How the Liquidation of Assets Works in Chapter 7
Many people fear they will be left with nothing when filing for Chapter 7 bankruptcy, but that is not the case at all. Chapter 7 liquidates your assets and uses the proceeds to pay back creditors. After assets have been liquidated and the creditors paid back, you may then be free of all consumer debts and will no longer be legally responsible for repaying them.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) ensures consumers who can actually afford to repay their debts do not abuse the bankruptcy system. The law requires a means test for all Chapter 7 bankruptcy filers who make more than the average median income in their state. If you make more than this amount, your case is either dismissed or converted to Chapter 13 bankruptcy, which has different rules and requirements.
Once you file for bankruptcy protection, a trustee is assigned to the case to determine whether your assets are exempt or nonexempt. Nonexempt assets will be used to pay creditors, while exempt assets remain yours. In some cases, the trustee determines that all assets are exempt and a “no asset” report is filed.
If you have nonexempt assets, creditors are allowed to file a claim for distribution and have 90 days after the first date set for the meeting to file these claims. Typically, four months after filing, the Chapter 7 bankruptcy is discharged and creditors will be alerted that they can no longer collect on the debt.
The laws surrounding Chapter 7 bankruptcy are complicated and each case is different. For effective guidance on filing for bankruptcy protection in California, contact a skilled Los Angeles attorney.