The Law Offices of Ken McCartney P.C.

Chapter 7

 

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Chapter 7 is the most basic of the bankruptcy code chapters where relief can be requested.  Of the five "operative chapters" it provides the simplest, most controllable, most economic relief.

The basic process is simple enough.  A debtor's  property as of the petition dateis turned over to a Chapter 7 trustee, whose job is to liquidate non exempt items and distribute the proceeds for the benefit of the debtor's creditors. Individuals, husbands and wives, partnerships and corporations can file Chapter 7.

In addition to the basic process the Bankruptcy Abuse Prevention and Reform Act of 2005, effective October 17th, 2005, added a new twist for certain Chapter 7 debtors.  For individuals whose earnings exceed the mean income for the area in which they reside, any creditor can object to a debtor receiving Chapter 7 relief.  If the court agrees, the only relief available is in Chapter 13 with a full 60 month payment plan.  this "means test" is a little more involved than looking at gross income as it involves subtracting actual secured claims and I.R.S. standard deductions to arrive at an acceptable reaming disposable income.  If you are close the formal analysis is recommended.  You will not be close unless your income exceeds the following:

                Family                           WYOMING                               COLORADO

                Size

 

                    1.                            $ 46,172.00                              $ 48,598.00      

 

                    2.                            $ 60,829.00                              $ 64,679.00

 

                    3.                            $ 69,677.00                              $ 70,861.00

 

                    4.                            $ 76,361.00                              $ 83,976.00

Add $7,500 for each additional family member. These numbers are effective November 1, 2011.  They are adjusted based on cost of living indexes in March and November of each year.

 

You may wish to go now to the discussion of exempt property on this web site.  Since, by election of the state,  exemption law is state law, there is a Colorado Page and a Wyoming Page.

In addition to the property that a debtor owns outright on the petition date, a bankruptcy estate's trustee is given certain powers by the bankruptcy and some state laws, that make it possible to gather property for the estate from other sources.  These include:

  • The ability to set aside a transfer made by the debtor to an antecedent creditor within 90 days if unrelated (one year if related), unless there was consideration received by the debtor or the exchange was for new value.  This process is referred to as "preference avoidance" and there is much law employing many lawyers to challenge every aspect of the checklist of criteria involved.
  • the ability to set aside gifts made while the debtor was insolvent
  • the ability to set aside transfers  made without adequate consideration being received by the debtor (intentionally or unintentionally).
  • the ability of the trustee to step into the shoes of a lien creditor whose interest is absolutely perfected even though one may not have existed on the petition date.

    In Wyoming, as in Colorado, trustees administer state and federal tax refunds received by debtors.  Colorado exempts earned income credit.  Wyoming does not.  If an entire return is due and owing, it becomes an asset in the Chapter 7 estate.  If a petition is filed before year end, trustees currently pro-rate an eventual return over the number of days in the year before the petition was filed.

    You may wish to see Chapter 7 of Plain Talk to review frequently asked questions and answers  concerning the Chapter 7 process.


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