Chapter 7 Is a Liquidation
Video Transcribed: I am Edward Kelley, a bankruptcy attorney in Tulsa, Oklahoma for Wirth Law here to answer your Oklahoma bankruptcy questions. And we’re in video four of a five video series about are you a good candidate for Chapter 7 bankruptcy? And we’re just going to recap this in this video and the next one.
So, let’s start again from the beginning. What’s a 7 and what’s a 13? These are the two that you’ll hear about as a debtor. Chapter 7 is a liquidation, meaning cut and run. You can just walk away from those debts.
That’s the intent of the federal government in granting this potential relief or giving you the opportunity for this potential relief, is to have a fresh start. So, you will liquidate your assets and you will discharge all your debts. Some of your assets like your home and your vehicle up to a certain point will be exempt.
You don’t have to liquidate them even in Chapter 7. Your household belongings, they don’t come in and take your TV, anything like that. But otherwise, if you have a rental property that you own or a boat, that’s going to get liquidated up to the amount that you owe your creditors to be paid. In most cases with my Chapter 7 clients, they have nothing to liquidate, so they’re just getting a discharge of their debts.
Next, we looked at do you qualify income-wise? There are specific IRS standards, and they change often quarterly the federal government issues. You can find them if you google the Department of Justice. Means testing is what it’s called, standards for Chapter 7 bankruptcy.
Find the official government link and it’ll give you a chart telling you what they are at this moment. But right now it’s around 45,000 for one person, meaning that’s the gross before any deduction’s cut off to do a Chapter 7.
You make more than that, then you’ve got to show why your income dips back below that with your expenses. By that, I mean expenses that will continue after the bankruptcy. If you’re getting rid of it, you can’t use it as a calculation of your future gross income because you won’t have it.
And it’s about an additional 10,000 for each family member after that, so if you have a family of four, now you’re up to 75,000, so if you’ve got live-ins that don’t contribute to the household. But remember, everyone in a household is considered to be a contributor, so if someone lives with you but they’re not a household member, you can’t use that extra 10,000, but you also don’t have to include their income. But if somebody is a member of your household and they have any income, that has to be included in the total.
So, assuming you get past that first gauntlet, the next question is do you have the right kind of debt? So in Chapter 7, primarily you want unsecured debt, meaning no collateral. And when I say that, I’m not necessarily talking about your vehicle or your home, unless you want to surrender and get out from under those things, which many people do.
But if you want to retain those, you’re going to have to reaffirm them and that will take them out of the bankruptcy, you know, don’t consider them. So the debt that you’re going to discharge, you want to be unsecured and nothing special about it.
As I mentioned, there are certain types of debt that can’t be discharged, particularly child support, some attorney fees related to child support actions, criminal penalties, student loans, famously, if they’re actual federal student loans. Taxes that are less than three years from the date of filing. If they’re older than that, you can get rid of them just like anything else.
This kind of debt, can’t really do anything about in Chapter 7 in Oklahoma. So if you don’t have much of that, or if you have a lot of that and a lot of unsecured debt, then you’re probably a good candidate, so pass the second gauntlet.