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Chapter 7 - An Overview          

Both individuals and small businesses can find themselves with more debts than they can pay when due. In such cases, filing bankruptcy may provide a solution to what seems like an insurmountable problem. Bankruptcy law provides two basic forms of relief: (1) liquidation; and (2) rehabilitation, also known as reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. A skillful attorney can advise individuals and businesses alike on whether Chapter 7 may be the right choice for them. The bankruptcy lawyer's goals are to help debtors make a fresh start and ensure that creditors get paid.  Let's talk about Chapter 7.  Filing bankruptcy under Chapter 7 is truly amazing.  

Chapter 7 bankruptcies, also called "liquidation bankruptcies," are the most common form chosen by individual consumers. In a Chapter 7 "consumer bankruptcy," individual debtors liquidate their assets in order to be relieved of their debts. The Chapter 7 proceedings begin with the debtor's filing of a petition with the bankruptcy court, which triggers the "automatic stay" - bankruptcy terminology for the termination of all debt-collection activity. The court appoints a trustee who oversees a Chapter 7 case and liquidates the debtor's assets in order to pay off the debts. In many cases, however, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. If there are assets, the trustee collects the sale proceeds in a fund from which the debts are paid to the extent possible. When all of the proceeds are distributed, any remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, however, are non-dischargeable, such as taxes, damages resulting from the debtor's willful or malicious acts, debts incurred by giving false financial information, domestic support obligations, and some debts incurred just prior to filing for bankruptcy.

"Commercial bankruptcy" is a remedy available to businesses that are unable to pay their debts. Chapter 7 business liquidations are conducted in significantly the same manner as Chapter 7 consumer bankruptcies. In other words, many of the business's assets are sold and the proceeds are divided among the company's creditors. When the debtor is a corporation, it ceases to exist after liquidation and distribution, and there is therefore no reason for further discharge because the creditors cannot seek payment from an entity that no longer exists.                         

Links To Topics Covered Below:  Filing bankruptcy can help you:

1. Get rid of certain types of debt...permanently . 

2. Get rid of "debt" stress and worry . 

3. Keep and protect property you want to keep . 

4. Get out from under debt on property you are willing to say "goodbye" to .

5. Stop Lawsuits, Creditor Harassment and Garnishments . 

6. Free up income for your family . 

7. Get into a position to earn more money and save . 

8. Get started re-building your credit .

9. Important Disclaimer .                                      

We will also try to answer these 3 important questions:

1. What does it cost and how do I pay?  

2. How do I come up with the money to file bankruptcy?

3. How fast can I get relief?

(1)    Get rid of certain types of debt... permanently. 

     Chapter 7 gives you the right to get rid of most of the common types of unsecured debts, like credit card debt, payday loans, medical bills, bank loans, finance company loans and credit union loans. It can also get rid of unsecured debts left over from a divorce, a failed business, personal guarantees, trade creditors and even certain income taxes over 3 years old and the list goes on.  Every week of the year, clients will get rid of $40,000, $50,000, $60,000 or more in unsecured debts.

       From childhood on, we learn that if something seems too good to be true.  It generally is....except for Bankruptcy. Bankruptcy is the real deal.   Our government decided that it was important to give good, honest, hard-working people a way to get free from the burden of debt. Why?

       Because there are good people. like you, who need to have hope of a future, who need a way to recover from getting discouraged and from having lost hope .  They need a way to keep from becoming unproductive members of society all due to crippling amounts of debt that they intended to pay but couldn't.  Being financially free and able to support their families and themselves is good for our community and is good for our overall society. To achieve this goal, Congress had to make the Bankruptcy laws powerful enough to really make a difference.

     And that is exactly what our governemnt did...and that is why bankruptcy....and Chapter 7.... is the real deal.

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(2)  Get rid of "debt" stress and worry.

      Getting rid of certain types of unsecured debts is important, but it's mostly important because it helps you achieve an even more important goal. It gets rid of some of the stress and worry that comes with having to deal with huge amounts of debt that you are unable to pay.

     I have found that when people find out how bankruptcy really works, hope begins.   Hope that their families will not have to go without, hope that now they can plan to get ahead. In most cases, assuming they follow basic financial common sense going forward ... Hopes become reality.

