Bankruptcy 101

Bankruptcy 101: Chapter 7 Bankruptcy

The following is provided for informational purposes only and is not, nor should be construed as, legal advice.

Many residents in the greater Houston area were greatly affected by Hurricane Harvey and for many, bankruptcy may have become an option. There are many factors to consider when deciding whether to file or not file bankruptcy. And then, there are many factors to consider when deciding which chapter of the bankruptcy code to file under. This article will be a brief introduction to Chapter 7 bankruptcies.

In a Chapter 7 bankruptcy, you can “surrender” (return) different kinds of assets. Did you know that you can surrender a “lease”? You can also surrender a house, a car, a cable contract and furniture, for example. A Chapter 7 bankruptcy can help you get financially lean and moving towards a more positive financial future.

There are four basic players in a Chapter 7 bankruptcy: the Debtor, the Trustee, the Court and the Creditors. The “Debtor” is the person filing for bankruptcy. (The Debtor is typically represented by the “Debtor’s Counsel.”) The “Trustee” in the bankruptcy oversees and administers the case. The “Creditors” are all the people and/or companies to whom the Debtor owes something, which most of the time is money.

In order to file a Chapter 7 bankruptcy, the Debtor has to qualify for the relief. A Chapter 7 bankruptcy requires a person to qualify through a means test if the debts are considered “consumer” debts. The means test is a calculation that takes into account a person’s income, household size and expenses and determines monthly disposable income. (If a person has too much disposable income, then more than likely he will not be able to proceed under a Chapter 7, leaving a Chapter 13 as the option.) If a person’s debt is because of business debt, then that person may also be eligible to file for a Chapter 7 bankruptcy.

Note that a “Debtor” may also be a partnership, a corporation or another business entity. A business may file a Chapter 7 bankruptcy, which could be helpful in surrendering leases, returning and/or selling inventory, and resolving existing contracts, for example. (There are other chapters in the bankruptcy code that are available for businesses, as well, so contact a bankruptcy attorney to discuss what options are best for the business.)

If you are considering filing for bankruptcy, it is important to begin gathering supporting documents and information. Do your best to gather as much documentation as possible. Print out bills and receipts. If you have lost documents, request duplicates of documents such as contracts and leases as soon as possible. Print out bank statements for the past six months if you are an individual who will be filing for bankruptcy and twelve months of bank statements if a business is filing for bankruptcy. Take photos of the real property and personal property that you will be surrendering in the bankruptcy. Take photos of inventory and/or company assets if a business will be filing. These documents and information will help your attorney draft and prepare your bankruptcy case.

There are advantages and disadvantages to filing for bankruptcy. In addition, there are advantages and disadvantages to filing under a certain chapter of the bankruptcy code. Please contact a bankruptcy attorney to discuss your particular circumstances and how bankruptcy may be beneficial to you and/or your business.

Marta E. Martin is a bilingual attorney and is admitted to practice before all Texas courts as well as the Federal Courts for the Eastern and Southern Districts of Texas. She is a member of the State Bar of Texas and the Texas Bar College and has been licensed for over 15 years. Mrs. Martin concentrates her practice in the areas of bankruptcy and immigration. She is an associate with Currin, Wuest, Mielke, Paul & Knapp, PLLC (“CWMPK”) located at 800 Rockmead Dr., Suite 220, Kingwood, Texas 77339. In addition to the areas in which Mrs. Martin practices, attorneys at CWMPK provide legal counsel in the areas of estate planning, probate, family law (including divorce and custody issues), employment law, litigation, business formation and operations, construction and commercial real estate. CWMPK is a debt relief law firm. CWMPK attorneys help people file for bankruptcy relief under the Bankruptcy Code. For more information, please call 281.359.0100 or visit www.cwmpk.com.