This week I would like to provide you with an introduction to Chapter 7 bankruptcy.  “Chapter 7” refers to that chapter of the United States Bankruptcy Code which governs the liquidation type of bankruptcy. Liquidation is the sale of a debtor’s non-exempt property and the distribution of the proceeds to creditors. Individuals, partnerships and corporations may file for relief under chapter 7 but only individuals may be granted a discharge. A discharge means that you have no further liability for certain debts. “One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a ‘fresh start.’” See, The majority of Chapter 7 cases result in a discharge of debts but some types of debts are not discharged.

A case is started by filing a petition with the bankruptcy court serving the area where the debtor lives. In East Tennessee, the bankruptcy courts are located in Greeneville, Knoxville, Chattanooga and Winchester. A husband and wife may file a joint bankruptcy petition or may file individually. In addition to the petition, the debtor must also file the following with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executor contracts and unexpired leases. Debtors must provide a copy of their most recent tax return. If most of the debts owed by the debtor are consumer debts, the debtor must also file a certificate of consumer credit counseling, a copy of any debt repayment plan developed through credit counseling, evidence of payment from employers, a statement of monthly net income, any increase in income or expenses anticipated after filing and a record of any interest debtor may have in qualified education or tuition accounts.

Debtor must pay a $245 case filing fee, a $46 miscellaneous administrative fee and a $15 trustee surcharge. If filing a joint petition, only one filing fee, administrative fee and trustee surcharge must be paid. The failure to pay these fees may result in your case being dismissed. There are many other documents which will need to be prepared and filed as well including a monthly budget, list of exempt property and lists of all assets, debts and creditors. Some of these forms are available on the internet for various fees and some for free; however, this is a highly technical area of law and you would be much more successful if you consult an attorney who practices bankruptcy law. Legal advice regarding your situation can be invaluable in filing only when it is appropriate for your particular situation.

Obviously, this article does not cover every issue which might arise. Contact an attorney to get advice and assistance with your unique situation.  Next week I will cover the different kinds of debts, what happens to liens in Chapter 7 and which debts may be discharged.