What is Chapter 7 bankruptcy and how does it work?
Chapter 7 bankruptcy is a type of bankruptcy that wipes out most unsecured debts. Under Chapter 7, most of your unsecured debts will be discharged and you will no longer be legally obligated to pay them. There are some exceptions, however, including child support, alimony, most taxes, and student loan debts. In a Chapter 7 bankruptcy, the court appoints a trustee to liquidate the debtor’s non-exempt assets, which are sold for cash to pay creditors some portion of the debt and the remainder of the debt is discharged.
Once your Chapter 7 bankruptcy case is filed, an automatic stay goes into effect. This means that your creditors must stop all collection activity against you, including wage garnishment, foreclosure, and repossession. Chapter 7 bankruptcy can be a fresh start for your financial situation.
What is a Chapter 7 discharge?
A Chapter 7 discharge is the legal termination of your debt obligations under Chapter 7 of the U.S. Bankruptcy Code. In order to receive a discharge, you must complete the bankruptcy process and fulfill all of your obligations. Once you receive a discharge, you are no longer legally responsible for repaying your debts. There are some debts that cannot be released by a Chapter 7 discharge.
Are there debts that cannot be discharged through Chapter 7?
The following debts cannot be discharged under Chapter 7:
- Certain tax debts, including taxes that became due within the last three years
- If the court rules that a debt for obtaining money, property, services, or credit was obtained under false pretenses, fraud, or a false financial statement, the debt will not be discharged
- Debts that are not listed on the debtor’s Chapter 7 papers cannot be discharged unless the creditor had notice or actual knowledge of the case
- Debts for fraud, embezzlement, or larceny, or breach of fiduciary duty
- With limited exceptions, alimony, maintenance, and support debts
- Debts incurred for intentional or malicious injury to another individual’s person or property
- In most cases, student loan debts cannot be discharged unless not doing so would impose undue hardship on the debtor and their dependents.
- Debts incurred as a result of death or personal injury caused by the debtor’s unlawful intoxicated driving.
- Debts that were not discharged in a debtor’s prior bankruptcy.
- Debts arising from the debtor’s malicious or reckless failure to maintain capital of a federally insured depository institution
- Debts for luxury goods or services purchased within 90 days of filing under Chapter 7
- Certain pension plan debts
- Debts from a divorce settlement agreement or divorce decree if you are able to pay and the detriment to the recipient outweighs the benefit to you
- Restitution payments, fines, and penalties issued by the government
- Certain debts owed for condominium dues and fees
Who is eligible to file under Chapter 7?
If you are struggling to pay off debts and keep up with your bills, you may be eligible to file for bankruptcy under Chapter 7. This type of bankruptcy allows you to eliminate most of your debt and start fresh. Not everyone is eligible to file under Chapter 7, however. The following eligibility requirements must be met to qualify:
- Your monthly income in the last six months must be below the median income for households of the same size in your state, OR you must pass a means test to determine if your disposable income is sufficient to make partial payments to unsecured creditors.
- You cannot file under Chapter 7 if you have filed under Chapter 7 within the last eight years or if you have filed for Chapter 13 bankruptcy in the previous six years.
- You are required to complete an individual or group credit counseling course offered by an approved credit counseling agency within 180 days prior to filing under Chapter 7.
- Your debts must be earnest; if a judge determines that you filed under Chapter 7 in an attempt to defraud creditors, your case may be dismissed.
How much does it cost to file under Chapter 7?
The Chapter 7 Court filing fee in Michigan is $338.00. The fee may be paid at the time of the filing of the case or up to 90 days after the filing of the case. In limited circumstances, a filing fee waiver may be filed. The filing fee must be paid or debts will not be discharged.
No two bankruptcy cases are the same, so it is important to file in consultation with an experienced Michigan bankruptcy attorney. The best way to approximate the total legal fees required is by setting up a consultation with a bankruptcy attorney.If you are considering filing under Chapter 7, you must factor that amount into your budget in addition to the filing fee.
Is there a minimum debt amount required to file for Chapter 7 bankruptcy?
There is no minimum debt amount needed to file for Chapter 7 bankruptcy.
How will Chapter 7 bankruptcy affect my credit?
The impact of a Chapter 7 bankruptcy on your credit will depend on several factors, including your current credit score, the type of debt you have, and whether you have filed for bankruptcy before. Filing for bankruptcy may cause your credit score to drop; however, the long-term effect of the bankruptcy filing will be an improved financial situation.
My spouse is filing under Chapter 7. Should I file too?
If you share joint debts with your spouse, it may make sense to file for bankruptcy together so that you can both get relief from your debts. If the debts you intend to discharge under Chapter 7 are only in your name, your spouse does not have to file.
While it is recommended to file jointly under Chapter 7 in some circumstances, you and your spouse’s assets may be at risk. An experienced bankruptcy attorney can assess your situation and help you understand your options, but ultimately deciding to file is your decision to make with your spouse. You will need to weigh the pros and cons of each option and decide what is best for your financial situation.
Will I lose all my assets if I file for Chapter 7 bankruptcy?
If you file for Chapter 7 bankruptcy, you may be required to sell some of your assets through a trustee in order to repay your creditors. However, you are allowed to keep certain “exempt” property, which is protected from liquidation by the bankruptcy court.
