A Chapter 7 bankruptcy is commonly referred to as a “liquidation” because the federal bankruptcy court discharges most unsecured consumer debts such as medical bills and credit cards balances. Not all unsecured debts are dischargeable, including recently incurred income taxes, child support obligations, and student loans. Secured debts, such as auto loans and mortgage loans, have to be reaffirmed by the bankruptcy petitioner who then must continue making the loan payments or else the petitioner must surrender the property to the lender. Usually a bankruptcy petitioner keeps all of his or her property unless the court trustee finds that the property has substantial equity in the property that exceeds Utah law. For instance, Utah law allows the petitioner to have $2,500 in equity in an automobile and $40,000 in a primary residence if married.
Not everyone can file a Chapter 7 bankruptcy. The petitioner’s household income must fall below the median income for Utah (if the petitioner is filing and resides in Utah). But if the petitioner’s household income exceeds Utah’s prescribed median income, then the petitioner must calculate the income and expenses using a “Means Test” in order to assess eligibility for a Chapter 7. If the petitioner does not qualify for a Chapter 7 filing, the petition may be eligible for a Chapter 13 filing.
Immediately following a Chapter 7 filing, federal Bankruptcy Code implements an automatic stay, which prohibits all creditor collection activities, including garnishments and telephone collection calls. Approximately 30 days following the bankruptcy filing, a creditors 341A hearing is held, as required by Section 341 of the United States Bankruptcy Code. Creditors typically do not show up. At this creditors hearing, the Chapter 7 bankruptcy trustee asks the bankruptcy petitioners to confirm the truth of his or her statements and may ask additional questions about the petitioner’s income and assets.
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