Credit Report Disputes

CHAPTER 7

A chapter 7 is the most common form of bankruptcy for individuals, the object of which is to "discharge" debt. If qualified, the Court issues a Discharge Order approximately 4 months after the case is filed which permanently prohibits creditors from taking any action to collect the debt against you personally. The debt is "discharged".

Secured Debts: When your agreement with a creditor allows the creditor to take specific property from you if you don't pay, the debt is "secured" by the property which is referred to as "collateral". Examples of secured debts are car loans and house loans, but also may include accounts with retailers who sell durable items like furniture, appliances and jewelry. In a chapter 7 the secured debt is discharged, but the creditor does not lose it's right to collect against the collateral. Therefore, you must decide whether you wish to surrender the collateral or retain it by paying for it. Usually you can keep your house or car by continuing the contractual payments according to the terms of the contract.

Non-Dischargeable Debts: Certain debts will not be discharged. They include, but are not limited to: (1) certain taxes, (2) child and spousal support and other debts owed to a spouse or child arising from a divorce or separation, (3) most student loans,(4) debts incurred for personal injury or death resulting from operation of a motor vehicle while intoxicated, (5) debts incurred through fraud or use of a false financial statement, (6) debts incurred through willful and malicious conduct, (7) court ordered fines, restitution and traffic citations, and (8) debts incurred specifically to pay a non-dischargeable tax.

Exempt Property: When you discharge your debt in chapter 7, you may not be entitled to keep all of your property. In most cases the debtor loses no property! The Court assigns the case to a "trustee" whose job is to liquidate property to generate funds to pay your creditors. You are entitled to keep property that has no equity ( For example: the trustee cannot liquidate your car unless it can be sold for more than you owe on the secured car loan ), and you are entitled to keep "exempt property". In order to allow the debtor to get a fresh start the debtor is entitled to keep certain property that is "exempt" from the reach of the trustee. What you can claim exempt depends on the law that applies to you based on the state(s) in which you resided over the last 3 years. If you resided continuously in California for the last 2 years, there are 2 sets of exemptions that you can use to protect your property. We call them the "California State" exemptions and "Cal-Fed" exemptions.

The California State exemptions allow you to keep

1. Equity in your residence up to $75,000.00 for single individuals, $100,000.00 for married couples or heads of a household, and $150,000.00 for persons who are disabled or over 65.

2. Household goods of ordinary value.

3. Equity in vehicles up to $2,725.00.

4. Jewelry, heirlooms and works of art up to $7,175.00.

5. Tools of trade up to $7,175.00 or $14,350.00 if both spouses are engaged in business.

6. Cash surrender value of life insurance policies up to $11,475.00 or $22,950.00 for a married couple.

7. 75% of cash and bank balances traceable to earnings of an employee paid within thelast 30 days.

8. Most retirement plans.

The Cal-Fed exemptions allow you to keep:

1. $23,250.00 of any kind of property ( commonly referred to as the "catch-all" or "wild card" exemption ) in addition to those below.

2. Household goods, furnishings and supplies up to $550.00 per item with no maximum total.

3. Equity in 1 vehicle up to $3,525.00.

4. Jewelry up to $1,425.00.

5. Tools of Trade up to $2,200.00.

6. Cash surrender value of life insurance policies up to $11,800.00.

7. Most retirement plans.

There are additional exemptions for other types of less common property. You can use one set of exemptions or the other, but you cannot use some from each set.

Preferences: If your debts are primarily consumer debts and you paid an unsecured creditor $600.00 or more in the 90 days before the case is filed, or paid an insider ( relatives, business partners, etc. ) $600.00 or more in the last year before the case is filed, in some cases the trustee can sue the creditor to recover the payments and distribute them among all creditors. If your debts are primarily business debt the payments must total $5,850.00 to a single creditor for the trustee to recover the payments. Payment of secured car loans and house loans are not a preference the trustee can recover.

Fraudulent Transfers: If you sell, trade, or transfer property in the 2 years before the case is filed, and do not receive equal value for the property transferred, the trustee can sue the transferree to recover the proprty to liquidate it to pay creditors.

Means Test: If your debt is primarily consumer debt, the Court can deny a discharge of your debt and dismiss the case if the Court finds that a discharge would be "an abuse" of the Bankruptcy Code. The Court looks at all income received in the 6 months before the month in which the case is filed, except social security, and compares it to the median income of a household of the same size according to the Census Bureau. If your average income is less than median, it is presumed that you are eligible for a discharge. If it is over median, you are subject to the Means Test, which subtracts specified expenses from your average income to determine your ability to pay. If the calculation shows you can afford to pay a meaningful amount of your debt, the Court can deny a discharge and dismiss the case or you can convert the case to a chapter 13 and pay your creditors according to your ability to pay. If your debt is primarily business debt, the Court cannot deny a discharge based on your ability to pay.

DO NOT SELF-DIAGNOSE YOUR CASE! There are many more issues to evaluate, and many more exceptions to the general rules that may apply, to determine whether a chapter 7 is available or appropriate, so we don't recommend that you try to self-diagnose your case. That's why we offer a FREE INITIAL CONSULTATION WITH ONE OF OUR 2 ATTORNEYS.

CALL (916) 985-3330 TO SCHEDULE A FREE INITIAL CONSULTATION WITH ONE OF OUR 2 ATTORNEYS