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Help Filing for Chapter 7

Chapter 7 Bankruptcy Lawyer in San Jose

Serving Clients in the Bay Area Since 1990

At The Fuller Law Firm, PC, our San Jose Chapter 7 attorneys have helped many clients become debt-free. If you are considering Chapter 7 bankruptcy in pursuit of financial freedom, you can benefit from the legal guidance we offer. Contact us online or call (408) 465-4472 for a free initial consultation. We speak Spanish, Chinese, and Persian! We also have convenient locations in Salinas and Oakland.

Reasons to Choose Our Chapter 7 Attorneys

  • Free case consultations provided to each prospective client
  • Backed by nearly 40 years of combined legal experience
  • Evening appointments available
  • Quick turnaround time for drafting petitions
  • Over 4,000 cases successfully filed

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy does not involve filing a plan of repayment as in Chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's non-exempt assets and uses the proceeds of such assets to pay holders of claims (creditors) per the provisions of the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. 

In addition, the Bankruptcy Code will allow the debtor to keep "exempt" property, but a trustee will liquidate the debtor's remaining assets. Accordingly, potential debtors should realize that filing a petition under Chapter 7 may result in property loss.

Am I Eligible for Chapter 7?

To qualify for relief under Chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, a corporation, or another business entity. (11 U.S.C. §§ 101(41), 109(b)) Subject to the means test, relief is available under Chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. 

However, an individual cannot file under Chapter 7 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. (11 U.S.C. §§ 109(g), 362(d) and (e)) 

In addition, no individual may be a debtor under Chapter 7 or any chapter of the Bankruptcy Code unless they have, within 180 days before filing, received credit counseling from an approved credit counseling agency in an individual or group briefing. (11 U.S.C. §§ 109, 111). There are exceptions in emergencies or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest debtor a "fresh start." The debtor has no liability for discharged debts. In a Chapter 7 case, however, a discharge is only available to individual debtors, not partnerships or corporations. (11 U.S.C. § 727(a)(1)) Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on a property.

Is Chapter 7 Right for Me?

Chapter 7 may be right for you if you mainly have minimal consumer loans and assets. However, Chapter 7 relief may not be available to certain high-income individuals. A rather complicated means test determines eligibility. There are also limits on how frequently a debtor can file for Chapter 7. If you have received a discharge through Chapter 7 within the last eight years or through Chapter 13 within the last six years, you will not be entitled to a discharge in a new Chapter 7 petition.

The Filing Process & Exempt Assets

Chapter 7 is the "complete" version of bankruptcy that liquidates certain assets to pay debts. For individuals filing for bankruptcy in the state of California, the court will appoint a trustee who is responsible for managing the liquidation process. However, many assets, such as small assets, are exempt from liquidation.

Some examples of small assets are:

  • Furniture
  • Clothing
  • Most personal belongings

These assets have minimal to no liquidation value and can be kept. More considerable assets, such as a vehicle or home, may be collateral for a loan and, therefore, have no value to the trustee. 

Furthermore, the debtor is entitled to keep legally exempt assets.

Role of the Case Trustee

As mentioned above, when a Chapter 7 petition is filed, the U.S. trustee (or the bankruptcy court in Alabama and North Carolina) appoints an impartial case trustee to administer the case and liquidate the debtor's non-exempt assets. (11 U.S.C. §§ 701, 704) If all the debtor's assets are exempt or subject to valid liens, the trustee will typically file a "no asset" report with the court, and there will be no distribution to unsecured creditors. 

Most Chapter 7 cases involving individual debtors are no asset cases. However, if the case appears to be an "asset" case at the outset, unsecured creditors (7) must file their claims with the court within 90 days after the first date set for the meeting of creditors. (Fed. R. Bankr. P. 3002(c)) A governmental unit, however, has 180 days from the date the case is filed to file a claim. (11 U.S.C. § 502(b)(9)) 

In the typical no asset Chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and allow additional time to file proofs of claim. 

Although a secured creditor does not need to file a proof of claim in a Chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a Chapter 7 case with a lien on the debtor's property should consult an attorney for advice.

Commencement of a bankruptcy case creates an "estate." The estate technically becomes the temporary legal owner of all the debtor's property. It consists of all legal or equitable interests of the debtor in property as of the commencement of the case. This includes property owned or held by another person if the debtor has an interest in the property. Generally speaking, the debtor's creditors are paid from the non-exempt property.

The primary role of a Chapter 7 trustee in an asset case is to liquidate the debtor's non-exempt assets to maximize the return to the debtor's unsecured creditors. The trustee accomplishes this by selling the debtor's property if it is free and clear of liens (as long as the property is not exempt) or if it is worth more than any security interest or lien attached to the property and any exemption that the debtor holds in the property. 

The trustee may also attempt to recover money or property under the trustee's "avoiding powers." The trustee's avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before the petition; undo security interests and other prepetition transfers of property that were not correctly perfected under non-bankruptcy law at the time of the petition; and pursue non-bankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law. In addition, if the debtor is a business, the bankruptcy court may authorize the trustee to operate the business for a limited period of time, if such operation will benefit creditors and enhance the liquidation of the estate. (11 U.S.C. § 721)

Section 726 of the Bankruptcy Code governs the distribution of the property of the estate. Under § 726, there are six classes of claims; each class must be paid in full before the next lower class is paid anything. The debtor is only paid if all other classes of claims have been paid in full. Accordingly, the debtor is not particularly interested in the trustee's disposition of the estate assets, except concerning the payment of those debts which, for some reason, are not dischargeable in the bankruptcy. The individual debtor's primary concerns in a Chapter 7 case are to retain exempt property and receive a discharge covering as many debts as possible.

Alternatives to Chapter 7

​Debtors should be aware that there are several alternatives to Chapter 7 relief. For example, debtors engaged in business—including corporations, partnerships, and sole proprietorships—may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under Chapter 11 of the Bankruptcy Code. Under Chapter 11, the debtor may seek an adjustment of debts by reducing the debt, extending the repayment time, or seeking a more comprehensive reorganization. 

Sole proprietorships may also be eligible for relief under Chapter 13 of the Bankruptcy Code.

In addition, individual debtors who have regular income may seek an adjustment of debts under Chapter 13. A particular advantage of Chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to "catch up" past due payments through a payment plan. Moreover, the court may dismiss a Chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of Chapter 7. (11 U.S.C. § 707(b))

If the debtor's "current monthly income" (1) is more than the state median, the Bankruptcy Code requires the application of a "means test" to determine whether the Chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over five years, net of certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $7,025. 

(2) The debtor may rebut a presumption of abuse only by showing exceptional circumstances that justify additional expenses or adjustments to current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to Chapter 13 (with the debtor's consent) or dismissed. (11 U.S.C. § 707(b)(1)) Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

If you are still unsure whether Chapter 7 is right for you or if you need legal guidance through your case, schedule a free case evaluation with our San Jose Chapter 7 bankruptcy attorneys today!

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