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There are several different types of bankruptcy authorized under federal law described by the “chapter” of the bankruptcy law authorizing each. This includes: (i) Chapter 9 for cities and other governmental entities; (ii) Chapter 11 for large businesses; (iii) Chapter 12 for farmers and ranchers; and (iv) Chapter 13 for reorganization of persons with regular income and modest amounts of debt.
However, this article deals with Chapter 7 also called straight bankruptcy or liquidation bankruptcy that cancels or discharges many and often all of your debts.
This is not intended as legal advice to you because Chapter 7 is complicated and depends on your specific circumstances. If you are considering a Chapter 7, call us toll free at (877) 886-5955 for a free consultation so we can provide legal advice tailored to your specific unique situation. There is no obligation and the call is confidential.
This is you. When someone files a Chapter 7 bankruptcy, they are called the Debtor. If you file for bankruptcy, you are a Debtor. In Chapter 7 Debtors may keep some or all of their property by paying some or all of their debts. This all depends on your own unique circumstances.
All bankruptcy cases are handled in federal courts under rules outlined in the Bankruptcy Code. Oklahoma is divided into three United States District Court Districts: (i) the Western District headquartered in Oklahoma City; (ii) the Northern District headquartered in Tulsa; and (iii) the Eastern District headquartered in Muskogee.
The Western District of Oklahoma generally includes those counties touching and to the West of Interstate highway I-35. This includes Alfalfa, Beaver, Beckham, Blaine, Caddo, Canadian, Cimarron, Cleveland, Comanche, Cotton, Custer, Dewey, Ellis, Garfield, Garvin, Grady, Grant, Greer, Harmon, Harper, Jackson, Jefferson, Kay, Kingfisher, Kiowa, Lincoln, Logan, Major, McClain, Noble, Oklahoma, Payne, Pottawatomie, Roger Mills, Stephens, Texas, Tillman, Washita, Woods and Woodward. Bankruptcy hearings are conducted in Enid and Lawton as well as Oklahoma City.
The person with ultimate authority over your Chapter 7 is the Bankruptcy Judge normally just called Judge. Each District has at least one Bankruptcy Judge; the Western District has two. While the Judge has authority over your Chapter 7, the typical Chapter 7 Debtor rarely has any direct contact with the Judge.
The Trustee is a person – typically a lawyer – appointed to administer Chapter 7 cases, sell non- exempt assets with equity, review creditor’s claims and pay valid claims to the extent there are available funds among other things. The Trustee will preside at your 341 Hearing and in most cases be the only person affiliated with the bankruptcy court with whom you will deal. To some degree the Trustee represents the Judge and it is important that you cooperate with him. In the Western District there are over a dozen Trustees.
The Trustee will examine documents you must supply including tax returns and bank statements to make sure they are complete and to look for non-exempt property to sell to benefit your creditors. The Trustee will also look at your financial transactions during the previous year to see if any can be undone to have money to distribute to your creditors. With our advice before you file Chapter 7, it is often possible to legally protect or eliminate property the Trustee can take from you. With our advice the Trustee rarely finds anything of value belonging to our clients to sell.
The Trustee’s primary duty is to see that your creditors are paid as much as possible that you owe them. While you must fully cooperate and be courteous with the Trustee, the more property the Trustee recovers for your creditors, the more the Trustee is paid. The Trustee is not your friend. However, do not misunderstand. You must be open and honest with the Trustee and not attempt to hide or conceal any assets. Any attempt to do so can be a federal crime subjecting one to a fine and imprisonment.
You are not able to file Chapter 7 bankruptcy if you received a bankruptcy discharge in the last six to eight years depending on the type of bankruptcy you filed. Or, if based on your income, expenses and debts, you could feasibly complete a Chapter 13 you cannot file Chapter 7. If so, you may want to consider a Chapter 13. This determination of your ability to complete a Chapter 13 involves a complicate calculation known as a Means Test that we will perform for you shortly after you retain us.
Before you file a Chapter 7, you must receive credit counseling from an approved agency and pay its fee. As your Chapter 7 lawyers, we will prepare a large number of documents and forms required by the Bankruptcy Code using information that you provide us. These documents will be filed with the court to initiate your Chapter 7. You must also pay the filing fee imposed by the Bankruptcy Court at the time we file your Chapter 7. Finally, you need to make acceptable arrangements with us to pay our attorney fee.
When you file Chapter 7, you place all of your property and debts in the hands of Trustee. You cannot sell or give away any of your property after you file Chapter 7 nor can you pay any of your pre- filing debts. However, with a few exceptions, you can do what you wish with property you acquire and income you earn after you file for Chapter 7.
Moreover, if you have recently made payments or transfers, that, too, may also create serious problems for you. For example, if you pay certain debts shortly before you file Chapter 7, the Trustee may sue who you paid to recover those payments for the benefit of other creditors. Or, if you transfer property without adequate compensation to anyone on the eve of Chapter 7, again the Trustee may sue that person to recover what you transferred to benefit your creditors. This is a very complicated area that requires competent legal advice. If you have made such payments or transfers, we may be able to advise you how these problems can be legally overcome.