      The relief people feel when they come into our office and find out how bankruptcy really works is indescribalbe. For many...it seems like a dream come true. And....it is. It's the way Congress created the bankruptcy laws.

      People don't file bankruptcy to get rid of debt. They file bankruptcy to get rid of the stress...the stress of dealing with debt...that hopeless feeling of dealing with something that has gotten out of control....something that has taken over their lives and all their waking moments....something that is putting their future on hold.

      The look on the faces of many people, when we tell them how much debt and how much stress they can get rid of by filing bankruptcy, is amazing. They don't know how to react. They are so used to feeling stressed out...so used to worrying and feeling helpless....that they don't know how to feel when they find out...for the first time.... how much debt bankruptcy can really get rid of. When we tell them how much debt bankruptcy can get rid of ....and how easy it is to file bankruptcy....it's like there is a heavy anvil being lifted from their chests. It doesn't seem normal to them. We have to keep telling them: "It's true. Believe it or not. It's true. Bankruptcy really does this." For a while, they just go on saying things like "But I thought" this...or "But I thought" that, and we have to keep reassuring them that what we are telling them is absolutely true. Sometimes....we even have to tell them to sit back and take some deep breaths to let the information sink in.

      Giving people news that brings this kind of relief...to people who have been struggling with overwhelming debt for months and years....is what it's all about for lawyers....like me....and why practicing bankruptcy law is both a privilege and a pleasure.

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(3)  Keep and protect property you want to keep.

      For whatever reason, people think that if they file bankruptcy, they will lose everything they have.....however.....nothing could be further from the truth.

      Let's talk about exemptions: Most of our clients keep everything they own...and lose nothing. Why? Because there are these things called "exemptions". Every State adopts certain State or Federal "exemptions". Exemptions are basically lists of things a person can keep and still file bankruptcy. In some States, they are higher and broader in reach. In other States, they are smaller and narrower in reach. In Indiana, the exemptions are such that....as I mentioned....most of the people who file a Chapter 7 bankruptcy don't lose anything. In the occasional case where it looks like a client has too much "stuff" to cover with exemptions, there is always Chapter 13. In Chapter 13, people can keep all their stuff; they just have to pay in some extra money.

      In our experience....in Indiana....by the time people come see us for help, most have already taken out loans sufficient to use up most of the "equity" in their property. By "equity", I mean the value in something above what is owed on that something. For instance, say a house is worth $110,000, and the mortgage on it has a payoff balance of $100,000. The "equity" in this house is $110,000 minus $100,000.....which is $10,000. In Indiana, the house exemption (called the "residence" exemption) can protect "equity" up to $15,000 per owner. Assuming that the same house is owned by a husband and wife, the husband and wife can each claim a $15,000 house exemption. That is....$15,000 for the husband...plus $15,000 for the wife = $30,000. For purposes of bankruptcy, this house in this example would be "exempt" and therefore protected.

      Using Indiana as an example....there are exemptions to cover lots of things including houses, mobile homes, land, cars, trucks, household goods and furniture, wages, life insurance cash value, personal injury and workers' compensation claims, tools of trade, retirement plans, IRA's, 401k and 403b accounts, and the list goes on.

      A Word Of Caution: Federal and State exemptions can provide some wonderful and amazing results, but exemption law can be very tricky and complicated. There are many traps for the unwary. A thorough understanding of all available exemptions....including a thorough understanding of all the Court cases interpreting those exemptions...is crucial. Not knowing about exemptions you have available to you may unnecessarily keep you from obtaining bankruptcy relief you deserve. On the other hand...claiming exemptions you do not have a right to may cause you to lose some of your property. Why? Because once you file a Chapter 7 bankruptcy case, you do not have the right to "unfile" it. Solution: Pick an attorney who does nothing but bankruptcy for a living....one who knows the exemptions laws...where you live....inside and out.

      Valuing property: A big part of the process of analyzing a potential client's case...so that a determination can be made as to what property can be protected....is to determine the correct value for the client's property. This is a fairly complicated....but extremely important.... part of the process. The problem is that.....there are values and then there are other values. That is...an item may have different values depending upon the reason you are trying to value it.

      Filing bankruptcy does NOT mean you get to keep all your property for free. If there is a lien against the property.....as in the example above with the house....the creditor holding the lien still needs to be paid. In our house example, equity is no problem, but if the husband and wife want to keep the house....they would still have to keep current on the $100,000 mortgage.

