Bankruptcy - Las Vegas
  - Chapter 7 Bankruptcy
  - Chapter 11 Bankruptcy
  - Chapter 13 Bankruptcy
  - Creditor's Rights

CHAPTER 7 BANKRUPTCY

What is Chapter 7?

In general, the purpose of a Chapter 7 bankruptcy is to permit the complete release of most debts of a debtor.  Chapter 7 is available to both individuals and businesses.

For individuals, filing for Chapter 7 bankruptcy is an opportunity to emerge out of a financial crisis and start afresh.  Chapter 7 is the way to achieve this end relatively quickly, and is the most common form of consumer bankruptcy filing.   If there are no objections from any of the parties involved, ordinarily most or all debts would be completely discharged within months of filing a bankruptcy petition, leaving the debtor free of their debt burdens.

For businesses, Chapter 7 (also known as a liquidation bankruptcy) is the going-out-of-business alternative to a Chapter 11 reorganization.

Exempt vs. non-exempt:  The debtor gets to keep exempt property, but not non-exempt property.  The basic rule of Chapter 7 is that all non-exempt property of the debtor is sold, and the proceeds are distributed to creditors.  In contrast, all exempt property is kept by the debtor at the end of the bankruptcy.  The concept underlying exemptions is that a debtor needs certain things to live (clothing, household goods, a car, etc.) and it would be unwise public policy to sell absolutely everything that a debtor owns, leaving them with utterly nothing and homeless.  Exemptions vary by category and dollar amount -- in Nevada, for example, a debtor can keep the equity value of one vehicle, up to $15,000.

Who Can File for Chapter 7?

Certain business debtors do not prefer the prospects of liquidation, and in such instances Chapter 11 (reorganization) is best for them.

Chapter 7 is only available to individuals who make less than a certain amount of income (see Means Testing, below).  Higher-bracket earners who wish to file for personal bankruptcy should consider Chapter 13.  Similarly, debtors with a considerable amount of equity in their home may prefer a Chapter 13 debt adjustment plan.

Also, any person who has been granted a Chapter 7 discharge (or completed a Chapter 13 plan) within the last 8 years cannot file for a Chapter 7 bankruptcy plan.

Lastly, mandatory credit counseling is required of all individuals debtors BEFORE they file for Chapter 7 (or 13).  This credit counseling must be from an approved credit-counseling agency. (We can provide you a list of these approved agencies.  The cost of counseling is usually $40 or $50).  If a debt management plan is developed during credit counseling, it must be filed with the Court.

Means Testing

Individuals who want to file for Chapter 7 bankruptcy have to pass what is known as the "Chapter 7 means test."  The Chapter 7 means test is a formula applied to determine whether or not the consumer should have enough money available to make some minimal payment to creditors, and if so then those persons must file under Chapter 13 instead.

The means test is comprised of two tests; if you pass the first, you do not need to calculate the second:

1. Step 1: A Median Income Comparison compares your income to the median income in Nevada for a family the same size as yours.  If your income is higher than the median income, it doesn't necessarily mean that you can't file for Chapter 7 bankruptcy; it just triggers the second step in the test.  The median income thresholds for Nevada (measured using gross pretax income from all sources) to be used for Nevada bankruptcies filed from November 1, 2009 onward are:

   $46,316   Household size of 1
   $60,449   Household size of 2
   $67,052   Household size of 3
   $71,104   Household size of 4
   $78,004   Household size of 5
   
   
2. Step 2: The second step is quite complicated.  Few attorneys will take the time to discuss Step 2 of the Means Test.  We often find that our clients qualify for a chapter 7 even if they make too much gross income to qualify under Step 1. Certain allowable expenses (determined by IRS guidelines) are subtracted from your income to find your "disposable income."  If your projected disposable income over the next five years totals less than $6,000 ($100/month), you "pass" and can file under Chapter 7.  If your disposable income is greater than $10,000 over the next five years, a presumption arises that you don't really need to file for Chapter 7 bankruptcy, and you will only be allowed to do so if you can demonstrate special circumstances.  In the grey area between $6,000 and $10,000, yet another calculation is required. This one compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible.  If your disposable income over that five years is greater than 25% of your unsecured, non-priority debts, you find yourself in the same circumstances as if you'd had more than $10,000 in disposable income.  If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you "pass" Step 2 of the means test.

