Both individuals and businesses can file for Chapter 7 bankruptcy. A Chapter 7 bankruptcy is often referred to as the “liquidation” bankruptcy. This description can be misleading because most debtors do not liquidate any of their assets. Kansas provides for a certain amount of personal property to be exempt from the reach of creditors and it’s rare for an individual’s assets to exceed the exemptions. The idea is that a trustee appointed to oversee your case will liquidate your assets to pay creditors. For the average person with no assets to liquidate, the debts are simply forgiven (“discharged”). Certain debts are not discharged under any bankruptcy, regardless of the Chapter filed. Examples of non-dischargeable debts are alimony, child support, some taxes and most student loans. To qualify for a Chapter 7, you must pass a means test showing your income is less than the median income for your family size in your state. A qualified bankruptcy attorney can help you make the determination of whether you qualify for a Chapter 7.
Individual Chapter 7 Bankruptcy
Here are the steps that an individual must take in Kansas to complete a Chapter 7 bankruptcy:
- Attorney Consultation: Call my office to schedule a consultation. The consultation may be at my office or over the phone. If bankruptcy is right for you, I will give you an Information Packet with a Questionnaire to fill out and return to me.
- Fill out the Questionnaire: The Questionnaire asks all the questions the official bankruptcy forms ask. You’ll be asked to list your assets, liabilities, income, expenses and answer questions about your past financial history. Once the Questionnaire is completed and returned to me, I will analyze the information and make sure you are a good candidate for Chapter 7.
- Credit Counseling: You must complete credit counseling prior to filing a bankruptcy. The credit counseling may be done in person, on the phone, or online for a minimal fee. I will give you a list of agencies that offer this service.
- Filing of Case: I will prepare the official bankruptcy forms for your signature and review. After the papers are signed, I will file your case. You will receive a case number and an “Automatic Stay” goes into effect to protect you from your creditors.
- Meeting of Creditors: In approximately 20 – 40 days after the filing, the court will notify you of the date and location of your meeting of creditors (also called the 341 hearing). The meeting of creditors is a mandatory hearing where the trustee and your creditors (who rarely show up) can ask you questions about your financial affairs and the information disclosed in your bankruptcy petition. The meetings take place in downtown Wichita.
- Receive Discharge: Four to six months after filing the Chapter 7, you will receive a discharge and the bankruptcy is over.
Business Chapter 7 Bankruptcy
If you are a small business owner struggling with debt, Chapter 7 bankruptcy may help. If you are a sole proprietor, you are personally liable for your business’s debts. Basically, you and your business are the same entity and your case would be filed as an individual case. You can protect the assets of your business, wipe out your debts, and continue operating your business.
However, if your business is a separate legal entity such as a corporation or LLC, you must file a bankruptcy on behalf of the business. The procedures are basically the same as an individual case except you list the assets, income and expenses of the business. Unlike an individual case, a business does not receive a discharge in a Chapter 7. In most cases, you won’t be able to continue operating your business when you file for Chapter 7 bankruptcy.