Chapter 7 bankruptcy law book with a gavel on top

Chapter 7 bankruptcy is designed to eliminate debt and give borrowers a fresh start. The Chapter 7 process is the shortest termed bankruptcy that you can file.  A Chapter 7 case typically takes about 90 days, depending on how many assets and creditors you have.  There are a lot of potential benefits to Chapter 7, but without solid legal advice, there may be unwanted consequences. If you are considering Chapter 7 bankruptcy, you should contact a Tampa bankruptcy law firm for a consultation.

Automatic Stay

As soon as your Chapter 7 case is filed, an automatic stay will be enacted. The automatic stay requires all collection activity against borrowers to stop immediately. See 11 U.S. 362.  Creditors will not be able to pursue any collection actions while the stay is in effect. Therefore, all phone calls, lawsuits, garnishments, and other collection activities must immediately stop. The automatic stay even stops garnishments and foreclosure auctions already scheduled to occur.

Any actions that violate the Chapter 7 bankruptcy stay are seen by the court as ineffective.  For example, if a creditor tries to secure his claim after the debtor has filed for bankruptcy, the Court will act as if the action never happened. Moreover, certain violations of the stay can result in the creditor being forced to pay your attorneys’ fees. Additionally, contempt charges may also be brought against the bank.

Chapter 7 Discharge of Debt

The goal of the Chapter 7 Bankruptcy case is to give borrowers a fresh start. The new start is obtained by discharging debt so that the borrower can move one without the lingering debt.  If a debt is discharged in bankruptcy, the borrower will be released from personal liability on the debt. The discharge is a permanent court order releasing the borrower from the responsibility of having to pay the debt. Further, the discharge prohibits a creditor from taking any collection action against the borrower. See 11 U.S. 727. In most cases, obtaining a discharge will be the primary reason why a borrower files for Chapter 7 bankruptcy.

Objections to Discharge of Debt

Two laws can be used to prevent a discharge of debt, Section 523 and Section 727. Section 523 deals with the discharge of individual debts. Therefore, a denial under 523 only affects that specific debt. Any remaining debts included in your bankruptcy may still be eligible for discharge.

Conversely, a denial of discharge under 727 would preclude all the debts included in the bankruptcy from discharge. Thus, a preclusion of discharge under 727 is a lot more severe. An objection to discharge under 727 can be made by any party to the bankruptcy case. Most often, the party filing the objection will be either the bankruptcy trustee or a creditor included in the bankruptcy. The party filing the objection has the burden of proving the grounds for the objection.

The objecting party must provide sufficient evidence to prove the denial beyond a preponderance of the evidence. See In Re Brooks. This standard only requires the objecting party to prove the grounds for denial are more likely than not to have existed. Proving the objection is justified will depend on the specific facts and circumstances of each case. If you are concerned about objections to discharge, you should retain a bankruptcy attorney in Tampa.

Objections by the Trustee

The most common objections raised involve acts by the borrower to hinder, delay, or defraud a creditor. An example of this may include, gratuitously transferring assets to a family member within 1 year of filing for bankruptcy. See In Re Emmett. To deny a discharge under these grounds, there must be proof the debtor acted with fraudulent intent. Merely proving the events occurred is not enough. The court must provide sufficient evidence the debtor acted with the intent to hinder, delay, or defraud a creditor. See In Re Miller. In determining whether or not the debtor acted with the requisite intent, the court will consider many factors, such as:

  • Lack or inadequacy of value received by the debtor in exchange for the assets given
  • Relationship between the parties (i.e., family, close friends)
  • Financial condition of the debtor both before and after the transaction
  • Existence of a pattern or series of suspicious transactions
  • General chronology of the events and transactions

Chapter 7 Bankruptcy Trustee

The United States Department of Justice appoints the Trustee for the Chapter 7 case.  The trustee must ensure all of the assets, debts, and expenses are correctly accounted for.  The trustee will also be on the lookout for fraudulent transfers and other improper acts by borrowers or creditors.  See Granfinanciera, S. A., et al. v. Nordberg.

