Bodor Law Firm
CHAPTER 7 PROGRAM
7 is thought of by many as a “liquidation” bankruptcy.
These people think of the liquidation sale at the furniture
store where everything must go; clear the floor. That is not
what happens in a Chapter 7 bankruptcy.
Chapter 7 liquidation involves a liquidation or sale of only
those items that, under the bankruptcy courts definition, have
a significant amount of “equity”. Their definition starts
with our definition, and they add what is called an
“exemption” to it to get at their definition of
we buy a TV set for $600.00 the value of that TV to us is
whatever we can sell it for at a garage sale; perhaps $50.00,
perhaps $150.00. This generally is whatever someone is willing
to pay. The value is certainly nowhere near $600.00. And if
the TV set is paid for the equity is the same ($50.00).
Everything that you have of what is called household goods and
personal effects has a similar low value and equity.
the “equity” in our your real estate under our definition
of “equity” is any value above the mortgages, liens and
the sales expenses.
bankruptcy courts definition of “equity” starts with our
definition and then adds what is called an “exemption”.
The court’s definition of real estate “equity” is: all
value above the mortgages, liens, sales expenses and the
exemption The exemptions for real estate in Ohio is $5,000.00
per person and $10,000.00 between husband and wife. This
exemption applies only to your residence, not to real estate
which is not used as your home. There is no exemption for
non-residential real estate.
also apply to all other property in which you might have an
interest, including your household goods and personal
effects.. There are generally enough “exemptions” to
ensure that the bankruptcy court will not have any desire to
“liquidate” your household goods and personal property You
are not a Bill Gates or a Donald Trump. Your
equity in the TV set of $50.00 is cancelled out by an equal
exemption of $50.00. There being no equity, the court is not
interested in selling your TV set. Everything else that you
might own is handled the same way. Equity is cancelled out by
exemption, right down the line.
you decide to do a Chapter 7 Bankruptcy you will be asked to
fill out a form asking you to reveal to the court all property
in which you have a interest. There are thirty-three (33)
categories of what are called personal property and one (1)
category called real estate. Of these thirty-four (34)
categories the ones that apply can be broken down into four
(4) general categories: (1) household goods and personalty,
(2) cash or cash equivalents, (3) vehicles, and (4) real
you have some significant equity in any of your property, you
are NOT likely to want to do a Chapter 7 Bankruptcy since you
would lose that property, whether it be real estate, a vehicle
or household goods and personalty. You would probable have to
do a Chapter 13 Bankruptcy. Another way of saying this is: If
you have any significant “equity” in your real estate,
your vehicles or other property, you will have to do a Chapter
13, since, in a Chapter 7 you will lose the property to pay
your debts, but not if you qualify for and do a Chapter 13
court, through the Chapter 7 trustee would sell such property
and pay your creditors from the proceeds in a certain order.
Those creditors for whom there is no money left will be
discharged. You would not have to pay them, ever.
great majority, over 90%, of all Chapter 7 Bankruptcies,
however, that have been filed have been “No Asset” cases.
The people who filed had nothing of value or interest to the
Chapter 7 Trustee. You are also likely to have nothing of
value to the Chapter 7 trustee.
if you have a no asset or “equity” case:
You may still owe those debts which are called, in one
way or another, “priority” creditors. These type of debts
are usually student loans and tax obligations. There are
exceptions, however, to this, so please discuss the exceptions
with me since some taxes and even student loans may be
dischargeable. Alimony and child support are never
All of your unsecured debts, like credit card debt and
medical bills, would be discharged (wiped out). Other types of
unsecured debts which will be discharged are utilities and
amounts owed to insurance companies for auto accidents. When
this type of debt is discharged you will be able to reinstate
your drivers licence, if the reason for its lose was due to
not having insurance at the time of the accident.
Your secured creditors are those to whom you have
pledged real estate, vehicles or household goods and
personalty as security for the repayment of the loan. You have
the option to either surrender the collateral to the creditor
and discharge any portion of the debt which is not paid off
from the proceeds of the sale or to reaffirm on the obligation
and keep the item. You would have to generally reaffirm at
100% on real estate and vehicles (same terms and same
conditions). If you decide to reaffirm on household goods or
personalty, you may have to reaffirm only at the value of the
collateral (The TV set cost $600.00 but is now worth $50.00.
You reaffirm at only $50.00.).
You may reaffirm on some creditors where instead of
being able to keep “things”, you get to keep the “good
will” of the creditors. You may reaffirm on debts owed to
relatives. You may reaffirm on debts on whom a friend or
relative had cosigned for you. You may even reaffirm on
doctors and dentists. In each of these cases, by reaffirming
on the debts you retain the “good will” of the creditor. Some
people reaffirm on credit union debt so that they can remain a
member of the credit union. Credit unions will throw you out
of the credit union if you bankrupt debts you have with them
As a general rule all your credit cards will be closed
once you file bankruptcy; you will lose the use of all your
credit cards, whether you have a balance owing, and you must
include that creditor in the bankruptcy filing, or if you owe
the creditor nothing, and you do not have to include that
creditor in the filing. Credit card companies typically check
with credit bureaus every few months, and, when a bankruptcy
is detected, your credit is pulled.
does not mean, however, that you will necessarily lose all
your credit cards! We can arrange reaffirmations with certain
credit card companies where they will, in writing, agree to
allow you to retain credit with them, provided you agree to
pay them a certain nominal amount. This would NOT be a secured
credit card. If you would like us to arrange for this type of
reaffirmation, please let us know.
has been a general explanation of the Chapter 7 program and is
not intended to give you legal advice. To see how the program
might affect you, please see me for a conference.