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Nothing can be
more devastating or stressful than going through a financial
crisis. We at Klein & Miller, LLP law offices can provide you
with the peace of mind you deserve during this difficult time;
and we have the expertise to achieve the results you deserve. |
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Call an experienced bankruptcy attorney now:
(800) 313-5741 |
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There are
generally four types of bankruptcy, Chapters 7, 11, 12 and 13
of the Bankruptcy code. Chapter 12 involves issues with
farmers. Chapter 11 deals with large corporations or
individuals with large sums of money. Chapters 7 and 13 deal
with individuals and small business which will be the topic
for this discussion. |
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CHAPTER 7 BANKRUPTCY |
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First, Chapter 7
is essentially a proceeding where your property (that is
non-exempt by law) is liquidated or sold for distribution to
your creditors. Regardless of the amount that your creditors
receive, you are discharged or freed from the obligations of
your debts through this proceeding. Furthermore, when you file
Chapter 7, it automatically stops lawsuits, foreclosures, and
any other collection actions against you. This is referred to
as an "automatic stay". However, in specific instances a
creditor may seek permission from the Bankruptcy Court for
relief from the stay, so they can begin or continue such
collection or foreclosure actions against you.
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What is a
discharge? |
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The filing of a
chapter 7 petition is designed to result in a discharge of
most of the debts you listed on your bankruptcy schedules. A
discharge is a court order that says you do not have to repay
your debts, but there are a number of exceptions. Debts which
may not be discharged in your chapter 7 case include, for
example, most taxes, child support, alimony, and student
loans; court-ordered fines and restitution; debts obtained
through fraud or deception; and personal injury debts caused
by driving while intoxicated or taking drugs. Your discharge
may be denied entirely if you, for example, destroy or conceal
property; destroy, conceal or falsify records; or make a false
oath. Creditors cannot ask you to pay any debts which have
been discharged. Once you receive a Chapter 7 Discharge, you
may not file another Chapter 7 case for a period of six (6)
years. |
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What are the
potential effects of a discharge? |
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The fact that you
filed bankruptcy may appear on your credit report for up to 10 years. Thus, filing a bankruptcy petition may affect
your ability to obtain credit in the future. Also, you may not
be excused from repaying any debts that were not listed on
your bankruptcy schedules or that you incurred after you filed
bankruptcy.
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What is an
exemption? |
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With respect to
exempt property, the bankruptcy code allows you to "exempt"
(or keep) from your creditors a large amount of value in your
personal and real property. For example, a debtor is allowed
to keep his or her car if the equity in the car does not
exceed $2,775. Assuming for a second that the car does exceed
$2,775 in value, there are other portions of the code that,
when applied properly, will allow you to keep the car when the
equity is over $2,775. |
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Before you decide
to file Chapter 7, you must fully analyze your financial
situation to determine whether a Chapter 13 filing would be
beneficial. Chapter 13 is for an individual debtor with stable
income, who can file a Plan of Arrangement to pay a percentage
of their general unsecured debts over the course of the Plan
term, usually three years. An additional benefit could be
retention of all assets and the opportunity to cure arrears
due secured parties, such as home mortgage(s), car loans, etc. |
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How Chapter 7
Works |
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A Chapter 7 case
begins with the debtor's filing a petition with the bankruptcy
court. In addition to the petition, the debtor is also
required to file with the court several schedules of assets
and liabilities, a schedule of current income and
expenditures, a statement of financial affairs, and a schedule
of executory contracts. A husband and wife may file a joint
petition or individual petitions.
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In order to
complete the Official Bankruptcy forms which make up the
petition and schedules, the debtor will need to compile the
following information:
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A list of all
creditors, including addresses and account numbers, and the
amount and nature of their claims;
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The source,
amount, and frequency of the debtor's income;
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A list of the
debtor's property; and
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A detailed list
of the debtor's monthly living expenses, i.e., food,
clothing, shelter, utilities, taxes, transportation, etc.
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When a husband and
wife file a joint petition, they should be sure to gather the
above detailed data for both spouses.
