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What is a Chapter 7 Bankruptcy in California?

Chapter 7 bankruptcy is commonly known as Liquidation. This is the bankruptcy option most often pursued by individuals to give them a “fresh start.” Chapter 7 involves the complete liquidation of a debtor’s property to pay creditors and “wipe out” remaining unsecured debts.

How does it work?

A Chapter 7 bankruptcy filing process typically takes about four to six months. Prior to filing for Chapter 7 bankruptcy, a debtor must complete an approved credit counseling education course.

Who qualifies for a Chapter 7?

The Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 have made the process for filing bankruptcy for consumers more difficult. Consumers must pass the “means test” to show that a debtor’s debt to income ratio qualifies for Chapter 7 bankruptcy, Chapter 13 bankruptcy or not at all. Also, consideration of recent or prior bankruptcy filings or discharges can affect your ability to qualify for a Chapter 7 bankruptcy.

Advantages to Chapter 7

  • No minimum amount of debt required to file; no maximum limit on the amount of debt that can be
  • discharged.
  • Unpaid balances due after assets are distributed are discharged.
  • You get to keep wages earned and property acquired (except inheritances) after bankruptcy filing date.
  • Typically your case is concluded in 3-6 months.

Disadvantages to Chapter 7

  • >Stays on a debtor’s credit report for ten years.
  • Not all debt is discharged under Chapter 7. Mortgage debt, car payments, child support, spousal support, delinquent taxes less than three years old, student loans and any judgments from a court generally survive bankruptcy.
  • Your non-exempt property is sold by the trustee. While you are permitted to keep some assets, other assets are sold by the interim trustee – the person who is appointed by United States Trustee to oversee your bankruptcy – to repay some of your creditors.
  • Only temporarily forestalls your lender’s foreclosure actions against your home.
  • Can only file Chapter 7 once every eight (8) years.
  • It is difficult to withdraw from a Chapter 7 filing.

Chapter 7 Bankruptcy Cost

Chapter 7 Bankruptcies tend to be inexpensive in comparison to the benefits that the client receives from filing. The ability to discharge tens, if not hundreds of thousands of debt in a Chapter 7 Bankruptcy allows for financial freedom for the client moving forward. You can retain the services of Brownstone Law group for a very small rate (generally $100) and you can make interest-free payments over time. Fees vary depending on the particulars of the bankruptcy case, but once all issues are evaluated, The Brownstone Law group will provide you with a competitive and affordable flat rate quote for the entire case.

The only other fees that are to consider are the following. The court charges a filing fee to file the case, currently the filing fee is $306 for a Chapter 7 Bankruptcy. The other associated costs include but are not limited to: appraisal fees (if you own real estate), title search charges, credit reports, pre-filing credit counseling session, post-filing course on financial management and costs of acquiring other documentation required by the court.

The last cost that must be considered is the amount you will pay to your creditors. Many attorneys out there put their clients into a Chapter 13 Bankruptcy in order to collect attorney fees that are generally significantly higher than Chapter 7 Bankruptcy attorney fees. Other attorneys also employ gimmicks such as “No Money Down” to entice clients into a Chapter 13 Bankruptcy filing for no reason other than trying to collect more in attorney fees. Brownstone Law Group does not employ these tactics. We focus on what is the best type of bankruptcy for your particular situation and we will recommend the best process for you, regardless of the attorney fees.

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