What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a quick and easy process that allows a person to discharge most unsecured debt. There is a lot of false information out there about bankruptcy. Please know that Chapter 7 bankruptcy is not scary; it is not adversarial – meaning there is no fight; it does not result in your name being published in the newspaper, and it does not destroy your credit. Continue reading to learn more about Chapter 7 bankruptcy.
Chapter 7 Bankruptcy Timeline, Costs and Expenses
From start to finish, the Chapter 7 bankruptcy process generally is completed in four and a half to five months. The Chapter 7 bankruptcy filing fee is $335. There are two courses that need to be completed. The first is a Credit Counseling Course, which costs $20. The second is a Financial Management Course, which also costs $20. Lastly we pull a credit report, which costs $25 for a single filer and $50 for joint filers.
Who Can File
You won’t be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan.
To file for Chapter 7 bankruptcy, you fill out a petition and a number of other forms and file them with the Bankruptcy Court in your area. Basically, the forms ask you to describe: your property, your current income and monthly living expenses, your debts, property you claim the law allows you to keep through the Chapter 7 bankruptcy process (called “exempt property”), property you owned and money you spent during the previous two years, and property you sold or gave away during the previous two years.
The Automatic Stay
Filing for Chapter 7 bankruptcy puts into effect something called the “automatic stay.” The automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed.
The automatic stay immediately stops most creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally garnish your wages, freeze your bank account, go after your car, house, or other property, or cut off your utility service.
The Bankruptcy Trustee for Chapter 7 Bankruptcy
When a debtor files a Chapter 7 bankruptcy, the court appoints a bankruptcy trustee to oversee and administer the case. The Chapter 7 bankruptcy trustee has many responsibilities that come with this appointment, including ensuring that your paperwork is accurate and selling property that you’re not entitled to keep for the benefit of your creditors.
The trustee will examine your papers to make sure they are complete and to look for non-exempt property to sell for the benefit of creditors. It is important to note that in most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell. Moreover, we will know prior to your case being filed whether or not your assets will be protected. We do NOT role the dice with your assets.
The Bankruptcy 341(a) Meeting
A week or two after you file, you will receive a notice that a bankruptcy 341(a) meeting has been scheduled. The meeting generally takes place around six weeks from the date of your Chapter 7 bankruptcy case filing. The bankruptcy trustee holds the meeting. After swearing you in, he will ask you questions about your bankruptcy and the papers were filed. In the vast majority of Chapter 7 bankruptcies, this is the debtor’s only visit to the courthouse. The meeting generally takes less than a few minutes.
What Happens to Your Property
If, after the creditors meeting, the trustee determines that you have some non-exempt property (which is rare), you may be required to either surrender that property or provide the trustee with its equivalent value in cash. If the property isn’t worth very much or would be cumbersome for the trustee to sell, the trustee may “abandon” the property — which means that you get to keep it, even though it is non-exempt.
Most property will be exempt. Therefore, very few debtors end up having to surrender any property. Most cases are “No Asset” cases and the debtor keeps ALL of their property.
How Your Secured Debts Are Treated
If you’ve pledged property as collateral for a loan, the loan is called a secured debt. The most common examples of collateral are houses and automobiles. If you’re behind on your payments, the creditor can ask to have the automatic stay lifted in order to repossess or foreclose on the property. However, if you are current on your payments, you can keep the property and keep making payments as before.
If a creditor has recorded a lien against your property because of a debt you haven’t paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. You may be able to wipe out the lien in Chapter 7 bankruptcy.
The Chapter 7 Bankruptcy Discharge
In a Chapter 7, for example, the court typically grants a discharge promptly upon expiration of the time fixed for filing a complaint objecting to discharge and the time fixed for filing a motion to dismiss the case for substantial abuse, which is sixty days following the first date set for the 341 meeting. Discharge is generally granted within four to five months from the date the case is filed.
At the end of the bankruptcy process, all of your debts are wiped out (discharged) by the court, except:
- debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
- debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).