If you are considering filing for Chapter 7 bankruptcy in Grosse Pointe Farms or a surrounding area such as St. Clair and Clinton Township, or if you are unsure whether you should, an bankruptcy attorney can help you make the right decision based on your individual circumstances. Joseph L. Grima is a distinguished bankruptcy attorney whose skill and knowledge have been lauded throughout Grosse Pointe Farms and surrounding areas including St. Clair and Clinton Township.
While many people can feel a bit chagrined at the thought of having to resort to bankruptcy, the fact is, sometimes it either cannot be avoided, or it is unwise to avoid it. While it is always unpleasant to find yourself in a difficult financial situation with no avenues available to meet your debt obligations, it is important to remember that there are reasons that bankruptcy laws and courts exist: because sometimes there is no other option.
Bankruptcy laws are the federal government’s recognition that when people fall on hard times and find themselves in an unmanageable financial situation, there needs to be a mechanism for them to be able to relieve themselves of their debt burden and to obtain a fresh start. In fact, the importance of this need is demonstrated by the fact that the very first clause of Article I, Section 8 of the United States Constitution specifically provides that Congress has the power to make uniform laws concerning bankruptcy.
One type of bankruptcy is a Chapter 7 bankruptcy. A Chapter 7 bankruptcy allows an individual to have certain types of debts completely discharged, giving them a clean slate on which to rebuild a financial foundation for the future.
There are several different types of bankruptcy proceedings, generally referred to by the chapter describing each type within the United States Bankruptcy Code. The most common types are Chapter 7, Chapter 11, and Chapter 13, and Chapter 7 is the type most frequently filed in bankruptcy courts.
All bankruptcies are filed in special bankruptcy courts, rather than civil courts. As noted above, these are federal, rather than state, courts. This is necessary when you realize that many debt instruments are multi-state in character: that merchandise you bought on a department store credit card may be held by a creditor in Chicago, Illinois, or that credit card company may be based in Bismarck, North Dakota. Bankruptcy courts have the authority to finally resolve all of these debts, because the federal courts have jurisdiction over all of these far-reaching parties.
Unlike filings under Chapter 11 or Chapter 13, the purpose of a Chapter 7 bankruptcy is not to give a person or business “breathing room” by restructuring their finances. Instead, Chapter 7 proceedings are employed to liquidate the assets of a business or individual, to utilize the proceeds to satisfy or partially satisfy existing debts, and to mandate that the partial satisfaction must be accepted as a final discharge in lieu of full satisfaction. Once the court proceeding is concluded, all of the involved creditors have no further legal recourse to the debtor.
Under the bankruptcy code, an individual must meet a “means test” in order to file for Chapter 7. Basically, the individual must show that he is truly unable to meet his obligations. The test requires the debtor to provide complete information regarding assets, income, and debt to demonstrate that he meets the test. If it is not met, the individual may not file under Chapter 7.
In other words, Chapter 7 is not intended as an “easy way out” of some onerous debt that merely makes an individual financially uncomfortable, or severely limits his ability to structure his finances in some other, more beneficial, way. Instead, it is intended to help individuals who are truly unable to manage their debt. However, if an individual does not meet Chapter 7’s means test, he may be able to proceed under Chapter 13, which allows a debtor to restructure debt.
In simple terms, for a Chapter 7 bankruptcy filed by an individual, the individual provides the court a list of all of his debt obligations along with information identifying the creditors, as well as a complete list of assets that are available to satisfy these debts. A court-appointed Bankruptcy Trustee then liquidates (sells) these assets, and distributes the proceeds to the creditors in a fair and impartial manner. It is not uncommon for debtors to take “pennies on the dollar”—that is, the trustee will apportion the proceeds at a certain fixed rate for every dollar owed to the creditors. Once concluded and distributed, these debts are deemed “satisfied.” At that point, the individual is essentially provided with a financial “clean slate,” which also means that he must rebuild his credit from the ground up.
As a general rule, a Chapter 7 proceeding may not discharge a debt that is secured by a lien, such as a mortgage on a house or an automobile loan. As secured assets, the creditors retain certain rights in the properties they finance, and their rights are governed not only by the terms of their loan contracts, but by myriad state and federal laws that govern how these debtors can reacquire the property in question if the loan repayment terms are not met. At the same time, these creditors may not claim any of the funds acquired from the liquidation of other assets. There are also other types of personal debts which are not subject to discharge; for example, income tax and property tax debts, as well as child and spousal support debts, may not be discharged by the court.
Under Chapter 7, not all property is subject to liquidation under Chapter 7. Both state and federal laws specify what types of property are exempt from bankruptcy liquidation, and the lists can be very extensive. For example, the Trustee cannot take control of very personal items like clothing or family photos, and the Trustee must allow an individual to keep basic household necessities, as well as tools or equipment, such as a computer and a car, that the debtor needs in order to earn a living or to live a normal life. In addition, the court may not utilize certain types of income to discharge debt, such as child support payments or compensation for a disability. In general, it is important to evaluate what your particular situation is before it can be determined what is and is not subject to liquidation.
A business filing under Chapter 7 is very much like a Chapter 7 filing for an individual in that it involves the liquidation of assets and a distribution of proceeds to the creditors. Again, business creditors that hold liens on property, such as real estate or a copy machine, cannot have their debts discharged and cannot claim any proceeds of the liquidation, since their recourse is to the secured property. However, unlike an individual, the business does not get a “fresh start.” Rather, when a business undergoes and concludes a Chapter 7 bankruptcy, it ceases operating.
While the information above provides some basic and general guidelines for understanding what happens when you go through a Chapter 7 bankruptcy, there are many additional rules, provisions, and processes that apply. For example, one important item to note is that an “automatic stay” goes into effect as soon as a bankruptcy petition is filed. This forbids creditors from pursuing the debt or the debtor through other means, such as garnishing wages. Another important issue is that individuals who file for Chapter 7 must take an approved financial management class, and failure to do so within a given time frame will nullify the entire process. There are many other items and issues that are involved in the bankruptcy process, and it is necessary to comply with all the requirements of the law.
The best way to determine whether a Chapter 7 bankruptcy is right for you is by talking to a qualified bankruptcy attorney about your situation. Like nearly every legal matter, the devil is in the details, and each case is different. Bankruptcy laws—both procedurally and substantively—can be very complex, and the last thing you need is to go through a lengthy and stressful process only to find out that an important item has been overlooked or mishandled. If you need assistance in determining whether Chapter 7 is the best option for you, or you need representation in your Chapter 7 case, call Joseph L. Grima & Associates for a free consultation at 800-603-3333, or use the online form right here on this page.
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