Lewis Adams and Associates

Chapter 7

Chapter 7 bankruptcy is designed for debtors in financial difficulty who no longer have the ability to pay their existing debt obligations. Typically a debtor may have enough to pay rent, buy food and pay utilities and other living expenses. However, the money runs out before the month does. If that describes your situation, perhaps we can help.  Utah has been hit hard with the current recession.  Maybe we can help relieve some of the stress.

Chapter 7 is one of several chapters under the Bankruptcy Code that allow for relief from overwhelming debt. (Title 11 of the United States Code, Chapter 7) It is the kind of bankruptcy most people think of when they think of bankruptcy. It is often referred to as a full bankruptcy or liquidation bankruptcy because a debtors’ assets can be taken and sold (converted to cash), and used to pay your creditors. In exchange, the debtor is relieved of most of his or her financial obligations. However, most people filing bankruptcy under Chapter 7 never lose anything. Most of the personal assets they own are exempt assets, meaning those assets cannot be taken and sold.

Bankruptcy exemptions vary from state to state. In Utah, items of a personal nature and items one might consider essential to maintain a household are exempt. For example, clothing, beds, bedding, washer, dryer, refrigerator, stove, sewing machine, and miscellaneous household furnishings are all part of the exemptions for Utah and most states. Homeowners are allowed to exempt up to $20,000 in equity in their home, up to a total of $40,000. A debtor is allowed up $2,500.00 of equity in his or her car.  There are several other exemptions regarding a number of specific items. In most cases, there are exemptions to protect most, if not all, of your property. Even if assets are available in a bankruptcy setting, typically unless there are assets that exceed a total of $1,000 or more, liquidation of those assets do not occur and are considered burdensome and of inconsequential value to the bankrutpcy estate.

At the end of the bankruptcy case, debtors receive a discharge of most of the financial obligations listed in their schedules. Credit card debt, medical debt, personal loans, pay day loans, judgments, repossessions and other miscellaneous debt can be discharged. However, there are certain obligations that nondischargeable. Congress has determined that obligations for domestic support, such as alimony and child support should not be dischargeable. Other obligations that are nondischargeable, include student loans, certain taxes and/or fines owed to governmental agencies. Certain debts may be determined to be nondischargeable. For example, a debt may nondischargeable if the obligation was obtained in bad faith or through some sort of fraud.

Congress has created a mathematical formula to determine eligibility under Chapter 7 bankruptcy. It is called a Chapter 7 means test. The Chapter 7 means test is a two-step process. It begins with a comparison of your monthly income to the median or average income for a family that is the same size as yours in Utah. If your income is at or below the median income, you qualify for Chapter 7 bankruptcy. If your income is higher than the median income, the next step is calculating disposable income, or income that is left over after certain living and other necessary expenses. If your disposable or excess income is less than $100 per month, you may still qualify under Chapter 7 of the Bankruptcy Code. We will assist you in determining your eligibility to file for bankruptcy protection in Utah under the Chapter 7 Means test.