Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a legal process that allows individuals and businesses in Oklahoma City to eliminate most of their unsecured debts and achieve a fresh financial start. This type of bankruptcy involves the liquidation of non-exempt assets to pay off creditors, and it is generally suited for individuals with limited income and assets. This article will detail key components of a Chapter 7 bankruptcy so you know what to expect.
Key Features of Chapter 7 Bankruptcy
Chapter 7 bankruptcy aims to discharge (eliminate) most unsecured debts. For example, as credit card debt, medical bills, and personal loans. To do this, a court-appointed trustee sells the debtor’s non-exempt assets and distributes the proceeds to creditors. However, debtors can protect certain assets through state or federal exemptions, allowing them to retain essential property. This also means that if you have no assets, your slate is wiped clean without worry. Upon completion, the debtor is no longer legally obligated to repay the discharged debts.
Non-Dischargeable Debts
Unfortunately, there are debts that are not dischargeable. A lot of these will be debts that are considered priority ones. For example, alimony is not a dischargeable debt. This is because it is a court imposed familial obligation that would be at the detriment of an ex-spouse if discharged. The same can be said for child support orders. These support obligations are put in place to protect the wellbeing of those who are not in a financial place to support themselves fully.
Student loans and tax debts are also not dischargeable. This is due to them being instituted by government run or funded institutions. Due to the protection of these debts, you can still have thousands of dollars in debt after a Chapter 7 bankruptcy.
Eligibility Criteria
To qualify, debtors must pass a means test. This will compare their income to the median income for a household of the same size in Oklahoma. If the debtor’s income is below the median, they qualify for Chapter 7. However, if it’s above the median, they may still qualify if their disposable income is insufficient to repay a significant portion of their debts.
Additionally, debtors must complete credit counseling courses from an approved agency. The first one is to be completed before the filing, and the other must be done within 60 days of the discharge of the bankruptcy.
The Chapter 7 Bankruptcy Process
When you file for Chapter 7 bankruptcy, there is a certain process you must go through:
Pre-Filing Steps: Complete the required credit counseling course and obtain a certificate as well as collect all necessary financial documents, including recent tax returns, pay stubs, bank statements, and a list of debts and assets.
Filing the Petition: Complete and file the bankruptcy petition and accompanying schedules with the U.S. Bankruptcy Court for the Western District of Oklahoma. Upon filing, an automatic stay goes into effect, halting most collection actions, including lawsuits, wage garnishments, and foreclosure proceedings.
Appointment of Trustee: The court appoints a trustee to oversee the case. The trustee reviews the debtor’s petition, identifies non-exempt assets, and manages their liquidation.
341 Meeting (Meeting of Creditors): About 20 to 40 days after filing, the debtor attends a 341 meeting, where they answer questions under oath about their financial situation and bankruptcy forms. Creditors may also attend and ask questions.
Asset Liquidation: The trustee determines which assets are exempt (protected) and which are non-exempt (subject to liquidation). They then sell the non-exempt assets and use the proceeds to pay creditors according to the priority established by bankruptcy law.
Debt Discharge: Typically, within 3 to 6 months after filing, the court issues a discharge order, eliminating the debtor’s obligation to repay most unsecured debts. You cannot discharge certain debts, such as student loans, child support, and alimony, and must continue to pay.
After all assets have been liquidated and proceeds distributed, the trustee files a final report, and the case is closed.
Exemptions in Oklahoma
Oklahoma allows debtors to use state-specific exemptions to protect certain property during Chapter 7 bankruptcy. Some of the exemptions include:
Homestead Exemption: Protects the full value of the debtor’s primary residence, provided it does not exceed one acre in a city or town or 160 acres elsewhere.
Motor Vehicle Exemption: Protects up to $7,500 in equity in one motor vehicle.
Personal Property Exemptions:
- Household Goods: Protects up to $4,000 in necessary household goods and furnishings.
- Clothing: Protects necessary clothing up to $4,000 in value.
- Tools of the Trade: Protects up to $10,000 in tools and equipment necessary for the debtor’s trade or profession.
Wages and Income Exemptions:
- Wages: Protects a portion of earned but unpaid wages.
- Public Benefits: Protects Social Security benefits, unemployment compensation, workers’ compensation, and other public benefits.
To figure out what exemptions apply to you, consult with a bankruptcy attorney.
Oklahoma City Bankruptcy Attorneys
Chapter 7 bankruptcy in Oklahoma City offers individuals and businesses a way to eliminate most unsecured debts and achieve a fresh financial start. While Chapter 7 can provide significant relief from overwhelming debt, it also involves the potential sale of non-exempt assets and a lasting impact on your credit score. If you’re considering filing for Chapter 7 bankruptcy, our bankruptcy team at OKC Attorneys can help. Call us today at 405-367-8710 or ask a question online.
