Chapter 7 Bankruptcy
The Chapter 7 Bankruptcy is often called the "straight" bankruptcy. The purpose of Chapter 7 is to help an individual get a "fresh start."
At the outset of a Chapter 7 proceeding, the court appoints a trustee. The trustee's job is to gather the debtor's non-exempt assets if any and sell them to pay off a portion of the creditor's claims. Because both Texas Exemptions and Federal Exemptions are so broad, most cases do not have any personal property that is sold. Chapter 7 Bankruptcy can also be used to help a business obtain debt relief by liquidating its assets and terminating its operations.
When an individual debtor receives a discharge in Chapter 7, the bankruptcy will eliminate the debtor's personal liability on dischargeable debts, and the debtor gets a fresh start. The discharge will not extinguish a lien on the property, which means an IRS lien will survive a Chapter 7 discharge. Some debts are not dischargeable under Chapter 7 such as student loans, certain income taxes, payroll taxes, and debts obtained by fraud.
Attorney for the Chapter 7 Bankruptcy in Dallas, TX
A bankruptcy attorney in Dallas, TX, can help you decide the best time to file for bankruptcy and whether you should file the petition under Chapter 7 or Chapter 13 bankruptcy.
An experienced lawyer can explain whether your property and assets will be protected if you decide to file for bankruptcy. Especially after the new requirements under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 went into effect. Filing for personal chapter 7 bankruptcy is more complicated.
If you need to file a Chapter 7 in Dallas, TX, then contact Littlefield Law Firm. We represent clients in bankruptcy court throughout the greater Dallas-Fort Worth area including in the Northern District of Texas at the Earle Cabell Federal Building in Dallas, the Eldon B. Mahon U.S. Courthouse in Fort Worth. We also represent clients in the US Bankruptcy Court for the Eastern District of Texas in Plano, TX.
Littlefield Law Firmis located in north Dallas, Texas. Our lawyers represent clients throughout Dallas County, Collin County, Kaufman County, and Rockwall County.
Call (972) 812-0900 today.
Debts Not Discharged under Chapter 7 Bankruptcy
Although most types of unsecured debts are legally dischargeable upon completion of the bankruptcy proceeding, some types of debt are not. The most common types of debts that are exempt from discharge in bankruptcy are:
- child support;
- property taxes;
- income taxes less than three (3) years old;
- court-ordered fines and restitution in criminal cases;
- student or educational loans (unless the debtor prevails in an adversary proceeding);
- spousal support (which is not covered by a bankruptcy filing); and
- any property settlements made through a divorce.
Means Testing in a Chapter 7 Bankruptcy
In a Chapter 7 Bankruptcy, the trustee reviews the debtor's budget, which must be included in a form known as the "Means Testing form." In a consumer bankruptcy case under Chapter 7, the majority of the debts are considered "consumer" in nature. Consumer debts include car debt, household debt, medical bills, and credit card debt.
Business debt can include IRS taxes and personal business guarantees. Additionally, if a debtor uses a credit card to buy things for his or her business, then it might be considered business debt instead of consumer debt. Even if that credit card debt is in the debtor's name and not in the name of the business (often called the "business debt exception" to the means test), it can still be considered "business debt."
The purpose of the "Means Testing Form" is to determine the debtor's budget based on guidelines that the bankruptcy petitioner does not have funds left over in his or her budget that could be used to pay the debts that he or she is seeking to have discharged.
The income limit used in a means test is determined by looking at an individual's state and family size.
The Commencement of the Chapter 7 Bankruptcy
After the commencement of a liquidation case under Chapter 7 of the Bankruptcy Code, a bankruptcy estate is created. Under 11 U.S.C.A. § 541(a), property acquired by the debtor after he or she files Chapter 7 does not generally become part of the bankruptcy estate, although some exceptions apply.
For example, the proceeds, product, offspring, rents, or profits of or from the property of the estate themselves also become the property of the estate under 11 U.S.C.A. § 541(a)(6). Additionally, any interest in property that the estate acquires after the commencement of the case becomes the property of the estate.
Other exceptions to this general rule include interests inherited by the debtor within the 180 days after the bankruptcy come into the estate as provided by 11 U.S.C.A. § 541(a)(5)(A). Additionally, property acquired by the debtor as a result of a property settlement in a divorce or as the beneficiary of a life insurance policy become estate property under 11 U.S.C.A. § 541(a)(5)(B), (C).
