QUESTIONS AND
ANSWERS ABOUT CHAPTER 7
BANKRUPTCY*
1. What is a chapter 7 bankruptcy case and how
does
it work?
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 that part (or chapter) of the
Bankruptcy
Code that deals with liquidation. The Bankruptcy Code is a federal law
that
deals with bankruptcy. A person who files a chapter 7 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.
2.
What is a chapter 7 bankruptcy discharge?
It 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.
3.
What is means testing?
Means testing is a method
of
determining a person’s eligibility to maintain a chapter 7 bankruptcy
case.
4. May
a husband and wife file a joint chapter 7 bankruptcy case?
Yes. A husband and wife
may file a
joint case under chapter 7.
5. How does the filing
of a chapter 7 bankruptcy case by a person affect
collection and other legal proceedings that have been filed against that
person
in other courts?
The filing of a chapter 7
case by
a person automatically suspends most collection and other legal
proceedings pending against that person. A few days after a chapter 7
case is
filed, the court will mail a notice to all creditors ordering them to
refrain
from any further action against the person. This court-ordered
suspension of
creditor activity against the person filing is called the automatic
stay. If
necessary, notice of the automatic stay may be served on a creditor
earlier by
the person or the person’s attorney. Any creditor who intentionally
violates
the automatic stay may be held in contempt of court and may be liable in
damages to the person filing.
6. When is the best time to file a chapter 7
case?
The answer depends on the
status
of the person’s dischargeable debts, the nature and status of the
person’s
nonexempt assets, and the actions taken or threatened to be taken by
creditors.
7. Will a person lose all of his or her property
if he
or she files a chapter 7 case?
Usually not. Certain
property is
exempt and may not be taken by creditors unless it is encumbered by a
valid
mortgage or lien. A person is usually allowed to retain his or her
unencumbered
exempt property in a chapter 7 case. A person may also be allowed to
retain
certain encumbered exempt property. Encumbered property is property
against
which a creditor has a valid lien, mortgage or other security interest.
*Remember:
The law often changes and each case is different. The
above is meant to give you general information and is not legal advice.
You should consult with a knowledgeable bankruptcy lawyer if you are
thinking about filing for bankruptcy.
As
always, The Law Firm of
VAUGHN & WEBER, PLLC is
here to assist you. We are conveniently located in the heart of Nassau
County, Long Island, at 217 Willis Avenue in Mineola, NY. Contact
us at (516) 858-2620 to arrange a bankruptcy consultation.