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The filing of a
petition under Chapter 7 “automatically stays" most actions
against the debtor or the debtor's property. This stay arises
by operation of law and requires no judicial action. As long
as the stay is in effect, creditors generally cannot initiate
or continue any lawsuits, wage garnishment, or even telephone
calls demanding payments. Creditors normally receive notice of
the filing of the petition from the clerk of the court. |
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One of the
schedules of assets and liabilities which will be filed by the
individual debtor is a schedule of "exempt" property. Federal
bankruptcy law provides that an individual debtor can protect
some property from the claims of creditors either because it
is exempt under federal bankruptcy law or because it is exempt
under the laws of the debtor's home state. In Massachusetts,
the debtor has the option of choosing between a federal
package of exemptions or exemptions available under state law.
Thus, whether certain property is exempt and may be kept by
the debtor is often a question of state law. Legal counsel
should be consulted to determine the law of the state in which
the debtor lives. |
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A "meeting of creditors" or a "341
Meeting" is usually held 20 to 40 days after the petition is
filed. The debtor must attend this meeting, at which creditors
may appear and ask questions regarding the debtor’s financial
affairs and property. If a husband and wife have filed a joint
petition, they both must attend the creditors' meeting. The
trustee also will attend this meeting and question the debtor
on the same matters. In order to preserve their independent
judgment, bankruptcy judges are prohibited from attending.
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Role of the
Case Trustee |
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Upon filing of the Chapter 7 petition,
an impartial case trustee is appointed by the United States
trustee to administer the case and liquidate the debtor's
nonexempt assets. If, as is often the case, all of the
debtor’s assets are exempt or subject to valid liens, there
will be no distribution to creditors. Typically, most Chapter
7 cases involving individual debtors are "no asset" cases.
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If the case appears to be an "asset"
case at the outset, however, unsecured creditors who have
claims against the debtor must file their claims with the
clerk of the court within 90 days after the first date set for
the meeting of creditors. (Unsecured debts generally may be
defined as those for which the extension of credit was based
purely upon an evaluation by the creditor of the debtor’s
ability to pay, as opposed to secured debts, which are based
upon the creditor's right to seize pledged property on
default, in addition to ability to pay.) In the typical no
asset consumer Chapter 7 case, there is no need for creditors
to file proofs of claim. If the case later produces assets for
distribution to unsecured creditors, creditors will be given
notice of that fact and additional time to file a proof of
claim.
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Discharge |
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The bankruptcy law
regarding the scope of a Chapter 7 discharge is complex, and
debtors should consult competent legal counsel in this regard
prior to filing. As a general rule, however, excluding cases
which are dismissed or converted, individual debtors are
discharged in more than 99 percent of Chapter 7 cases. In most
cases, the discharge will be granted to a Chapter 7 debtor
relatively early in the case, that is, 60 days after 341 Meeting of creditors. |
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The grounds for denying an individual
debtor a discharge in a Chapter 7 case are very narrow and are
construed against a creditor or trustee seeking to deny the
debtor a Chapter 7 discharge. Among the grounds for denying a
discharge to a Chapter 7 debtor are that the debtor failed to
explain satisfactorily any loss of assets; the debtor
committed a bankruptcy crime such as perjury; the debtor
failed to obey a lawful order of the bankruptcy court; or the
debtor fraudulently transferred, concealed, or destroyed
property that would have become property of the estate.
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While the
information presented in this fact sheet is accurate as of the
date of publication, it should not be cited or relied upon as
legal authority. It should not be used as a substitute for
reference to the United States Bankruptcy Code and the Federal
Rules of Bankruptcy Procedure, both of which may be reviewed
at local law libraries, and any local rules or practices
adopted and disseminated by each bankruptcy court. Finally,
this fact sheet should supplement, not be a substitute for,
advice of competent legal counsel.
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Nothing can be more devastating or stressful than going
through a financial crisis. We at Klein & Miller, LLP law
offices can provide you with the peace of mind you deserve
during this difficult time; and we have the expertise to
achieve the results you deserve. As a client of Klein &
Miller, you will receive the expert and strategic advice
required to make the important decisions that will affect your
future.
Contact the Massachusetts
Bankruptcy Lawyers of
Klein &
Miller to help you objectively review your situation, and
if need be prepare your bankruptcy forms, attend meetings with
your creditors and serve as your advocate with the judge,
trustee and creditors.
Call an
experienced bankruptcy attorney now:
(800) 313-5741
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