable income is such that he or she can afford to make monthly payments to unsecured creditors in the required amount, a presumption of abuse is said to arise in the case. If a presumption of abuse arises in a case, the case will be dismissed or converted to chapter 13 unless the person filing the case can prove the existence of special circumstances, such as serious medical condition.
Even if a person is qualified to file for chapter 7 bankruptcy protection under means testing, the following people would not be eligible for a chapter 7 discharge:
- A person who has been granted a discharge in a chapter 7 case that was filed within the last 8 years.
- A person who has been granted a discharge in a chapter 13 case that was filed within the last 6 years, unless 70 percent or more of the debtor’s unsecured claims were paid off in the chapter 13 case.
- A person who files and obtains court approval of a written waiver of discharge in the chapter 7 case.
- A person who conceals, transfers or destroys his or her property with the intent to defraud his or her creditors or the trustee in the chapter 7 case.
- A person who conceals, destroys or falsifies records of his or her financial condition or business transactions.
- A person who makes false statements or claims in the chapter 7 case, or who withholds recorded information from the trustee.
- A person who fails to satisfactorily explain any loss or deficiency of his or her assets.
- A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated.
- A person who, after filing the case, fails to complete an instructional course on personal financial management.
- A person who has been convicted of bankruptcy fraud or who owes a debt arising from a securities law violation.
Filing for Chapter 7 bankruptcy does not mean that you will lose all of your property. You are able protect certain limited amounts of your property from your creditors and this protection is called exempt property. Exempt property is property that is protected by law from the claims of creditors. However, if exempt property has been pledged to secure a debt or is otherwise by a valid lien or mortgage, the lien or mortgage holder may claim the exempt property may be exempt under either state or federal law. Exempt property typically includes all or a portion of a person’s unpaid wages, home equity, household furniture, and personal effects. Your attorney can inform you as to the property that is exempt in your case.
Property You Can Keep in Georgia
|Real Property (Homestead Residence)||$10,000.00 ($20,000.00 joint case)|
|Automobiles||$3,500.00 ($7,000.00 joint two cars)|
|Jewelry||$500.00 ($1,000.00 joint)|
|Furniture; Household; Clothing||$5,000.00 ($10,000.00)|
|Tools of Trade||$1,500.00 ($3,000.00)|
|Alimony and Support||As necessary|
|Life Insurance Proceeds||As necessary|
|Wrongful Death Awards||As necessary|
|Retirement Accounts||$100% for most|
|Disability; Government Benefits||100%|