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The Primary Risks of Filing Chapter 7 Bankruptcy and How to Avoid them

Currently, the volume of bankruptcy filings in Southern California has significantly decreased. This gives both the judges, trustees, and trustee's attorneys additional time to scrutinize every bankruptcy filing. Moreover, due to the decrease in filings and correlating decrease in cases that pay them money, Chapter 7 Trustee's and Chapter 7 Trustee's attorneys always seem to be coming up with new methods of generating assets out of a case that appears to have none.

A Chapter 7 Trustee's primary goal is to locate assets that can be sold to pay your creditors. The Chapter 7 Trustee's compensation is generally based on how much is repaid to your creditors. In almost every case where there are assets to administer, the Chapter 7 Trustee will hire an attorney. The Trustee's attorney will bill the Chapter 7 Estate for the attorneys' fees it incurs and if there is money in the estate to pay fees, the attorney will spend most if not all of that money chasing other potential assets in the case.

With this backdrop in mind, here are several risks I see to filing a Chapter 7 Bankruptcy:

1. Potential Loss of Your Home:

If you own a home, you need to be aware that in an appreciating real estate market, a Trustee may sell your home even when you initially believed or were told by your attorney that your house was safe. A common tactic used by Trustees is to continue your 341(a) and see if the home prices rise. Once you are in a Chapter 7, it can be very difficult to dismiss the case. This is especially true if the Chapter 7 Trustee believes your house can be sold to pay your creditors.

One option you may have is conversion to a Chapter 13 case, but this requires that you have regular income and can make monthly payments for 3 to 5 years. In addition, Chapter 7 Trustee's have increasingly opposed conversions. If you a