Filing Chapter 7 bankruptcy invokes the automatic stay that is an enormous benefit to you. The automatic stay immediately stops most creditors from trying to collect what you owe them. Accordingly, at least temporarily, creditors cannot legally garnish your wages or bank account, repossess your car, foreclose on your home or cut off your utility service. The automatic stay also stops bill collectors from calling you.
Shortly after the Chapter 7 is filed, notices of the first meeting of creditors will be mailed to you and all creditors and interested persons as required by Section 341 of the Bankruptcy Code. This first meeting of creditors is also known as a 341 Hearing chaired by the Trustee and at which you must appear. We will meet with you before the 341 Hearing to answer your questions and appear with you to protect your interests. At this hearing the Trustee will administer an oath to you and ask you simple questions about their affairs. Creditors may also appear and ask you questions. Typically there are a number of other Debtors just like you at the 341 Hearing and it is fairly informal.
The 341 Hearings for Debtors that live in counties adjacent to Enid and to the North and West of Enid are held in Enid. Consequently you will not need to drive to Oklahoma City.
This 341 Hearing is normally the only time you have to appear in court. Only on rare occasions are our clients required to appear before the Judge. You must provide certain documents like tax returns, bank statements and wage statements to the Trustee prior to the 341 Hearing. If these documents are not provided the Trustee, your 341 Hearing will be continued to a later date and you and your lawyer will have to appear in Oklahoma City for this continued 341 Hearing.
If, after the creditors meeting, the Trustee determines that you have non-exempt assets, you may be required to surrender that property or provide the Trustee with cash equal to the value of the non- exempt asset. If the property is of minimal value or would be cumbersome for the Trustee to sell, the Trustee may abandon the property meaning you keep it, even though it is non-exempt.
Since most property owned by Chapter 7 debtors is either exempt or is of negligible value to pay creditors, few Debtors end up having to surrender any property, unless it is collateral for a secured debt discussed below.
If you pledged property as collateral for a loan, this is a secured debt. Collateral is a home or vehicles. If you are late on payments, the creditor can ask to have the automatic stay lifted to repossess or foreclose on the property. However, if you are not delinquent on payments, you can retain the property and continue making payments as required by your loan. An exception is if the property is non-exempt and you have sufficient equity in the property to justify its sale by the Trustee. In that case if you want to retain the collateral and can quickly pay the equity to the Trustee, you should be able to keep making payments to the creditor and keep the collateral.
If a creditor has recorded a lien against your property because of a debt you have not paid like a judgment in a lawsuit, that debt is also secured. You may, however, be able to void the lien in Chapter 7 but that is a complex area that you should discuss with us so we can properly advise you after we know all relevant facts.
Bankruptcy law allows you to keep certain property designated as exempt under Oklahoma law – known as exempt assets. These exempt assets include your home, contents of your home, clothing, tools of the trade, pension plans, guns and one vehicle among other things – but not in limited amounts. We can advise you exactly what you own that is an exempt asset. Everything else you own is a non-exempt asset subject to being lost in Chapter 7 and includes things like income tax returns, additional vehicles, boats and recreational vehicle among other things.
However, if you provide us all relevant information about your property before you file Chapter 7, we are quite adept at legally advising our clients about how to protect non-exempt assets and not lose them in Chapter 7.
Finally, if you have given a creditor a lien on any of your exempt assets, you must pay that debt to keep the exempt asset with some limits.
At the completion of your Chapter 7, all debts eligible for discharge are cancelled or discharged meaning that you are no longer legally obligated to pay such debts.
Certain debts are not discharged, namely: (i) those that automatically survive bankruptcy like child support, most tax debts and student loans, unless the court rules otherwise, and (ii) those that the court has declared non-dischargeable because the creditor objected, e.g., debts you incurred by fraud or malicious action. If you believe you may have these kinds of debts that are potentially not dischargeable, call us toll free at (877) 886-5955 for a free consultation so we can provide legal advice tailored and specific to your unique situation.
A Chapter 7 is very complex. This is just an abbreviated description of what is required with a number of details omitted to keep this from being overly long. There are other potential pitfalls that are omitted. While it is possible to file a Chapter 7 without a lawyer, that is ill advised and short sighted. Without competent advice it is possible you will lose property unnecessarily or pay more than required. We encourage you to call us for a free consultation to determine if you are eligible for Chapter 7 and whether Chapter 7 is in your best interests.
This is not intended as legal advice because bankruptcy is complicated and depends on the specific circumstances unique to the Debtor. If you are considering a bankruptcy, call us toll free at (877) 886-5955 for a free consultation so we can provide legal advice tailored to your specific unique situation. There is no obligation and the call is confidential.