Chapter 7 Bankruptcy Overview

repossessed property law

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes referred to as “straight” bankruptcy or liquidation bankruptcy. Chapter 7 is available to individuals, corporations and partnerships. A Chapter 7 trustee is appointed by the bankruptcy court to determine if a bankruptcy debtor has assets which can be sold for the benefit of creditors. Most consumer chapter 7 cases are “no asset” cases which means that the trustee has determined the debtor’s assets do not have enough non-exempt equity to make it worthwhile to sell the assets.

Will I lose my property in a Chapter 7?

There are state and federal laws which allow a debtor to protect some or all of the equity in his or her assets. Equity is the difference between the value of the property and how much is owed on the property. For example, if your vehicle is worth $8,000 and you still owe $2,000 on your car loan, the equity in the vehicle is $6,000. If you have lived in South Carolina for the entire two years prior to the date you file for bankruptcy, you are eligible to claim South Carolina state exemptions. If you have not lived in South Carolina for the entire two years prior to the date you file for bankruptcy, different exemptions will apply.

Some of the most frequently used South Carolina exemptions include:
Homestead or burial plot: $53,375
Vehicle: $5,350
Household goods & furnishings: $4,275
Jewelry: $1,075
Cash: $5,350 (The cash exemption is only available if the homestead exemption is not claimed.)
Wildcard (can be applied to any property): $5,350
Tools of the Trade: $1,600
South Carolina Retirement: 100%
401(k) funds: 100% 
If a husband and wife file a joint bankruptcy petition, each is entitled to claim exemptions on property in which they have an ownership interest.

It is essential that you list all of your assets in your bankruptcy paperwork. In many cases, the allowed exemptions will protect the equity in all of the debtor’s assets. However, if the trustee discovers that you did not list an asset in your bankruptcy paperwork, you will not be able to claim an exemption on that asset and it may be at risk of being sold. Further, intentional concealment of assets can lead to a denial of your bankruptcy discharge and/or criminal charges of bankruptcy fraud.

If the applicable exemptions are not sufficient to protect the equity in your property, it may be preferable to file a Chapter 13 which allows you to keep all of your property.

What debts are discharged?

A Chapter 7 bankruptcy allows you to discharge most types of unsecured debts (such as credit card debt, medical bills, pay day loans, or deficiency claims remaining after a vehicle is repossessed and sold). A Chapter 7 may also discharge loans with finance companies in cases where the loans are secured by household goods which you owned at the time of the loan When a debt is discharged, that simply means that you are no longer legally obligated to pay that debt. There are certain types of debts which are not discharged through Chapter 7. These debts include, but are not limited to, student loans, child support, alimony, certain taxes, restitution, and governmental fines. (In a few cases, student loan debt may be discharged in whole or in part, but such loans are generally non-dischargeable.)

For secured debts such as a mortgage loan or vehicle loan, you must continue to make payments on those accounts if you want to keep the associated property. If you choose to surrender property to a mortgage company or to a lienholder, that property is all the creditor will get. The creditor cannot sue you for any deficiency balance remaining after the property is sold.

Do I qualify for a Chapter 7?

You cannot file a chapter 7 bankruptcy if you have filed a prior chapter 7 bankruptcy within the last 8 years and received a discharge in that case. However, you may be eligible to file a chapter 13 bankruptcy.

If your income is higher than the state median, you must pass what is called a “means test” to determine if you are financially eligible for a Chapter 7. The “means test” is a rather complicated form which analyzes the household gross income, certain allowed deductions and the total amount of debt which is owed. If you do not qualify financially for a Chapter 7, it may still be possible to file a Chapter 13 bankruptcy.

For South Carolina, the current median family income is:

Family size of 1: $37,660

Family size of 2: $47,853

Family size of 3: $50,824

Family size of 4: $62,912

These figures are adjusted periodically.

How will filing Chapter 7 affect my credit report?

A Chapter 7 bankruptcy can remain on your credit report for up to 10 years. That does not mean that you cannot get credit after the bankruptcy discharge is issued, but you will probably pay higher interest rates on your credit cards or loans until you are able to re-establish your credit.

If you are contemplating bankruptcy, there is a strong possibility that your credit report is already showing negative items such as late payments or no payments, collection accounts, or foreclosure/repossession.

Will I have to go to court?

You must attend a court hearing which is called the Meeting of Creditors or “341 hearing” - named after the Bankruptcy code section which requires the hearing. The hearing is held at the Donald Stuart Russell Federal Building, 201 Magnolia Street, Spartanburg, South Carolina. A bankruptcy trustee will conduct the hearing instead of a judge. Your creditors receive notice of the hearing and are welcome to attend the hearing. However, most of time the creditors do not make an appearance. Your attorney will attend the court hearing with you.

 

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Sharon K. Butler, Attorney at Law
400 E. Henry St. #A Spartanburg, SC 29302
864-597-0316

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Sharon K. Butler,  Attorney at Law

1199 John B White Sr Blvd
Spartanburg , SC

Phone: 864-597-0316

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