Chapter 7 Individual Bankruptcy Filings
Chapter 7 bankruptcy provides people who are struggling with debt an avenue to find financial relief. As an attorney, it's vital you understand this form of relief. Read this post to find out more about it.
  • Chapter 7
  • legal tech
  • bankruptcy
Meredith Boe
Published on Sep 15, 2020

 

As the 2020 recession starts hitting businesses and individuals even harder, financial hardship is expected to occur. Americans are starting to consider their options for debt relief, including filing for bankruptcy to find a fresh financial start.

 

A Chapter 7 bankruptcy can provide some struggling individual debtors with many benefits, and as an attorney, it's important that you're able to walk clients through the process and explain all requirements. Here’s a refresher on everything you need to know about Chapter 7 filings.

 

 

Basics of Chapter 7 bankruptcies

A Chapter 7 bankruptcy is known as the liquidation bankruptcy. When a debtor can no longer afford to pay creditors, their assets are liquidated to settle all debt. Under this chapter, there is no payment plan or restructure, since debts are discharged upon liquidation.

 

Eligibility requirements for individuals include:

  • A debtor cannot have filed a Chapter 7 bankruptcy in the last 8 years.
  • The means test must be passed if current monthly income is more than the state median. This test ensures that the debtor’s aggregate monthly income over the last 5 years is less than $12,850, or 25% of their nonpriority, unsecured debt. If income is more than that amount, the Chapter 7 filing could be considered abusive.
  • During the last 180 days, the debtor cannot have had a different bankruptcy petition dismissed because they failed to appear in court or comply with court orders.
  • The debtor must receive credit counseling within 180 days before filing for bankruptcy.

 

 

The Chapter 7 bankruptcy process

To begin the process, you'll help the debtor file a petition with the court and provide all necessary documentation, including tax returns and income statements. Once a petition has been filed, an automatic stay goes into effect. This means that creditors can no longer collect debt owed to them from the debtor.

 

A trustee is then appointed by the court to manage the process. This involves reviewing assets and debts, meeting with creditors, and determining which assets can be liquidated. The official meeting of creditors is a requirement that the trustee arranges.

 

Debts are then discharged after liquidation, releasing the debtor’s liability to repay the amounts owed.

 

 

Unsecured vs. secured debt

The differences between unsecured and secured debt are important in bankruptcy cases. Unsecured debt has no collateral, whereas secured debt, like a mortgage, has collateral so that there’s less risk when lending. In Chapter 7 bankruptcy, unsecured debts are paid off first, followed by secured debts.

 

Discharge usually occurs four to six months after the petition filing, or two months after the meeting of creditors.

 

A Chapter 7 bankruptcy may be the right step for individuals who can no longer afford to pay off their burdensome debt. This chapter differs from other common bankruptcies, including Chapter 13, in which debt is restructured and a new payment plan is agreed upon.

 

 

NextChapter for Chapter 7 filings

As a bankruptcy attorney, you have a unique position to help those in need to find the right path to debt relief. This requires using the latest technologies so that you can improve your workflows.

 

NextChapter is an intuitive software for bankruptcy attorneys, helping you manage the entire bankruptcy filing and client communication processes. Manage and file Chapter 7 bankruptcy cases from any browser and on any device, and track progress and upload documents in one place.