| Lewis Clark Plaza, #302, 111 Main St., Lewiston, ID 83501 | Phone 208.743.9569 | Email | Grangeville appointments available. |
|
What is Chapter
7?
Chapter 7 of the Bankruptcy Code (Title 11, United States Code) provides a “liquidation” proceeding for those wanting to obtain a “discharge” (release of personal liability) of general unsecured debts at the cost of surrendering any non-exempt property to the trustee. “Exempt” property is property you can keep in a Chapter 7 proceeding; non-exempt property must be “surrendered” (turned over) to the trustee for ‘liquidation’ (sale at auction) with the money then distributed to the creditors (or else bought back from the trustee). The dollar values given below apply not to total value of the property but to your ‘equity.’ “Equity” is the value you own. It is the market value of the property minus the liens. For example, if your home is worth $90,000 and you have a mortgage with $60,000 principal balance remaining, you have $30,000 equity ---well within the allowed $100,000 homestead exemption. Another example: If you have a vehicle with a value of $5,500, and the bank, credit union, or finance company has a security interest (lien) with a balance of $2,500, then for bankruptcy purposes you have $3,000 equity in the vehicle. The homestead exemption is $100,000. Household furnishings, appliances, and goods are exempt up to $7,500 per individual with a $750 per-item limit. Each individual has a vehicle exemption of $7,000 and $1,000 in jewelry. Certain pension rights, clothing, and miscellaneous personal effects continue to be exempt. The ‘tools of trade’ exemption, applicable to tools used in making a living, is $2,500 per person. Each individual will be able to exempt one firearm valued at less than $750. Also, each individual can exempt any tangible property not otherwise exempt up to $800 in value. Personal property values are figured generally at auction or yard-sale values, not retail or replacement (that is, insurance) values. Exemptions are a pretty technical subject. How they apply to you can only be determined and explained as part of a comprehensive analysis of your circumstances by an attorney. Also, they don’t mean quite the same thing in Chapter 13 proceedings as they do in a Chapter 7. If you have debts secured by liens on your property, such as a mortgage on your home or a lien on your vehicle, to name just a couple of the many possible security interests which may be on your property, you must “redeem” the property (pay the creditor the value in lump sum cash), “surrender” the property (give it to the creditor, in which case you will owe nothing further to them), or reaffirm the debt to keep the property and continue paying. If you reaffirm a debt, you give up your bankruptcy protection for that one debt. As to your home, though, you might also be able to do what is informally called the ‘pass through.’ That means you can keep the property and continue to make the payments on it but without reaffirming. Judgment liens against your exempt residence can usually be removed in a bankruptcy. Also, certain other liens against personal property can also be removed. Again, this is a technical matter and only an attorney qualified in bankruptcy law can advise as to your situation. Some debt is generally not dischargeable in Chapter 7. This includes but is not necessarily limited to most (but not all) taxes, support obligations, student loans, and most fines and restitutution orders. (Chapter 13 has a ‘super discharge’ provision; it can discharge some types of debt not dischargeable in a Chapter 7 proceeding.) Chapter 7 is usually the quickest, easiest, and the least expensive of the five chapters of the Bankruptcy Code. There are no minimum or maximum debt limits but if you have sufficient cash flow after paying monthly basic living expenses to repay a significant part of your debts over a three-to-five year period, you may not qualify and may have to go with Chapter 13. |
