The Bodor Law Firm

THE CHAPTER 7 PROGRAM

            Chapter 7 is thought of by many as a “liquidation” bankruptcy. These people think of the liquidation sale at the furniture store where everything must go; clear the floor. That is not what happens in a Chapter 7 bankruptcy.

            A Chapter 7 liquidation involves a liquidation or sale of only those items that, under the bankruptcy courts definition, have a significant amount of “equity”. Their definition starts with our definition, and they add what is called an “exemption” to it to get at their definition of “equity”.

            Generally, the “equity” in our your real estate under our definition of “equity” is any value above the mortgages, liens and the sales expenses.

            The bankruptcy courts definition of “equity” starts with our definition and then adds what is called an “exemption”. The court’s definition of real estate “equity” is: all value above the mortgages, liens, sales expenses and the exemption The exemptions for real estate in Ohio is $5,000.00 per person and $10,000.00 between husband and wife. This exemption applies only to your residence, not to real estate which is not used as your home. There is no exemption for non-residential real estate.

            “Exemptions” also apply to all other property in which you might have an interest, including your household goods and personal effects.. There are generally enough “exemptions” to ensure that the bankruptcy court will not have any desire to “liquidate” your household goods and personal property You are not a Bill Gates or a Donald Trump.          Your equity in the TV set of $50.00 is cancelled out by an equal exemption of $50.00. There being no equity, the court is not interested in selling your TV set. Everything else that you might own is handled the same way. Equity is cancelled out by exemption, right down the line.

            Should you decide to do a Chapter 7 Bankruptcy you will be asked to fill out a form asking you to reveal to the court all property in which you have a interest. There are thirty-three (33) categories of what are called personal property and one (1) category called real estate. Of these thirty-four (34) categories the ones that apply can be broken down into four (4) general categories: (1) household goods and personalty, (2) cash or cash equivalents, (3) vehicles, and (4) real estate.

           If you have some significant equity in any of your property, you are NOT likely to want to do a Chapter 7 Bankruptcy since you would lose that property, whether it be real estate, a vehicle or household goods and personalty. You would probable have to do a Chapter 13 Bankruptcy. Another way of saying this is: If you have any significant “equity” in your real estate, your vehicles or other property, you will have to do a Chapter 13, since, in a Chapter 7 you will lose the property to pay your debts, but not if you qualify for and do a Chapter 13 Bankruptcy.

             The court, through the Chapter 7 trustee would sell such property and pay your creditors from the proceeds in a certain order. Those creditors for whom there is no money left will be discharged. You would not have to pay them, ever.

           Even if you have a no asset or “equity” case:

           (1) You may still owe those debts which are called, in one way or another, “priority” creditors. These type of debts are usually student loans and tax obligations. There are exceptions, however, to this, so please discuss the exceptions with me since some taxes and even student loans may be dischargeable. Alimony and child support are never dischargeable.

            (2) All of your unsecured debts, like credit card debt and medical bills, would be discharged (wiped out). Other types of unsecured debts which will be discharged are utilities and amounts owed to insurance companies for auto accidents. When this type of debt is discharged you will be able to reinstate your drivers licence, if the reason for its lose was due to not having insurance at the time of the accident.

            (3) Your secured creditors are those to whom you have pledged real estate, vehicles or household goods and personalty as security for the repayment of the loan. You have the option to either surrender the collateral to the creditor and discharge any portion of the debt which is not paid off from the proceeds of the sale or to reaffirm on the obligation and keep the item. You would have to generally reaffirm at 100% on real estate and vehicles (same terms and same conditions). If you decide to reaffirm on household goods or personalty, you may have to reaffirm only at the value of the collateral (The TV set cost $600.00 but is now worth $50.00. You reaffirm at only $50.00.).

            (4) You may reaffirm on some creditors where instead of being able to keep “things”, you get to keep the “good will” of the creditors. You may reaffirm on debts owed to relatives. You may reaffirm on debts on whom a friend or relative had cosigned for you. You may even reaffirm on doctors and dentists. In each of these cases, by reaffirming on the debts you retain the “good will” of the creditor.           Some people reaffirm on credit union debt so that they can remain a member of the credit union. Credit unions will throw you out of the credit union if you bankrupt debts you have with them

            (5) As a general rule all your credit cards will be closed once you file bankruptcy; you will lose the use of all your credit cards, whether you have a balance owing, and you must include that creditor in the bankruptcy filing, or if you owe the creditor nothing, and you do not have to include that creditor in the filing. Credit card companies typically check with credit bureaus every few months, and, when a bankruptcy is detected, your credit is pulled.

            This does not mean, however, that you will necessarily lose all your credit cards! We can arrange reaffirmations with certain credit card companies where they will, in writing, agree to allow you to retain credit with them, provided you agree to pay them a certain nominal amount. This would NOT be a secured credit card. If you would like us to arrange for this type of reaffirmation, please let us know.

             This has been a general explanation of the Chapter 7 program and is not intended to give you legal advice. To see how the program might affect you, please see me for a conference.