In the news we hear about individuals, or companies, filing for bankruptcy on a daily basis.  Recently Stephen Baldwin filed for Chapter 11 bankruptcy, GM filed for Chapter 11 bankruptcy, CIT Group may be filing for Chapter 11, as may the parent company of the Chicago Tribune. Detroit Public Schools are considering filing for Chapter 9 bankruptcy. Last year Downey Financial, a large provider of mortgages, filed for Chapter 7 bankruptcy. You may well wonder what the different chapters are about—who is eligible for each chapter, and how each chapter works. I will take the next few blog entries to help clarify this issue.

 Let me start with Chapter 7. This Chapter does not involve a repayment plan. Instead, the bankruptcy trustee will liquidate your nonexempt assets and use the proceeds to pay your creditors in accordance with the provisions of the Bankruptcy Code. The Bankruptcy Code allows you to keep certain “exempt” property.  But do keep in mind that filing a Chapter 7 petition may result in the loss of property.

 You may qualify for relief under Chapter 7 as an individual, a partnership, or a corporation or other business entity. Relief is available under Chapter 7 irrespective of the amount of your debts or whether you are solvent or insolvent. As I have mentioned in previous blogs, the primary goal of bankruptcy is to give an honest individual debtor a “fresh start,” so you will not be liable for discharged debts. (In a Chapter 7 case, however, a discharge is only an option for individual debtors, not partnerships or corporations.) The right to a discharge is not absolute, and some types of debts will not be discharged. And be aware that a bankruptcy discharge will not remove a lien on property.

 The first step in a Chapter 7 bankruptcy case involves filing a petition with the bankruptcy court serving the area where you live, or where your business is organized or has its principal place of business or principal assets.

The following items must also be filed with the court:

• A schedule of your assets and liabilities
• A schedule of your current income and expenditures
• A statement of your financial affairs
• A schedule of your executory contracts and unexpired leases

 In addition, you must submit to the trustee assigned to your case a copy of your tax return, or the transcripts for the most recent tax year as well as tax returns filed during your case (including tax returns for prior years that had not been filed when the case began).

 If filing as an individual with primarily consumer debts, you will have to file the following additional documents:

• A certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling
• Evidence of payment from employers, if any, received 60 days before filing
• A statement of monthly net income and any anticipated increase in income or expenses after filing
• A record of any interest in federal or state qualified education or tuition accounts

 There will be court charges: a case filing fee, a miscellaneous administrative fee, and a trustee surcharge. Usually the fees are paid to the clerk of the court upon filing. With the court’s permission, however, you may pay in at most four installments within 120 days of filing.

You must also provide the following information when you petition the court:

• A list of your creditors and the amount and nature of their claims
• The source, amount, and frequency of your income
• A list of your property
• A detailed list of your monthly living expenses (food, clothing, shelter, utilities, taxes, transportation, medicine, etc.)

You and your spouse may file a joint petition or individual petitions. If you do file jointly, you are both subject to all the document filing requirements of individual debtors. Regardless of whether you file a joint petition, separate individual petitions, or even if only one of you files, you must gather this information for your spouse as well. The income and expenses of the non-filing spouse is also required so that the court, the trustee and creditors can evaluate the household’s financial position.

Once you have filed a Chapter 7 petition, most collection actions against you or your property must stop. The bankruptcy clerk will give notice of your case to all of your creditors. As long as the stay is in effect, your creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments.

A Chapter 7 discharge is subject to many exceptions, so you need to consult legal counsel before filing. Usually, excluding cases that are dismissed or converted, individual debtors receive a discharge in over 99 percent of Chapter 7 cases. In most instances, the bankruptcy court will issue a discharge order relatively early in the case-generally, sixty to ninety days after the date first set for the meeting of creditors.

 This is a look at some of the issues involved in filing for Chapter 7 bankruptcy. If you have any further questions please contact me at: 303-955-7570, at help@cobankruptcyhelp.com, or fill out the free consultation form.