      The same would apply for a car loan. Generally, when you get a car loan, you give the lender a lien against your car title. In most cases, this lien is not affected by filing a bankruptcy under Chapter 7. That is...generally....liens pass through bankruptcy unaffected. Assuming there is an exemption to cover whatever "equity" there is in the car, the client would still have to keep current on the car loan if the client wants to keep the car. If the car loan is not kept current, filing under Chapter 7 will not keep the lender from eventually repossessing the car.

      For purposes of Chapter 7, generally if a client wants to keep a piece of property and there is money owed on that property....the client would have to "catch-up" on the payments owed before filing bankruptcy. Chapter 7 has no rules for catching up on payments due on property that has a lien against it. If the client cannot catch up on these payments, but the client still wants to keep the property....as in the case of the house or car in the examples above...the client would have to consider filing a Chapter 13 case. Chapter 13 does have a rule for catching up on such payments. For more information on Chapter 13, see "Learn About Chapter 13".

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(4)  Get out from under debt on property you are willing to say "goodbye" to.

      Chapter 7 can help you get out from under a debt associated with a certain piece of property that the you: (i) Have lost control of, (ii) No longer want, or (iii) Can no longer afford.

      Example 1 (Property you have lost control of) : Let's say you and your spouse own a house and that both of your owe on the mortgage. Then, let's say you get divorced, and in the divorce, you agree to give your spouse the house, with the idea that your spouse will refinance the mortgage and therefore get your name of the mortgage. But...let's say the spouse does not refinance. This can be a big problem because you are still liable on the mortgage and if your former spouse does not pay the mortgage, the mortgage company will come after you for the money. By filing bankruptcy, you can remove your name from the mortgage, at least in terms of having to worry about the mortgage lender ever coming after you. This let's you stop worrying about the mortgage and let's you get on with your life. What a great benefit of bankruptcy.

      Example 2 (Property you no longer want): Let's say you own a mobile home that is worth $15,000, but you owe $25,000 on it. You have tried unsuccessfully to sell it, but the people who want to buy it cannot get approved for the financing to complete the purchase. And say...for example.... you have had to move elsewhere. Unless you can figure out a way to get rid of the mobile home and the debt owed on it, you are stuck. Filing bankruptcy under either Chapter 7 or 13 can help. Here is how it works. As part of your bankruptcy, let's say you decide to "surrender" (which means give back) the mobile home to the person or company that holds the lien against it....that is.... the person or company to whom you owe $25,000. This person or company would then come get the mobile home and put it up for sale. Outside of bankruptcy....if this happened....once they sell it...they would come back at you to collect any money they did not get from the sale. In our example...if they sold it for $15,000, you would still owe them for the residual $10,000 of the original $25,000. But.... not in bankruptcy ....especially Chapter 7. In Chapter 7....under the law....after you surrender property back to a lender....all that's left is an "unsecured" claim against you....and unsecured claims are what bankruptcy gets rid of best.

      Therefore....back to our example.... filing Chapter 7 helps you solve a big problem. It gets rid of both the mobile home and the entire debt against it. Is that amazing or what? And this does not apply to just mobile homes.

      The same applies with respect to all types of property you want to get rid of.

      Example 3 (Property you can no longer afford): Let's say you own a home, but you can no longer afford to make the mortgage payment. What do you do? By filing bankruptcy, and by agreeing to give up the home, you can get out from under the mortgage payment. In this case, the house would get foreclosed on. Outside bankruptcy....the problem is....the house would get foreclosed on...and then the mortgage lender would sue you for whatever money it did not get out of the house. By filing bankruptcy under Chapter 7....if you decide to give up a house....you are discharged from the whole debt. What this means is that the mortgage lender cannot come after you. The mortgage lender can sell the house and that's it. If the mortgage lender does not get enough out of the sale of the house to pay the full mortgage debt....by filing Chapter 7.... the mortgage lender is forever barred from coming after you for the unpaid part.

(5)  Stopping Lawsuits and Creditor Harassment.

      One of the most powerful things about bankruptcy is the "automatic stay". The words "automatic stay" don't sound very powerful but...believe me....this thing called the "automatic stay" is very powerful. Here is what happens.

