Chapter 7 Bankruptcy
The Chapter 7 Bankruptcy liquidation approach converts a debtor’s non-exempt assets to cash distributed in conformity with the Code. An honest debtor is discharged from most of the remaining debts and given a fresh start.
Eligible debtors include individuals, partnerships, and corporations. Among others, the following entities are generally not eligible to file under Chapter 7 Bankruptcy:
- Banks, savings & loan associations, and credit unions
Abuse by an Individual Debtor
- The availability of bankruptcy protection is limited by means testing to avoid abuse. Abuse by an individual debtor with primarily consumer debts will result in dismissal or conversion to a Chapter 13 case. Abuse is found when:
- The debtor does not pass the financial means test
- General grounds exist for the finding (i.e. bad faith)
- If the debtor’s income exceeds the local median income, the interested party may seek dismissal for abuse. Otherwise, only the Judge and certain Administrators may move to dismiss.
- If the means test determines the debtor’s ability to repay general unsecured claims.
- If the presumption of abuse may be overcome by proof of special circumstances.
The estate consists of all the debtor’s non-exempt interests in property at the beginning of the case.
The estate includes the following:
- All non-exempt property currently held (worldwide)
- Interests in property to which the debtor becomes entitled within 180 days after filing. This includes:
- Life insurance payments
- Divorce settlements
- Any proceeds, products, offspring, rents, or profits received from property in the estate
- Property acquired by the estate after the commencement of the case
- Property recovered by the trustee under the avoidance powers
The estate excludes the following:
- Earnings of the debtor for services after the beginning of a Chapter 7 case
- Contributions to employee retirement plans
- Contributions made more than 365 days prior to filling for educational retirement accounts and State/municipal tuition programs
- Most property acquired after the filing of the petition, including:
- Social Security payments
- Welfare benefits
- Disability payments
- Alimony and support awards
- Most pension proceeds
Exempt Assets are necessities for a fresh start. Only individual debtors, not corporations, are eligible for exemptions.
States are permitted to require their citizens to accept the exemptions of property defined by State Bankruptcy law. If a State has not rejected the Federal exemptions, the debtor has a choice as to whether or not they choose to recognize & accept the exemptions of property.
- Up to $23,675 in equity in the debtors residence and burial plot
- An interest in a motor vehicle up to a value of $3,775
- An interest up to a value of $600 in any item of household goods and furnishings, clothing, appliances, books, animals, crops, or musical instruments, with a total limited to $12,265.
- An interest in jewelry up to a value of $1,600.
- Any other property worth up to $1,250, plus any unused part of the $23,675 exemption in item 1 above, up to an amount of $11,850.
- An interest in tools of the debtor’s trade up to a total value of $2,375.
- Any non-matured life insurance contract owned by the debtor
- Certain interests from accrued dividends, or interest under life insurance contracts owned by the debtor not exceeding $12,265.
- Professionally prescribed health aids
- The right to receive Social Security, certain welfare benefits, veterans benefits, disability benefits, alimony and support, and certain pension benefits
- The right to receive certain personal injury and other awards up to $23,675.
- Unemployment compensation
- The ability to void certain judicial liens
Originally posted 2018-07-31 17:31:28.