Filing Chapter 7 Bankruptcy – Personal Bankruptcy
Chapter 7 is the most common type of bankruptcy. It’s known as a straight bankruptcy, a fresh start or a liquidation. A chapter 7 is the most effective for individuals, couples or sometimes small sole proprietorship’s to eliminate (discharge) most, if not all, of their debt
Bankruptcy Exemptions: To begin to understand chapter 7, it is important to understand the law on exemptions. Basically, when you file a chapter 7 bankruptcy, the chapter 7 trustee becomes the owner of your property. Each state, however has a list of property you can exempt from this result. Hence the terms, exemptions.
Some examples of exemptions are, your home, your vehicle, your clothing and household goods, pensions, retirement accounts and tools of the trade. However, there are limitations on the amount and use of exemptions. The point is, IF, at that time you file chapter seven, you own non-exempt property, the trustee will be free to sell this property and use the money to pay your creditors. This is why it is extremely important to get qualified legal advice before filing bankruptcy.
Bankruptcy Income Test: Aside from the exemption issue, the threshold question in determining whether or not you qualify for a chapter seven is: What is your current monthly income (or CMI)? CMI is determined by looking at your actual income from all your sources, except social security, for the six months preceding the month that the bankruptcy is filed. If your CMI is over the median state income for your family size, you MAY not be eligible to file chapter 7. However, this is not the end of the inquiry. You should consult with a competent attorney to see if you are eligible —because a good lawyer may be able to “squeeze” you in to a chapter 7 based on other factors.
Business Bankruptcy Chapter 7
Business Chapter 7 Bankruptcy: A small sole proprietorship can sometimes qualify for a Chapter 7 and continue to stay in business. However, a business that is organized as a corporation or LLC is actually not entitled to receive a discharge of debt in a chapter 7 case. Instead, the business entity is liquidated, any funds received go out to pay creditors and the case (and business) is closed. Although there are sometimes valid reasons to file a corporate chapter 7, such a procedure should be carefully thought out before filing.
After a corporate or LLC bankruptcy is filed, the owners, shareholders, officers and/or guarantors of the business entity may be sued for some or all of the corporate debts. This may result in the filing of a personal bankruptcy for these individuals.
Thinking of filing Chapter 7 Bankruptcy in California? Call or fill out our form for a free consultation. Let our expert bankruptcy attorneys guide you with each step.