Filing Chapter 7 Bankruptcy: An Overview of the Procedure

Chapter 7 bankruptcy is a liquidation proceeding. If you have some non-exempt assets, they’re sold by the Chapter 7 trustee and the money is dispersed to your creditors according to the priorities established in the Bankruptcy Code. In virtually all consumer cases, all assets are exempt. There are, therefore, no assets to sell and no money to pay out to creditors. Chapter 7 is ordinarily the least complicated and quickest form of bankruptcy. It’s available to individuals, married couples, corporations and partnerships.

Before you’ll be able to file Chapter 7 bankruptcy you’ll have to pass means test. The means test is a computation that compares your average income for the last six months, annualized, to the average income for families of the identical size in your state. If your income is less than or equal to the state average income, you “pass” the means test and may file Chapter 7 bankruptcy.

You Commence by Filing a Chapter 7 Bankruptcy Petition

Your Chapter 7 bankruptcy is begun by filing the official petition, schedules and statement of financial affairs. These forms ask you to name all of your assets and all of your debts, along with some recent financial history. This is the most important and most time intensive part of a bankruptcy filing.

It’s crucial that you list each of your creditors with proper mailing addresses. You must name each of your debts. You must even list those debts that are’t dischargeable and those you plan to reaffirm.

You must also name all of your property, along with any debts secured by that property, and the sale value of the property. “Property” as defined by the Bankruptcy Code means “assets” or “possessions.” It’s not confined to just real estate.

You must sign the schedules under penalty of perjury. You then file the schedules with the bankruptcy clerk in the district in which you reside.

After you file your Chapter 7 bankruptcy petition, all the following bankruptcy legal proceedings pertain to your state of affairs as it existed on the date of filing.

The automatic stay moves into effect upon filing the petition. The automatic stay creates a legal barricade to collection activities by creditors. They can no longer contact you in an attempt to collect a debt.

The court then appoints a trustee and mails notice to all your creditors informing them that you’ve filed bankruptcy. You’ll get a copy of that notice at the same time as your creditors.

Initial Meeting of Creditors

You must appear at a meeting of creditors. This is ordinarily called the section 341 meeting. It takes its name from the section of the Bankruptcy Code that describes the meeting. At the meeting of creditors, the trustee will interview you about your assets and liabilities. Your responses are given under oath and carry the penalty of perjury. Creditors can also question you about those issues, but they seldom do so.

After the Initial Creditors’ Meeting

If you own any non-exempt assets, the trustee will take charge of them. The trustee will sell the non-exempt assets and apply the income to the expenses of administering your case. He’ll also parcel out any left over money to creditors with allowed claims. Each claim is appointed a priority according to the Bankrtupcy Code. Those claims are paid in order of the priority of the claims.

The trustee may go over your income and expense schedule to see whether you have sufficient money remaining after your actual living expenses to pay something to creditors. Any money you make after the case is commenced is yours. It’s out of the touch of creditors who have dischargeable debts on the date of filing.

Usually, the only duty you have after the 341 meeting is to cooperate with the trustee by furnishing whatever info he calls for.

Receiving A Discharge

The trustee and your creditors get a 60 day time period following the 341 meeting during which they may challenge your right to a discharge generally or the dischargeability of a specified debt. Unless a request to deny your discharge is filed, the order giving the discharge of debts is issued by the court shortly after the 60 day period of time goes by. If one creditor files a dispute to your discharge it doesn’t preclude or holdup the entering of a discharge of the remainder of your debts.

As a condition to your discharge, you must finish a financial education course of study from an authorized provider. The class usually lasts for several hours. Many official providers have online classes available. Your failure to take the class and file a certificate of completion of the class can lead to your case being closed without entry of a discharge order. The court can charge you a new filing fee to reopen the case, file the certificate and enter the discharge.

You can normally expect your discharge inside 4-6 months of filing your case. The discharge impacts dischargeable debts that existed at the start of your case.

Some debts do pull through a Chapter 7 bankruptcy discharge. They’re excluded from the discharge by law. Those specific debts are taxes, child support, student loans, and liens. If you reaffirm any debts they also survive the bankruptcy discharge.