CHAPTER 7 OVERVIEW
Bankruptcy is a system designed by the United States Congress to give people a fresh economic start by getting rid of debts. It takes place through the Federal Courts of the United States. Chapter 7 is a specific chapter in the Federal Bankruptcy Code that deals with individuals that have mostly consumer debt. Consumer debts include homes, cars, tools, appliances, etc. Chapter 7 is a liquidation. Liquidation is a sale by the United States Trustee of the assets of an individual that has filed Chapter 7. A trustee is appointed in every Chapter 7 case. Accordingly, there will be a meeting of the creditors with that trustee where the individual filing will be questioned about debts and assets. However, simply because this section is referred to as a liquidation certainly does not mean that an individual loses everything exchange for the discharge of a person’s debts. There are State Specific Exemptions that largely determine the scope of the liquidation and often will prevent any real losses in to the individual filing bankruptcy.
STATE EXEMPTIONS
Applying and understanding exemptions is considered legal specialty; anyone reading the exemption information below should take caution in applying the same to any situation without the benefit of bankruptcy counsel.
Exemptions define what you may keep when you file Chapter 7. Exemptions often keep an individual from losing little to any property and are at the heart of understanding what is being given up in exchange for the fresh start provided by the bankruptcy code.
In many cases, the State Specific Exemptions combined with the State Specific Median Income Tables will create allowances that will keep an individual from experiencing any actual loss of property. However, in 2005 Congress introduced a Means Test that places restrictions on who is allowed to file based on their income compared to their obligations. A person that has adjusted gross income less than that on the median income table for that state is not subject to the means test.
A cautionary note about exemptions: the moving of assets or certain spending that affects creditors, in an attempt to take unfair advantage of exemptions, is perhaps the primary reason that a bankruptcy discharge will be denied. In some cases this can rise to the level of statutory fraud. Therefore, understanding of the limits on the movement of assets and money relative to bankruptcy process and its exemptions is at the heart of pre-bankruptcy planning.
When it comes to applying the State Specific Exemptions it is important not to infer anything from one state and assume that the same is true in another. There are wild swings in the exemptions and allowances between the states. Also, while the Chapter 7 system is federal, its exemptions are a matter of state law. Depending on your state, you may have the option of choosing the exemptions provided by Section 522 of the federal bankruptcy code in lieu of the state court exemptions or allowances. This creates very complex situations very quickly. As exemptions and allowances change periodically, it is advised that an attorney is consulted when attempting to understand how exemptions will work in a specific situation
Click on the links below to view each state's individual requirements.
Chapter 7 Official Notice
