Chapter 7 bankruptcy is a “liquidation” bankruptcy. If you have assets that are not exempted under Utah law, then the assets will be distributed by a trustee (every Chapter 7 and Chapter 13 case is assigned to a trustee) to your creditors. The aim of a Chapter 7 bankruptcy is to “wipe clean” or discharge your unsecured debts and non-exempt assets have been liquidated and the proceeds have been distributed to your creditors.

This is often the first question I receive when consulting someone who is considering Chapter 7 bankruptcy. Even
though Chapter 7 bankruptcy is sometimes referred to as a “liquidation,” it does not mean that all of your assets and
property are taken away from you. Utah state law provides for exemptions under different categories of property that
protect your possessions from being taken in a bankruptcy. Utah state law has exemptions for cars, homes,
appliances and many types of retirement accounts like a 401k and an IRA. There are dollar limits on most of these
exemptions.
Quite often, the question arises whether a person who files for bankruptcy may keep a car. Utah’s exemption for a car
is $3,000, or a couple may allocate $6,000.00 towards one automobile or $3,000 each to two separate automobiles.
A bankruptcy trustee will only be interested in your car if you have equity in it above and beyond both what you owe
on a loan and above the car exemption under Utah law. For example, if you have a car that is worth $15,000 and you
still owe $13,000 on the car loan, the trustee will not make an attempt to take the car because of your $3,000
exemption under Utah law.
Tax refunds are frequently taken by bankruptcy trustees in a Chapter 7 bankruptcy. The amount that a bankruptcy
trustee may take is determined by the time of year when the bankruptcy is filed. For example, if a couple is entitled to
a $6,000 refund and their bankruptcy is filed on April 30, the bankruptcy trustee is entitled to approximately $2,000.
Please note, this applies to the refund you receive the following year which is the refund you accumulated for the
current tax year. For instance, the refund you receive in the early part of 2013 is for your 2012 tax return. If you are
entitled to a refund for a past year, the entire refund may be taken by the trustee.

As long as you are current on your mortgage, you may keep your home after a Chapter 7 assuming the equity you have in your home does not exceed the homestead exemption amount in Utah. If you are not current on your mortgage then you may or may not be able to stay in your home. If you are too far behind to catch up within a fairly short period of time, you may want to look at a Chapter 13 bankruptcy.
If you do not want to stay in your home, then you should stop paying any mortgage. The Chapter 7 bankruptcy will not stop the bank from foreclosing on your home, but they will not be able to come after you for any money you may owe on the house.

A Chapter 7 filing puts an immediate stop to any garnishment. Quite frequently I have potential clients who get a notice that their paycheck will be garnished. When that happens, time is of the essence and we must act quickly to get the garnishment stopped. Whoever is in charge of your payroll is acquainted with dealing with garnishments and also stopping them when a bankruptcy is filed. If your check is being garnished and you are already considering bankruptcy, it is not too late to stop the garnishment.

Bankruptcy law requires that most people who file a Chapter 7 bankruptcy to submit a “means test.” A means test determines who is eligible to file a Chapter 7 bankruptcy and in most cases the determination is made according to someone’s income level. Generally speaking, someone under a certain income level for Utah survives the means test and may file a Chapter 7 bankruptcy. Additionally, filers whose debts are not primarily consumer debts (e.g. most of the debt is a business-related debt) or has been on active duty in the military is exempted from the means test.

If a previous Chapter 7 or Chapter 13 bankruptcy has been filed, a new Chapter 7 bankruptcy may not be filed for eight years after a previous Chapter 7 or six years from a previous Chapter 13 (in most cases).

When a judgment is issued by a court, a creditor may sometimes have the judgment recorded in the county where you live. If that happens, the judgment will be a lien against your property and the judgment is paid out of the proceeds of the sale of any property you own in the county.
If the equity you have in your property does not exceed the Utah homestead exemption, the judgment lien may be removed in a Chapter 7 bankruptcy. With the real estate market conditions in Southern Utah and Utah County, most filers owe more on their mortgages than what their home is worth. Under these circumstances, the judgment lien may be removed in a Chapter 7 bankruptcy.

Although the intent of bankruptcy law is to wipe the financial slate clean, there are nevertheless debts that may not be discharged, though some of these items may be discharged in limited circumstances. The types of debts that may not be discharged and the limits of their nondischargeability (if any) are as follow:

1. Child support and alimony may not be discharged under any circumstances in a Chapter 7 bankruptcy. Some very limited types of property settlements pursuant to a divorce decree may be dischargeable in a Chapter 13 bankruptcy.
2. Student loans are not dischargeable. A filer who suffers from severe physical or mental impairments may under extreme circumstances get students loans discharged.
3. Taxes are generally not dischargeable, though if the taxes have been due for over a certain period of time and the filer properly and timely claimed all income on their returns for the periods when the taxes are due, the taxes may be dischargeable.