Upon filing, you will have the option to choose between the state or federal exemptions. Michigan exemptions include:
- Your house: You may exempt up to $40,475.00 of the interest in your home or other property.
- Your vehicle: Michigan debtors may exempt up to $3,725.00 of equity in one vehicle.
- Your personal property: You may exempt up to $4,050.00 in personal property, including major appliances, furniture, jewelry, and computer equipment valued up to $625.00.
Contact an experienced Michigan bankruptcy attorney today to discuss your asset exemption options.
Will I have to go to court if I file under chapter 7?
All individuals filing under Chapter 7 are required to attend a meeting of creditors, also known as a 341 meeting (mandated by Section 341 of the Bankruptcy Code). 341 meetings are conducted by the trustee assigned to the case and may also be attended by creditors and attorneys. In this meeting, you will be questioned about your liabilities, assets, conduct, and other topics that may impact the outcome of the case. All 341 meetings are being conducted by remote means at this time.
While creditors are not required to attend these meetings, they have the option to attend to ask questions. These meetings can be intimidating for debtors, and it is important to have a licensed bankruptcy attorney present to ensure that your rights are honored throughout the line of questioning in a 341 meeting.
Can you walk me through the Chapter 7 filing process?
Chapter 7 bankruptcy is not a one-size-fits-all process, and steps may vary depending on your financial situation. In general, the process starts with an initial consultation with an experienced Michigan bankruptcy attorney. The attorneys at Marrs & Terry will compassionately listen to your story, review your financial situation and eligibility, and ensure that you understand your options before initiating the filing process.
The next step is to initiate the required pre-filing credit counseling requirement. Your attorney will help you set up counseling with a government-approved credit counseling service, which can be completed over the phone, or online. After you receive your counseling certificate, your attorney will file it with the court when you are ready to file under Chapter 7.
You will need to collect the required documentation necessary for your debts to be discharged under Chapter 7. This documentation will include but is not limited to pay stubs for your last 6 months of employment and the last 2 years of income tax returns.
At this point, you will be ready to file. Your attorney will review your financial documentation and prepare all the necessary paperwork. Once you receive your case number, you will be protected from creditors and wage garnishments.
Your attorney will then attend the mandatory 341 hearing conducted by the trustee. In this meeting, you will be questioned by the trustee (and sometimes creditors).
If no objections are filed within 60 days after the conclusion of the 341 hearing, the Clerk of the Court will enter the Discharge in your case.
Can businesses file Chapter 7?
Yes, a corporation or LLC can file for Chapter 7 bankruptcy. Businesses that file for Chapter 7 bankruptcy typically do so because they are seeking relief from creditors and want to liquidate their assets in an orderly, transparent way.
The business must cease operations prior to filing Chapter 7 bankruptcy. The Chapter 7 trustee will liquidate the assets in a process similar to individual Chapter 7 filing. The proceeds from the sale of the business’s assets are used to pay creditors. If the owner of the business is a guarantor on the business debt, they are responsible for any debt not paid by the liquidation of assets.
Who is the Chapter 7 trustee, and what do they do?
The Chapter 7 trustee is an individual appointed by the court to oversee your bankruptcy case. The trustee’s primary responsibility is to administer your bankruptcy estate–that is, to collect and sell your nonexempt assets and use the proceeds to pay your creditors as much as possible.
In a Chapter 7 case, the trustee also reviews your bankruptcy petition and schedules to ensure they are complete and accurate.
The trustee will hold a meeting of creditors, also called a 341 meeting, during which you will be required to answer questions under oath about your assets, liabilities, and financial history. The trustee is not your lawyer and cannot give you legal advice, but if you have an attorney, they will attend the 341 meeting with you to ensure that you are fairly represented.
Will my co-signer’s liability be impacted by a Chapter 7 debt discharge?
Your co-signer’s liability will not be impacted by a Chapter 7 bankruptcy debt discharge. The co-signer is still responsible to pay the debt and their credit will be impacted if payments are not made on the debt.
How long does a typical Chapter 7 bankruptcy case take from start to finish?
A typical Chapter 7 bankruptcy case takes 4 months from filing until discharge. The case may remain open if certain creditors object to the discharge or if the Trustee liquidates assets for the benefit of the creditors.
Do I need a lawyer to file for Chapter 7 bankruptcy in Michigan?
Given the complex nature of bankruptcy law, it is in your best interest to have legal assistance when filing for Chapter 7 bankruptcy in Michigan. An experienced bankruptcy attorney will first determine which form of bankruptcy is appropriate for your financial situation. They will also help you determine whether you are eligible to file.
If you decide that Chapter 7 bankruptcy is in your best interest, your attorney can help ensure that you properly complete all the necessary paperwork, including the initial petition, schedules, statements, and other forms that must be filed with the bankruptcy court.
They will also help you accurately value and list your assets and debts. Your attorney will ensure that your rights and property are protected throughout the bankruptcy process and will represent your interests in court during the mandatory 341 meeting.
For more than 24 years, the knowledgeable bankruptcy attorneys at Marrs & Terry, PLLC, have helped clients tackle overwhelming debt and get their lives back on track. For more information regarding the Chapter 7 bankruptcy process, schedule a free consultation with a Marrs & Terry attorney by contacting us online or call us toll-free at 734-663-0555.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.