      Immediately when you file bankruptcy, you get bankruptcy protection. The protection comes in the form of a Court Order, which the Court immediately sends out to all creditors, demanding that they leave you alone. This Order has a name. It is called the "automatic stay".

      If a creditor does NOT comply with this order, the Bankruptcy Court has the power to punish the creditor severely. Most creditors know this and takes steps to immediately comply with the Order. More specifically....the creditor must stop all collection calls....at home and at work....stop writing collection letters, stop all lawsuits and take whatever steps are necessary to "call off the dogs", as in the case of "repo" men and foreclosing attorneys....and to stop all garnishments for at least taxes and student loans. Thereafter...and for the duration of the Chapter 7 case.....if the creditor feels it has the right to do something, the creditor must make a formal application to the Court. By having to make a formal application to the Court, the Court can take steps to provide you the protection you need and deserve.

      At the end of your Chapter 7 case, the automatic stay expires, but in most cases, it doesn't matter. Why? Because....with respect to all the debts that get "discharged" (which means permanently "gotten rid of"), it is immediately replaced with a "permanent" order to protect you. This order also has a name. It is called the "discharge injunction".

      At the end of your Chapter 7, creditors with "non-dischargeable" debts.....like alimony, child support, student loans, and certain taxes can take up where they left off. The good news is that....hopefully....if you got rid of enough other debt in your bankruptcy case.....you will now have more income and be in a better position to deal with these residual "non-dischargeable" debts.

(6)  Freeing up income for your family.

      The whole idea of getting rid of some debt is so that you don't have to pay on that debt anymore. This relieves stress and that's great, but it also does something else. It frees up your income to take care of other more important things....like your normal monthly living expenses. And, this means that....hopefully....if you have an income....you are in a better position to take care of your family. Most of our clients saving hundreds of dollars per month....and that big.

      And, being in a better position to take care of your family can get your life started again.

      Not filing bankruptcy can mean you get "stuck in neutral" or worse, "stuck in reverse". Filing bankruptcy....and getting rid of some of the burden of debt....generally means you and your family can....once again.... start moving forward You and your family get a "second chance" at a fresh start.....one of the amazing things that filing bankruptcy can do for you and your family.

(7)    Putting you in a position to earn more money and save.

      For most people with mounting bills, it's usually becomes a situation of "Borrow from Peter to Pay Paul" just to stay current. For most people....not filing bankruptcy means.....the more you earn, the closer you get to breaking even each month. But...forget about "saving for a rainy day". The worst comes when you don't earn enough and you can't borrow any more money from "Peter". At that point...you are in big trouble.

      Filing bankruptcy solves a lot of these problems. The idea is this. Hopefully...by filing bankruptcy...you can get rid of enough debt so that you can live on what you earn. This is the first step. The second step is to earn more money....but in a more "debt free" situation where you do not have to use it just to stay current. If you get rid of enough debt in bankruptcy to really make a difference....then, and thereafter....if you are careful....you should be able to start saving money...especially as you get wage increases or promotions in your job.

(8)  Filing bankruptcy can help you re-build your credit.

        Filing bankruptcy is the first step. This gets rid of debt. Saving money is the second step. These are 2 important steps that need to be taken in order to rebuild your credit. Without doubt....if you have gotten to the point where you need to file bankruptcy.....your credit is already messed up, maxed out and....likely...dead. If so....the first step in rebuilding credit is to get rid of some debt. To do this....nothing....absolutely nothing.....works better or faster than bankruptcy....and the fastest way to get rid of debt in bankruptcy is Chapter 7. With Chapter 7.....you file it....and it's done and over with in 3 or 4 months. All of a sudden, you have less debt.

      Assuming everything else in your life holds together....you keep your job....you don't get divorced....there aren't a lot of emergencies....and you get the raises and promotions you deserve (a job where you now bring less and less stress to work each day because debts are no longer stressing you out)....then....for the first time in a long time....you can start saving some money. Saving money gives you the necessary down payment for buying new things...and on and on you go rebuilding credit.

      In addition....having gotten rid of some debt by filing bankruptcy.....your debt to income ratio looks better. Over time....you have money in the bank from saving money on income no longer sucked away by your "now-gone" bills. And then....gradually and naturally....you start attracting the attention of more and more lenders willing to give you more credit. And why not? You are now in a position to handle more credit. At this point....life is starting to look good again and you are well on your way to rebuilding your credit....in no small part because you made a smart decision to file bankruptcy.

