John F. Hitchcock


(334) 214 - 4600

Contact our office for a free bankruptcy consultation in our

Smiths Station location

CHAPTER 7 BANKRUPTCY

When an individual or business is insolvent, or unable to pay the debts they owe, they may turn to bankruptcy for a fresh start. Chapter 7 bankruptcy, sometimes called liquidation, is one of the most common types of bankruptcy and is widely used by individuals, married couples, and businesses. Before petitioning for Chapter 7 bankruptcy, it is important to understand the benefits and risks. Our firm works primarily in this area and we know what to expect. We help clients meet requirements and overcome obstacles at every stage of the process, from the initial determination of their eligibility for Chapter 7 all the way to the discharge from indebtedness that wipes the slate clean.

Chapter 7 bankruptcy can be a solution for those with few other options. It blocks creditors from trying to collect, while a Trustee sells off the debtor's property to repay creditors to the extent possible. Debtors are allowed to keep exempt property, which can include equity in a home, a pension, a car, and other possessions. Because each state has its own rules, and because there is also a federal list of exemptions, it's important to consult an attorney about which assets will be liquidated. Debtors emerge from this process debt-free, unless they have certain debts that cannot erased by Chapter 7 such as child support, student loans, some tax debts, fines and restitution resulting from a criminal conviction and certain lawsuit liabilities. Our firm confidentially reviews these issues with clients to ensure that Chapter 7 is the right choice.

 Before seeking protection under Chapter 7, debtors must be able to show that they received credit counseling from a government-approved credit counseling agency. They can then file a voluntary petition, along with detailed financial disclosure, with the Bankruptcy Court. This filing leads to an automatic stay, blocking most collection activity by creditors. A Trustee is assigned to review the information and, within a few weeks, there is meeting of creditors, at which the debtor, under oath, must answer questions from the Trustee and creditors. If all goes well, the debtor will receive a discharge from indebtedness. Strategic advice and technical assistance from a skilled attorney will prove invaluable at every step.

 At our firm, we take pride in our familiarity with the requirements and nuances of all aspects of Chapter 7 bankruptcy filings. We've helped clients weigh the advantages of a fresh start against the harm to their credit rating and future borrowing ability. We’ve also helped clients decide between Chapter 7 and other forms of bankruptcy. We assist with:

•Voluntary petitions

•Schedules of exempt property

•Disclosure of income and expenses

•Secured and unsecured claims

•Creditor lists

•Statement of financial affairs

•Meeting with creditors



Individuals and businesses facing insolvency (inability to pay their debt) need sympathetic, effective bankruptcy law help and advocacy. Our firm provides the highest level of bankruptcy law representation to those in search of a way forward. If you would like to find out whether a Chapter 7 bankruptcy filing could help you, contact us to take advantage of our 19 years of experience and expertise and arrange an in-depth, confidential consultation.

 Chapter 7 is a liquidation bankruptcy. If you file for Chapter 7, you are allowed to keep a certain amount of property under the exemption laws which creditors cannot get and you can keep.  If you have more than that amount and type of assets, the Trustee who is appointed to monitor your case and many others, may sell those assets to obtain money to pay your creditors. Most people receive a discharge of debt in four to five months and don’t have to commit future income to pay back their debt. But if you are behind on a mortgage or other secured debt, you can’t use a Chapter 7 filing alone to save your house or your car and, in many cases, you can’t continue to operate your business after you file.  If these are your objectives, you may want to consider a Chapter 13 or Chapter 11 bankruptcy.

 
Do You Qualify for Chapter 7 

While most people considering bankruptcy still do qualify to file a Chapter 7, it is not always automatic.  If your debts are primarily consumer (not business) debt and your income is above the median income for your household size in Alabama, we then consider your expenses (some actual, but some are IRS and US Census Bureau standards).  Looking at your gross income and these expenses, we determine if you “pass” the means test to be eligible for filing Chapter 7.  The means test is only applicable to individuals.  For business entities such as corporations, LLCs and partnerships, or individuals with more than 50% of their debt being non-consumer debt, the means test does not apply.

 
The Bankruptcy Means Test

 The means test is a formula which was created by Congress to avoid substantial abuse of the Bankruptcy Laws.  It is designed to determine whether your income, less these applicable expenses, is sufficient to support a meaningful payment to creditors under Chapter 13.  If after deducting allowed expenses (some actual, but some determined by IRS and US Census Bureau figures), you have no money remaining to pay creditors, or if the payment you could make is below a certain threshold, you may still be eligible to file Chapter 7.

 Below Median Income or Primarily Business Debts - Means Test Does Not Apply 

If your income is below the Alabama median income for your household size, or if your debts are primarily business debts, you automatically qualify for Chapter 7. 

Attorneys Fees Paid in Full Before Filing

In Chapter 7, attorney’s fee not paid in full prior to the filing could be discharged as part of the bankruptcy process.  Therefore, Chapter 7 attorney’s fees are collected in full before the bankruptcy case is filed