Under Chapter 7 bankruptcy law, all of the debtor's assets—including any unincorporated businesses that he or she may own—are fully liquidated. Assets deemed necessary to support the debtor and his/her dependents, such as a residence, may be exempted. This "liquidation bankruptcy" is the most common filing for business failures, accounting for about 75 percent of all business bankruptcy filings.
The federal bankruptcy court develops a full listing of the debtor's assets and liabilities. The court identifies assets deemed to be exempted, such as a family home, and then divides remaining assets among the various creditors; a trustee is appointed to oversee distribution of proceeds. Unpaid taxes receive top priority; secured creditors are usually considered next. After all assets are liquidated and distributed, the debtor is freed of all further obligations. This type of filing is critically important to sole proprietors or partnerships, whose owners are personally liable for all business debts not covered by the sale of the assets unless they can secure a Chapter 7 bankruptcy allowing them to cancel any debt in excess of exempt assets. Although they will be left with little personal property, the liquidated debtor is discharged from paying the remaining debt." The debts thus discharged exclude certain items which the debtor is required to pay despite the Chapter 7 filing. These include child support, alimony, recent income taxes, and student loans guaranteed by government.
The recently passed BAPCPA limits the ability of a debtor to file under Chapter 7. The debtor can only file for "liquidation bankruptcy" if his or her median income is below the state median income; if it is higher, and the person can afford to pay out $100 monthly to liquidate debt, he or she may only file under Chapter 13, we are able to still qualify many of our clients under the new means test for ch. 7 bankruptcy. There are benefits to filing a chapter 13 including the "stripping off" of 2nd mortgages, etc. The new law also mandates credit counseling ahead of filing in a government-approved program.
Our fees for ch. 7 bankruptcy can vary depending on the amount of assets and complexity of the case, but our fees are very reasonable and our chapfees generally start around $1,000.
For more information or to schedule an appointment with one of the Litchney Law Firm’s experienced Chapter 7 Bankruptcy law attorneys please call us at 916-983-2941 or use the contact form on the website to schedule your free initial consultation!