Fraudulent Transfers

Fraudulent transfers occur when borrowers transfer assets with the intent to deceive a creditor. A typical example is transferring money to family members. If money is disguised as a gift but in reality is intended to be a loan repaid after the bankruptcy is over, it may be treated as a fraudulent transfer. Another common fraudulent transfer is to disvalue assets. For example, underestimating the value of an asset may be considered a fraudulent transfer.  Bankruptcy fraud and related crimes are investigated by the Federal Bureau of Investigation and may have stiff penalties. You should consult with a bankruptcy law firm before filing your case.

Chapter 7 Means Test

To be eligible to file Chapter 7 bankruptcy, you must pass the means test. The means test is designed to weed out those who “need” bankruptcy from those who don’t.  It was developed to keep people from abusing Chapter 7’ bankruptcy.  You only have to pass the means test for Chapter 7 bankruptcy. Borrowers seeking relief under Chapter 13 will not be required to pass the means test. Additionally, the means test may not be applied in your case if you are a disabled veteran. Also, you may be exempt if your debt is primarily business-related debts, as opposed to consumer debts.

The First Step to Pass the Means Test

When evaluating the means test, the borrower’s average income will be a significant factor. Under some circumstances, the spouse’s income may be considered as well. The Court will look at the average income earned over the last six months. Next, the trustee will multiply the amount by twelve (to account for one year of income).  The Court will then compare that number to the state median income.  If your income is below the median income, you will finish, and there would be no presumption of abuse.  See bankruptcy law 707(b)2.

The median income used for the means test is derived from the Census Bureau. The income levels are broken down into family size by geographic region. Recently, the median income has been increasing each year. Therefore, if you were not eligible last year, you may be eligible now.

What is Florida’s Median Income?

Below is the U.S Trustee’s determination of the median income in Florida, effective November 1, 2019. These amounts are used to determine eligibility for Chapter 7 bankruptcy in Florida

  • Household of 1 person = $50,641
  • 2 people = $61,619
  • 3 people = $67,717
  • 4 people = $81,091
  • 5 people = $90,091
  • 6+ people = Add $9,000 per each individual

How to Pass the Means Test If Your Income is Above the State Median Income

If your income is above the national median, you would need to continue with the means test.  At this time, the Court will evaluate your income after considering some allowable deductions.  This part of the test is very complicated. Some of the permissible deductions are established through the IRS code, others through the census bureau.  This is where it becomes crucial to consult not just with an attorney, but an experienced Chapter 7 attorney.  An experienced attorney can use the IRS Code, bankruptcy law, Census data, and other information to help pass the means test.

Presumption of Abuse

Part-Two involves the Court trying to uncover your true disposable income. See Ransom v. FIA Card Services.  If the income is over the state-median income after deductions, there will be a presumption of abuse.  A presumption is like an assumption, but one with legal ramifications. The presumption must be overcome with evidence; without evidence, a presumption will stand as if fact.  Should there be a presumption of abuse in your case, you will be required to give details about an exigent or special circumstance that justifies your need for Chapter 7. You may need to provide specifics about your financial situation (income, debts, or assets) to satisfy the Trustee.  Additionally, you may be required to attest to the accuracy of this information.  See Official Form 122A-2.

Even if you find yourself in a situation where the presumption of abuse applies, you may still pass the means test. For instance, a recent loss of employment may be sufficient to overcome the presumption of abuse. Usually, a one-time bonus affecting income which is not likely to continue, can also be disregarded. There may be many other examples as well. For advice about a specific case, contact a bankruptcy law firm.

The First Step in Chapter 7 Process

The first step in the Chapter 7 process is to complete a credit counseling course.  This course must be completed 180 days before filing the petition for Chapter 7.  Numerous pre-approved agencies offer this course. You can find a list of approved agencies in Florida by going here: https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111. A bankruptcy attorney in Tampa can also provide advice on which local agencies offer the course.

The Chapter 7 Petition

The second step is to file a voluntary petition for Chapter 7 and accompanying schedules. Your schedules are organized and compilation of your assets, debts, income, and expenses, etc.  It is essential to make sure the petition and schedules are done correctly. If you have any doubts about how to complete the documents, contact a bankruptcy lawyer for advice properly.

The Meeting of Creditors

The next step in the Chapter 7 process is to attend a 341 Meeting of Creditors. This is a meeting that your trustee will schedule, and the borrower’s attendance is mandatory. See bankruptcy law 11 U.S.C. § 341.  The meetings are tools for the Trustee to inquire about your creditors and ask borrowers questions. The borrower will be under oath and must answer the trustee’s questions truthfully.

