Chapter 7 Bankruptcy In Nevada: What Every Debtor Needs To Know

If you are struggling with debt or have creditors clamoring after you, it may be time to consider bankruptcy. Whether you have or have not yet thought about seeking debt relief, you ought to understand your options. This article will help you understand the most drastic and, arguably, effective form of debt relief: Chapter 7 Bankruptcy. It covers:

• What Chapter 7 bankruptcy is and how to qualify for it (and what happens if you do not qualify).
• Which debts are discharged during Chapter 7 Bankruptcy, and which are not.
• The types of assets you can keep and the kinds you risk losing during Chapter 7 Bankruptcy.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is what most people consider to be the traditional form of bankruptcy. It allows you to discharge a large amount of unsecured debt at the cost of any non-exempt assets. During a Chapter 7 bankruptcy, a trustee is appointed to handle your assets and debts, assuming you qualify for Chapter 7 bankruptcy.

Who Qualifies For Chapter 7 Bankruptcy, And What Is The Means Test?

Technically, almost anyone can qualify for a Chapter 7 bankruptcy, assuming they are able to meet the means test. The means test is a test that was created by the federal government to make sure Chapter 7 bankruptcy was not being used “strategically” by people who were actually able to pay back their debts.

The means test, created to prevent perceived abuse of the bankruptcy system, takes a look at your standard of living, your expenses, and your income. It determines how much disposable income you have that could properly be applied to your debts.

If you are found to have too much means and income, then you can be forced out of Chapter 7 and into a Chapter 13 or a Chapter 11 bankruptcy. Assuming you do pass the means test, you will proceed to the next stage, the meeting of the creditors.

What Is The Meeting Of Creditors In A Chapter 7 Bankruptcy?

Filing the petition for bankruptcy initiates the process, but it only truly begins after your creditors have met. The court or the trustee will send a meeting notice to all of your creditors, who are invited to attend a meeting. While not all creditors will choose to attend, those who are not pleased about losing what you owe them very well might.

At this meeting, you will be placed under oath and invited to answer questions about your debts and the assets and means you have disclosed. The trustee will be looking for any hidden assets and providing a transparent foundation for any of your creditors who decide to show up and ask questions about their claims.

In practice, however, the 341 meeting (the technical term for the Meeting of Creditors), is quite rote. Unless there are very interesting aspects to your bankruptcy filing, in most cases, it is a fairly formulaic procedure that also serves to help you, the debtor.

Some of the questions the trustee will ask are designed to make sure that you understand your schedules and your compliance requirements during the bankruptcy. Finally, they may also ask specific questions about insurance or other matters to facilitate the assessment and gathering of your assets.

What Debts Are Discharged In Chapter 7 Personal Bankruptcy?

In Chapter 7 bankruptcy, many debts are dischargeable, though there are exceptions. There is, in fact, quite a long list of debts that are not eligible for discharge. The most common non-dischargeable debts are child support, family court obligations, and anything owed as a result of crimes, such as fraud or drunk driving.

Student loan debt is another significant example of bankruptcy laws being organized around the fear of perceived abuse. The fear was that if somebody graduated with a hundred thousand dollars in debt and zero assets to their name, it would be too easy to just file for bankruptcy and get rid of all that debt.

It is possible to discharge some or all student loan debt, but not through traditional bankruptcy. Student loans can only be discharged if there has been a severe economic hardship, which the courts have unfortunately interpreted rather severely over the last 20 years.

Essentially, you need to be disabled physically and/or mentally and be unable to generate any income for yourself whatsoever. It is an extraordinarily high test and is almost never met. While there have been some discussed proposals to soften that requirement, it is unlikely to lead anywhere.

If the discharge requirements were low enough, there would be no reason for anyone coming out of an expensive professional program (such as law school!) not to just discharge their debts with a quick and easy bankruptcy filing when they do not have any assets to protect. Luckily, however, while the type of debt can be relevant, the amount of debt does not play a part in Chapter 7 bankruptcy.

Could I Have Too Much Debt To Qualify For A Chapter 7 Bankruptcy?

There is, fortunately, no debt limit in a Chapter 7 bankruptcy. There are, however, some limits in other types of bankruptcies.

