Chapter 7 bankruptcy is what most people are thinking about when they plan to file bankruptcy The formal terminology for this kind of case is a liquidation. I know full well you have friends who have filed and they had nothing liquidated, right? I agree. Most chapter 7 cases result in nothing taken and sold by the trustee, but I am getting ahead of myself.
There are two basic kinds of chapter 7 cases:
- Asset and
- No Asset
Liquidation of Non-exempt Assets
Let’s start with a no asset case. Anyone who files a chapter 7 bankruptcy case owns something. They have assets. If the value of the things you own is less than each Ohio exemption that applies to the item then all your property is safe. The purpose of the exemption laws is to protect certain amounts of property from creditors. The trustee’s function is to act on behalf of the creditors.
If you have assets which are worth more than available exemptions the trustee may elect to gather and sell them. He will then pay creditors from those funds. In this scenario you would be paid the amount of the exemption claimed in your Schedule C. The trustee receives a percentage of the amount actually paid out to cover his fees and costs.
The vast majority of cases filed as chapter 7 are no asset cases. Before you file bankruptcy I will advise you if there are non-exempt assets and we can plan accordingly. If it is something you want to keep you can file chapter 13 instead of chapter 7. That way creditors receive the benefit of the non-exempt amount and you keep the asset.
The real power of filing chapter 7 bankruptcy is the automatic stay. This is a court order that stops all collection activity against you. It stops simple things like bills, letters, collection calls and utility shut offs. It even goes further. If you are being, or have been sued the automatic stay will also stop litigation, garnishments or bank attachments. The automatic stay is granted simply by filing the bankruptcy case.
A creditor is not bound by the stay unless they know about it. That is why it is important to be sure that you list each and every person and entity to whom you owe money. That way they will be notified by the court when the notice of filing is sent out. This is one of the reasons a full service bankruptcy lawyer is important. He can also file notices with the courts where you litigation, garnishment, bank attachment is filed. He can also notify you employer to stop wage garnishment, and utility companies to hook you up again.
The discharge is the ultimate result of the bankruptcy. It is the order “granting” the bankruptcy. Functionally the automatic stay is replaced by a discharge injunction. If a creditor continues to collect your account after either the automatic stay or discharge we can invite them to court to court with a motion, and they can explain to the judge why they should not pay you damages, pay your attorney fees, and pay fines and costs to the court.