The concept of bankruptcy is a creation of the Congress of the United States of America. The purpose of bankruptcy, prepared by a competent bankruptcy attorney, is to afford individuals and businesses an opportunity for an orderly process in which their debts are either discharged in their entirety or reorganized pursuant to bankruptcy laws. The bankruptcy process is conducted in a Federal court system of United States Bankruptcy Courts that are divided into several hundred districts of the United States.
A consumer Chapter 7 bankruptcy proceeding is, by far, the most frequently filed bankruptcy proceeding. Clearly, over 90% of all bankruptcies filed in the Boston and the MetroWest areas are Chapter 7 bankruptcy proceedings. These proceedings are initiated by individuals, or married couples, in an attempt to achieve a fresh start. The major contributing factors to a Chapter 7 bankruptcy are loss of employment, illness, divorce, and unexpected family emergencies. The process of filing a Chapter 7 bankruptcy proceeding is initiated by the completion of a petition in bankruptcy. The petition in bankruptcy consists of four major sections. The first section is a schedule of all of the debtor’s assets, including all real estate and all personal property held. The second section of a bankruptcy petition schedules out the household income of a Chapter 7 debtor and the household expenses regarding the same. The third portion of a Chapter 7 bankruptcy proceeding is the completion of a questionnaire entitled “Statement of Financial Affairs” which covers the financial activity of the debtor over the past several years. And finally there is the analysis of the debtor’s gross wages using a formula put forth and periodically adjusted by the United States Department of Justice. The completed bankruptcy petition is then filed with the United States Bankruptcy Court in the appropriate district determined by the residence of the debtor.
Approximately 30 to 40 days after the filing of a Chapter 7 bankruptcy petition, an examination of the debtor is conducted by a Trustee, assigned by the United States Bankruptcy Court, to examine the debtor. Generally, these examination meetings last only a few minutes since all of the pertinent questions that a bankruptcy trustee may have are contained in the bankruptcy petition. After the Bankruptcy Court has conducted its examination of the debtor, a period of 60 days is allowed for the creditors to file any complaint that they may have alleging fraud or malfeasance by the debtor. The honest debtor in a Chapter 7 bankruptcy proceeding will invariably be given a discharge. The discharge in bankruptcy is potent and complete.
Essentially all civil debt such as credit cards, bank loans, department store credit cards, hospital bills, medical bills, dental bills, utility accounts, and personal loans are discharged by a Chapter 7 bankruptcy proceeding. Court judgments obtained by creditors prior to the filing of a Chapter 7 bankruptcy are also discharged. Although discharging tax liability in a Chapter 7 bankruptcy proceeding can be complicated, a general rule of thumb would be that any income taxes and assessed and outstanding against the debtor for a period of more than three years will be discharged by a Chapter 7 bankruptcy proceeding. In recent years, the phenomenon “upside down real estate” has resulted in many individuals or married couples choosing to file a Chapter 7 bankruptcy case to extricate themselves from the financial obligations pertaining to real estate that is worth substantially less than the outstanding obligation to the mortgage holder. In this case, a real estate mortgage and note can be discharged in a Chapter 7 bankruptcy proceeding.
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