Generally, if you have too much debt, then you can file a Chapter 7, assuming you can pass the means test, even in a commercial setting. In fact, it is not uncommon to have extraordinarily large amounts of business debts. As long as you are primarily filing as a business, then the means test will not even apply to you. As a result, business debt is generally eligible for discharge under Chapter 7 bankruptcy.

However, it is entirely possible to have too little debt, such that your bankruptcy could be deemed to be ‘in bad faith’. In such cases, the court will often dismiss your bankruptcy case without a discharge.

As a matter of law, though, there is nothing that says you have to be insolvent in order to file for bankruptcy. Thus, while it might be possible to have too little debt, it is not possible to have too much for a Chapter 7 bankruptcy.

What Assets Can I Keep In A Chapter 7 Bankruptcy?

The basic premise of Chapter 7 bankruptcy is that your non-exempt assets will be sold off to pay creditors what little you can before the other debts are erased. Every state, however, has a number of exemptions. What counts as exempt can range widely depending on where you live and the history of the statutes of the place where you live.

For instance, in Virginia, where I practiced previously, you get to keep next to nothing. There is only $5,500 of homestead exemption, which is the equity in your house.

Nevada is far more lenient. Your homestead exemption can be up to $450,000. While it is not an unlimited homestead exemption like you might find in states like Florida, for most people, that much equity protection is enough to keep them in their homes.

In Nevada, retirement accounts, as well as some other types of savings or pensions, are also protected. You can also keep a vehicle up to a certain, although relatively low, amount of value.

Finally, you have a wildcard exemption that can be applied to any other assets. For most people, all this means that you will most likely be able to keep your home and a car of reasonable value, as well as the routine contents of your house that do not have any inherent value. If you have a collection of gold bullion or expensive watches or jewelry, though, that may be at risk.

In addition, a lot more can be done through effective planning in advance of your bankruptcy. If you are right on the edge of having to file by the time you talk to a lawyer, however, there is not a lot of planning that can be done.

For those who do reach out in advance, structures can be set up to insulate them from liability or to separate their assets from their technical control. Doing so renders the assets unsuitable for judgment, which is particularly effective for protecting business assets, but also works for personal assets that might otherwise be subject to execution by a creditor or bankruptcy trustee.

With enough advanced planning, we can help mitigate the risks that would otherwise come from a bankruptcy filing, even if the bankruptcy filing is still necessary.

What Could I Potentially Lose In A Bankruptcy?

By the time most people file a bankruptcy, there is not a lot left to lose. The assets that people really worry about when it comes time to file for bankruptcy tend to be items of sentimental value.

If you have too much equity in your house (by Nevada’s standards), then chances are you probably should have taken a home equity line and used it to pay debts down instead of filing for bankruptcy. As a matter of law, however, you stand to lose anything that is not covered by your federal or state exemptions mentioned above.

When a business files for bankruptcy, there will often be assets that are not subject to liens and are thus harder to protect. For the routine bankruptcy filer, what is at risk are secondary cars, valuable collections, watches, jewelry, or other items that are easy to resell. Your assets at risk also include any investments not in a protected form, like an IRA or 401K or a suitable limited liability entity that is protected through careful planning.

How Long Does Chapter 7 Bankruptcy Take?

In theory, Chapter 7 bankruptcy is fairly simple and does not take too long, but there are many factors that can complicate the process. The actual proceedings can take a long time, but for the debtor in a routine Chapter 7 personal filing with consumer debts, you are likely to be finished within a few months from starting the paperwork.

For most routine Chapter 7 filers, their bankruptcy responsibilities end after the meeting of creditors. However, the actual proceedings may go on for a while, depending on the circumstances of the particular case.

There may even be issues that require the debtor’s participation later on, such as claims of fraud in your bankruptcy case, or if the trustee or a creditor seeks to remove your discharge. In such instances, the proceedings can take years, but for the routine case, everything is usually over and done within a few months.

To obtain a more accurate prediction of how long your specific Chapter 7 bankruptcy case might take, schedule a free consultation to discuss your financial situation and bankruptcy options.

For more information on Filing A Chapter 7 Bankruptcy In Nevada, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (702) 703-1540 today.