Filing for bankruptcy can reduce or eliminate unsecured debts such as credit card debts and medical bills. The Bankruptcy Law Offices of Stephen Johnson will use the bankruptcy laws to obtain debt relief for you.
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Q: How does Chapter 7 liquidation work?
A: In a Chapter 7 case, the debtor must relinquish his or her nonexempt property to a bankruptcy trustee, who then converts the property into cash by selling it and pays the debtor's creditors from the sale proceeds. In return, the debtor receives a Chapter 7 discharge of certain debts if he or she is eligible for such a discharge, pays the filing fee, completes a personal financial management course and obeys the court's directives.
Q: Are all debtors automatically eligible for a Chapter 7 discharge?
A: No. A debtor may not be eligible for a discharge under Chapter 7 if he or she has been granted a discharge in a Chapter 7 case within the last eight years. Debtors who engage in certain fraudulent conduct related to the bankruptcy or their financial situation also may not be eligible for discharge. In addition, if the debtor refuses to answer questions or obey orders of the bankruptcy court, the court may refuse to grant a discharge.
For most consumers, life before bankruptcy is fraught with financial difficulties. It is important to remember that although bankruptcy is not the first resort, it is best not to wait too long to take action. If you are facing what seems to be insurmountable debt, contact a chapter 7 attorney at once in order to make the best of a bad situation.
There are a number of prerequisites for obtaining a discharge. In a Chapter 7 liquidation case, if the debtor was in some way dishonest or uncooperative, such as by making fraudulent transfers or failing to keep adequate records prior to filing or by ignoring lawful court orders after filing, the court may deny discharge. In addition, a Chapter 7 debtor cannot have his or her debts discharged under Chapter 7 more than once every eight years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) provides that in order to receive a discharge, an individual debtor must complete a personal financial management class. 11 U.S.C. § 727.
When a discharge is granted, it protects the debtor from any further liability on the discharged debts. No legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt, however; it merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge a co-debtor's or guarantor's liability. 11 U.S.C. § 524.
A bankruptcy discharge also has no effect on liens. Take, for example, the situation in which the debtor owes the creditor $5,000 and the debt is secured by the debtor's car, which is worth $3,000. If the debtor files for Chapter 7 relief and receives a discharge, the discharge does not extinguish the creditor's security interest in the debtor's car. In other words, the creditor can still repossess the car. However, it cannot go after the debtor for the $2,000 difference between the debt and the value of the security. That is the personal protection afforded to the debtor by the bankruptcy discharge.
A court may revoke a Chapter 7 discharge if the trustee or a creditor requests it, and if the debtor obtained the discharge through fraudulent means; acquired property that is property of the estate and knowingly failed to report the property or give it to the trustee; or made a material misstatement or failed to provide information in connection with an audit of his or her case. 11 U.S.C. § 727(d).
Generally speaking, in a Chapter 7 proceeding, the following debts are not discharged:
11 U.S.C. § 523.
A note about student loans
Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 bankruptcy. Student loans may be dischargeable, however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. In order to qualify for a hardship discharge of a student loan, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts often apply a three-part test to determine eligibility:
Additional Non-Dischargeable Debts
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
If you have questions about which debts will be affected by a bankruptcy discharge, it is important to seek the advice and counsel of an experienced bankruptcy attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California assisting those in need in Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California .
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