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What is Chapter 7?
Chapter 7 bankruptcy is a federal court proceeding where honest debtors are forgiven many of their outstanding obligations. It is called a liquidation proceeding because a trustee is appointed to ascertain which of the debtors assets are not protected and are subject to being sold by the Trustee’s Office for the repayment of creditors.
On the day that a Chapter 7 proceeding is filed with the court, all of the debtors assets become property of the Bankruptcy Estate. Assets that are Exempt are protected. Assets that are not protected may be taken by the Trustee and sold in order to allow a distribution of money out to the debtors creditors.
When the Chapter 7 is filed, a protection order called the Automatic Stay is immediately issued by the court. The Automatic Stay requires that your creditors cease all harassment, collection activities, garnishments, lawsuits, foreclosures, and repossessions. The Automatic Stay provides you with a powerful shield of protection that allows you and your family to resume your daily routine without having to worry about creditor intrusion, annoying phone calls, angry attitudes, and disruptive repossessions or foreclosures.
The Automatic Stay is the first step to obtaining your Fresh Start and regaining your peace of mind. It is very important that you speak with an experienced bankruptcy attorney before selling any assets or paying any debts that are not in the ordinary monthly course of your home or business. Once a Chapter 7 proceeding is filed and a trustee is appointed, there will be a date set for the debtor to appear at a hearing called the First Meeting of Creditors. It is important that you discuss in advance with your attorney what will happen at the hearing. In order to file a Chapter 7 case you must first assist our offices in the preparation of your filing paperwork. It is critical that this paperwork be complete and accurate. You will also need to speak with a credit counselor to obtain a Credit Counseling Certificate. No one can file a bankruptcy without a Credit Counseling Certificate issued by an authorized counselor.
In order to be eligible for Chapter 7 bankruptcy relief, your total household income, averaged over the 6 month period before your case is filed, must be less than the median income for a family or household of your size in the State of Arizona. If your gross income is higher than the median income for a family of your size, we must make a calculation (called the “Means Test”) which will determine whether you can afford to pay some of your unsecured creditors in a Chapter 13 bankruptcy over a period of 36-60 months. The outcome of this calculation will determine if you qualify to file a Chapter 7 proceeding. No one is eligible to file a Chapter 7 case when they have filed a previous Chapter 7 in the last 8 years, or if they have received a discharge in a Chapter 13 proceeding filed in the last 4 years that failed to pay unsecured creditors at least 70% of allowed claims.
In most cases the Court will enter a discharge order about 3 or 4 months after the meeting of creditors. This means that the Court orders your creditors to never attempt to collect the debt in the future. If they try to collect in the future, you should contact our offices immediately.
However, remember that not all debts are dischargeable. Debts that survive bankruptcy will have to be paid or the creditor may resume collection activities after the case is discharged.
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