Creditors have a right to attend but rarely appear at the 341 Meeting. Clients typically don’t need to worry about a bunch of bank representatives or attorneys attending.  If any creditors do show up, they are usually individuals ( family member or friend) who you owe money to and want their voice to be heard. You also have the right to have your bankruptcy lawyer present with you at the 341 Meeting.

Proof of Claims

After you attend your 341 Meeting, creditors must file their “proof of claim.”  The proof of claims must be filed within 90 days of your first scheduled 341 Meeting.  Unsecured creditors must complete and file their claims with the court to receive any money from the borrower.  If they do not file a timely proof of claim, then they lose their claim and will not be paid.

Liquidation by the Trustee

The next step in the Chapter 7 process will be for the trustee to start liquidation. The trustee will attempt to locate your non-exempt assets, auction them, and distribute the proceeds from the sale to creditors. Exempt property is the property that you do not have to forfeit when filing for bankruptcy. The trustee will not be allowed to collect and auction exempt property.   Before you file for bankruptcy, it is essential to know which exemptions you qualify for. The number of exemptions may significantly impact your decision on whether or not to file for bankruptcy.

Depending on the circumstances of your case, all of your property may be exempt from the bankruptcy. On the other hand, you may be forced to liquidate precious assets if you file for Chapter 7. Contact a bankruptcy attorney for help in determining what property of yours may qualify for an exemption before filing. You may not have the chance to amend your filings, so it is crucial to get it right the first time.

The Final Step of a Chapter 7 Case

After completion, the debt will be discharged, and there is nothing creditors can do about it.  All phone calls, emails, lawsuits, and collection actions after the discharge are banned. After receiving a discharge, you can choose to pay back any debt voluntarily, but you cannot be forced to pay. If creditors resume collection activity, they may be penalized by the court and be subject to sanctions.

If a debt is discharged in bankruptcy, the borrower will be released from personal liability on the debt. The discharge is a permanent court order releasing the borrower from the responsibility of having to pay the debt. Further, the discharge prohibits a creditor from taking any collection action against the borrower.

How Soon Can I File Chapter 7 Again If I Filed Chapter 7 in the Past

If you previously filed Chapter 7, you must wait eight years from the commencement date of your previous case.  The “Commencement Date” is the day you filed your bankruptcy petition with the court.  For example, if you filed on October 1, 2008, then you would have to wait until October 1, 2016, to file again.

Conversely, if you previously filed for Chapter 13, you only have to wait six years to file Chapter 7.  The waiting period will begin on the commencement date of your previous case. Fortunately, there are some exceptions to the 6-year waiting period. If you paid your previous Chapter 13 payment plan in full, you might not have to wait the entire six years. Additionally, if you paid 70% of your payment plan in good faith, you may not have to wait to refile.

Do I Need a Lawyer for Chapter 7 Bankruptcy?

Bankruptcy law does not require borrowers to hire an attorney for Chapter 7 bankruptcy. However, it is highly recommended to obtain an attorney to assist with the case. Without full knowledge of the law, you may encounter significant pitfalls. For instance, you may be accused of perjury, fraudulent transfers, and denied a discharge of debt.

It is important to highlight that a Chapter 7 case cannot be dismissed by the borrower. Therefore, if consequences arise in your case, you cannot avoid them with a dismissal. For instance, if the trustee wants to liquidate (seize) assets, they can despite your request to dismiss the case.

A Chapter 7 attorney in Tampa should have a full understanding of the law and a working relationship with your trustee. While it is not required, an attorney can help to ease the burden and ensure you obtain a fresh start. If you are considering bankruptcy, contact a lawyer to schedule a consultation.

Consult a 5 Star Tampa Bankruptcy Law Firm

At Florida Law Advisers, P.A., we understand that the Chapter 7 process can be very confusing and intimidating.  That is why we work so hard to make the process as easy as possible for our clients. We understand that these are challenging times and we are here to help. When you hire Florida Law Advisers, P.A., you get an experienced Tampa bankruptcy lawyer by your side throughout the case. To schedule a free consultation with a bankruptcy lawyer in Tampa, call us today at 800 990 7763.

Frequently Asked Questions

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Do all debts get discharged in Chapter 7?
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