When a debtor files for bankruptcy in Dallas, TX, all of the debtor's property becomes the property of the estate, including any property that the debtor intends to claim as exempt as provided in 11 U.S.C.A. §§ 522, 541(a)(1-2). The debtor must take affirmative steps to claim the property as exempt. Otherwise, the property will remain in the bankruptcy estate.
Objections to Exempt Property by the Creditors
If the debtor claims the property as exempt in the bankruptcy schedules, then interested parties must affirmatively object within 30 days of the first meeting of the creditors or the property will be deemed exempt.
If the creditors do not object within the time limit, then the property becomes exempt regardless of whether the debtor had even a statutory basis for claiming the exemption. For example, in Taylor v. Freeland & Kronz, 502 U.S. 976, 112 S. Ct. 632, 116 L. Ed. 2d 602 (1991), the court found that the trustee may not contest the validity of a claimed exemption after the Rule 4003(b) 30-day period has expired.
Likewise, in In re Prado, 340 B.R. 574, 55 Collier Bankr. Cas. 2d (MB) 1502 (Bankr. S.D. Tex. 2006), the court found that:
"Under Texas law, a debtor's interest in pawned goods becomes the property of the bankruptcy estate and is protected by the automatic stay unless both of the following occurred prepetition:
- the 60–day grace period expired, and
- the pawnshop documented the date the pledged goods were forfeited and taken into inventory."
The Appointment of the Trustee in a Chapter 7 Bankruptcy
Under § 701, after Chapter 7 bankruptcy is filed, a trustee is appointed to manage and to reduce to cash all of the assets of the estate. In the case of an individual debtor, he or she may specify certain property as exempt from the claims of creditors.
Under § 522(b), if no objection to the debtor's claim of exemption is sustained, title to the property reverts from the estate back to the debtor. The remaining property of the estate may be sold by the trustee. Under § 725, the trustee must dispose of property subject to valid liens and encumbrances prior to the general distributions to creditors.
Under § 726, the residual property is then distributed to creditors in the order of priority established by Chapter 7.6 An individual debtor receives a discharge from all prepetition debts unless an objection to discharge is sustained.
Changes to Chapter 7 Bankruptcy Rules in 2005
Effective October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created numerous amendments to the Bankruptcy Code. These amendments impacted a debtor who filed a Chapter 7 or Chapter 13 petition. Under these new rules, the debtor must seek counseling from an approved non-profit credit counseling agency within 180–days of filing the bankruptcy petition. If a certificate evidencing credit counseling is not filed with the Voluntary Petition, the case may be dismissed.
Exceptions to the Credit Counseling Requirements
The law contains exceptions to the credit counseling requirement. If the United States Trustee determines that the approved credit counseling agencies for such districts are not reasonably able to provide adequate services, the counseling requirement will not apply. Additionally, if the debtors can demonstrate “exigent circumstances,” then the debtor will be exempt from the counseling requirement. Another exception might apply if the debtor is incapacitated, disabled, or engaged in active military duty in combat.
The credit counseling requirement in a Texas Bankruptcy case might be waived under 11 U.S.C.A. §§ 109(h) and 111, for a period of thirty (30) days after the petition is filed if the debtor submits to the court certification that states that the debtor requested counseling services from an approved agency at least five days before the bankruptcy filing, but was unable to obtain the services.
Application to Waive Filing Fee by Chapter 7 Individual Debtor in Dallas, TX
A request by an individual debtor in Dallas, TX, to waive the filing fee for Chapter 7 relief must be noted on the Voluntary Petition. The petition must be accompanied by an application and proposed order that conforms with Official Form 103B. If the application is granted by the court, then the waiver applies to all fees listed by the Judicial Conference of the United States to be paid by a debtor in a Chapter 7 case. The waiver does not include a Chapter 7 debtor’s request to convert the case to another chapter. Such a request must be accompanied by the full filing fee for relief under that chapter.
Chapter 7 Bankruptcy Basics - Visit the United States Courts to find out more about bankruptcy basics on Chapter 7 of the Bankruptcy Code that provides for “liquidation” through the sale of the debtor’s nonexempt property and the distributions of the proceeds to creditors. The article discusses alternatives to Chapter 7.
This article was last updated on Friday, February 9, 2018.