(9)   Important Disclaimer.

      The bankruptcy laws are extensive and complicated. As a consequence, most good bankruptcy attorneys do nothing but bankruptcy. It is a full-time job to keep up on the bankruptcy laws, exemptions laws, and procedures....while at the same time serving all the other needs of our clients. I mention this because....although all of the information mentioned before is true, in many....if not most.... circumstances....(1) Results will vary depending on your goals, assets, debts, income and expenses, and (2) Because it was necessary to oversimplify the information and the conclusions in order to make important points. The simple truth is that you cannot become an experienced bankruptcy attorney or learn enough to become knowledgeable enough to file your own bankruptcy case by simply reading the material on this or any other website. Anyone that would have you believe otherwise is simply lying to you for their personal gain....or fooling themselves. The information on this website is simply meant to introduce you to important concepts about bankruptcy and to let you know the truth: That bankruptcy does NOT work the way you think or the way you have always been told. The best advice I can give you is to set up a consultation with the most experienced bankruptcy attorney you can find. Most of the time...except...perhaps.... for people who own and run large...or fairly large....businesses...you can do so for FREE. My office...for instance....offers a totally FREE initial consultation..... so you can learn about all your rights and all your options....bankruptcy and otherwise...and so that you can get fast answers to all your questions about debt and how to deal with it.

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(1)  What does it cost and how do I pay?

      In terms of benefit...paying a bankruptcy attorney may be the best bang you ever get for your buck. It many cases....it costs only a little more than $1,000 to pay an experienced bankruptcy attorney to handle and file your case in Chapter 7. You can always find an attorney to do it cheaper but....you know what they say....you get what you pay for. The expense is worth it. Believe me...I've had to clean up messes caused by inexperienced attorneys...and even bigger messes caused by people deluded into thinking that filing bankruptcy is simple and who try to file on their own....without an attorney. Yes...you can file your own bankruptcy case...just like you can save the cost of a surgeon and cut a bullet out of your own arm...but would you? There is a reason for the phrase: "penny wise...but pound foolish". Don't take chances with your family and your future. Hire an experienced bankruptcy attorney. You will be glad you did. Anyone who advises you otherwise is either lying to you...or...ignorant as to just how tricky and complex the bankruptcy laws are.

      The experienced bankruptcy attorney is just that....experienced....and you get the benefit of all that experience.... to help you decide whether to file bankruptcy or not....to guide you in analyzing the pros and cons of Chapter 7 versus Chapter 13....to avoid mistakes that less experienced attorneys often make....to help you apply exemptions to protect your property....to answer questions that only an experienced attorney knows how to answer....to make the experience more understandable...to efficiently guide you and your case through the process...to deal with anything unexpected that may come up...and to explain....from experience.....what you can expect from life after bankruptcy. A good, experienced bankruptcy attorney can also... optionally... provide you extra services like: (1) lien avoidance and vehicle redemption...which save you even more money...and (2) defense of adversary proceedings in case some creditor wrongly accuses you of fraud or some other wrongdoing.

      And....all this is in addition to the fact that the experienced attorney knows how to achieve the best results...in terms of getting rid of most debt possible.

      And...all this is in addition to the fact that the cost of hiring an experienced attorney is generally minimal when compared to the amount of debt (and future interest) from which you can get relief from. Many times, the money saved in just one month....on debts you no longer have to pay.... is enough to pay the entire attorney fee.

      In addition to the cost of the attorney...there is the bankruptcy filing fee. The filing fee for Chapter 7 is $299. The attorney collects this from you...and then simply forwards it to the Court. In addition...there may be some other small costs.... for such things as obtaining credit reports and performing judgment searches.

(2)  How Do I Come Up With The Money To File Bankruptcy?

      I can't pay all my bills now. How in the world do I come up with the money to pay an attorney? That's a great question. And...we have at least 23 separate and distinct answers. One answer is to stop paying on all the debts that you are going to get rid of by filing bankruptcy. Here is the entire list:

(3)   How fast can I get relief? 

       In most cases, we work as fast as you pay us and provide us with the documents and other information necessary to prepare the schedules required to file your case. Your case can be filed in as little as five days....and even quicker in an emergency.

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