Do not be concerned if Step Two seems complex.  We will do all the calculations for you, based on information you provide to us, and tell you whether or not you qualify for Chapter 7.

How Does Chapter 7 Work?

In a Chapter 7 bankruptcy case, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property, which the law allows you to keep.  In many cases, most or all of your personal property will be exempt.  Property which is not exempt may be sold, and the proceeds from that sale are distributed to creditors.

A trustee is appointed who collects all the non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors. Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee. Even though in some cases this would mean that you will lose all your assets, this need not always be the case. It is strongly recommended that if you are apprehensive and feel you will lose your assets, discuss the matter with us.

Under Chapter 7 bankruptcy, the debtor receives a discharge on all dischargeable debts. However, there are 19 general classes of debt, such as child support, most taxes and student loans that cannot be discharged under Chapter 7 bankruptcy.  Also, certain credit card charges made in the 60 days prior to filing may not be dischargeable.

An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home. This agreement is in place because the Bankruptcy Code permits a debtor to elect to retain some property, and continue to make payments on it.

Reaffirmation and Redemption

Generally, you may keep your car through a reaffirmation agreement. A Chapter 7 reaffirmation agreement is an agreement between the debtor and a creditor which allow the debtor to keep collateral (e.g., a home or car) in exchange for timely payments. Under a reaffirmation agreement, you essentially agree to continue to make your regular monthly payments to your car lender and/or mortgage company.

You may also keep your car by exercising your right of redemption.  As a Chapter 7 debtor, you have the right to redeem your car for its fair market value. For relatively new cars with low mileage, financing may be arranged to provide the lump sum payment to your car lender in an amount equal to the fair marker value of the car. Many times, by redeeming the car, you will lower your pay off on the vehicle and also lower your monthly car payment. As a result, for those debtors who qualify, it presents a very attractive option. The difference between the old loan and the replacement redemption loan is discharged.

Automatic Stay on Collections

After you declare bankruptcy, an "automatic stay" of your debts takes effect. Your creditors will be served with notice of the bankruptcy, and, after receiving notice, they will be barred from taking certain actions against you while the bankruptcy is pending. If you are contacted by a creditor after filing for bankruptcy, tell us immediately -- it is important that we know not only of improper contacts, but of any possibility that a creditor was omitted from the list of creditors you submitted with your bankruptcy petition, or of the possibility that notice was not properly served

If a creditor is intentionally violating the automatic stay, we will bring their misconduct to the attention of the bankruptcy court.

How Much Does Chapter 7 Cost?

We charge a flat fee of only $995 for an uncomplicated personal Chapter 7 bankruptcy filing (either an individual or joint filing).  This flat fee includes the credit counseling course (normal $50) and also pulling your credit report, which we use to supplement your filing.  The flat fee does not include three items:

• The mandatory government filing fee ($299)
• The second educational course you have to take after filing ($15)
• Added complexities in your life (e.g., you own a small business, lots of real estate, a trust, etc.) will increase the cost of filing.  Click here for a rate card that shows our fixed-rate prices for typical complexities.

Please call us to discuss your situation and obtain a firm quote.

If you are not sure whether bankruptcy is right for you, we will perform an approximately one-hour consultation with you for $150.  Other firms do free consultations lasting less than 5 minutes; in contrast, we spend the time with you to answer all of your questions, and help you decide whether bankruptcy is even right for you, and, if not, then what you can do to avoid it. This consultation can be extremely informative and useful in reducing your stress level.  You will know what your legal options are, and leave the meeting with a plan tailored for your specific situation.  Furthermore, if you later decide to proceed with a filing, that consultation fee will be deducted from your filing fees (personal bankruptcies only), so it ends up being no net cost to you. 

Our fees for Chapter 7 business bankruptcies vary by the complexity of the filing; for a single-location retail store, we usually charge a flat rate of $2500.  Please call us to discuss your situation and obtain a firm quote.

In alignment with legal industry standards, payment for a Chapter 7 bankruptcy must be paid in full prior to filing.