Chapter 7 Bankruptcy Overview

Chapter 7 bankruptcy is a liquidating bankruptcy used by individuals, partnerships and corporations. Chapter 7 is designed to give the honest debtor a fresh start by discharging most unsecured debts (partnerships and corporations are not entitled to a discharge). Individuals filing under Chapter 7 are subject to a Means Test, a pre-filing Credit Counseling requirement and a post-filing Financial Management Course requirement (sometimes referred to as a Debtor Education Course).

The goal of a Chapter 7 case for individuals is a discharge of debts. When the discharge is entered, the individual debtor is no longer legally responsible to repay any discharged debts. Chapter 7 can discharge most unsecured debts, but not all.

The process of filing and completing a Chapter 7 bankruptcy case is relatively easy, but the devil is in the details! You would begin by having a consultation with an experienced bankruptcy law firm where you disclose as much of your financial information as possible. Most experienced bankruptcy law firms will either request that you bring specific documents to your consultation or will have forms for you to complete when you arrive – many experienced bankruptcy law firms will offer a free consultation! The amount of information requested by the law firm may seem daunting to you, but it is designed to allow the law firm to provide you with the best legal advice possible.

Once you have decided whether to proceed with a bankruptcy case or not, you will have to decide which law firm is best for you. This is a very important decision on your part and you should not decide solely on the cost of the services offered, but rather you should consider the cost and the experience of the legal staff, especially the attorney you will be working with.

Once you retain your law firm, you will be provided with a lengthy questionnaire for you to complete. This questionnaire usually is very large, but do not despair, many of the questions will likely be not applicable in your situation. Unfortunately, your law firm will not know what questions are applicable and what questions are not applicable, so everyone gets the same questionnaire. You will also be asked to provide proof of income (probably for at least the last six months), bank account statements, tax returns, copies of insurance policies, titles to automobiles and homes, copies of contracts, and more. Remember, the devil is in the details, and your law firm will need all of this information to obtain the best results for you in your bankruptcy case.

After you gather all of the requested information and provide it to your law firm, the law firm will then be able to enter the information into its bankruptcy software program and then provide you with more information about your case. You will want to know the answers to questions such as will I lose my income tax refund, can I keep all of my property, what is an exemption, and others. With your information and the information researched by your law firm, your law firm will be able to give you better answers once all of your information has been input into its computer system.

While most individuals that file under Chapter 7 do not lose any assets, some do. Vannova Legal can tell you whether the possibility of losing assets is high or low and, therefore, help you decide whether to actually go forward with your bankruptcy case.

Once you have been advised by your law firm, and you elect to move forward, you will have an appointment to review your bankruptcy documents with your attorney. (Quite often you will begin the process by reviewing your documents with a paralegal before meeting with the attorney). There are a number of documents to review and sign, and this appointment is likely to take from one to two hours. After you have reviewed and signed your documents, your law firm will file your case!

Your case has been filed… what’s next? You will be issued a case number, the automatic stay now applies, a trustee is appointed to administer your case, and a Meeting of Creditors is scheduled.

Case Number: This is how the Court will recognize and refer to your case. The case number tells in what division of the Court you filed, the year your case was filed, that the case is a bankruptcy case, and who the judge assigned to your case is. You will use this number if creditors call you after your case is filed. You would tell the creditor something like: I’ve filed a Chapter 7 case on and my case number is and my attorney is , please contact my attorney.

Automatic Stay: The automatic stay is like an injunction and immediately stops most creditors from taking further collection actions. The automatic stay can stop evictions, foreclosures, repossessions, wage garnishments, utility disconnections and more, but be sure to discuss these issues with your law firm. The automatic stay does not generally stop criminal proceedings, some tax proceedings, some family court matters. The automatic stay generally lasts until your case is closed. It is possible, however, that the automatic stay is limited in duration or does not apply at all in certain instances where the debtor has filed one or more bankruptcy cases within the past year.

Trustee: In all bankruptcy cases filed, the United States Department of Justice, through the Office of the United States Trustee, is charged with overseeing and administering the bankruptcy estate. Your bankruptcy estate consists of all of your assets. The United States Trustee will generally appoint a Chapter 7 Bankruptcy Trustee to administer your estate. The Trustee’s job is to gather as many non-exempt assets as possible and use those assets to make a financial distribution to your creditors. (Your attorney will have worked with you to determine which of your assets are exempt and which, if any, are non-exempt). The Trustee will conduct the Meeting of Creditors and investigate your bankruptcy documents and quite likely request documentation from you to review. Your cooperation with the Trustee is generally vital to the success of your bankruptcy case. It is common, with the advice of counsel, for a debtor to lose no assets while filing bankruptcy.

Meeting of Creditors: The Meeting of Creditors is generally held from 30 – 40 days after your bankruptcy case is filed. A debtor is required to attend the Meeting of Creditors, provide certain forms of identification to the Trustee at the Meeting of Creditors, and answer question, under oath, posed by the Trustee and, in certain circumstances by your creditors. More often than not, only the Trustee will ask questions at the Meeting of Creditors as creditors rarely appear. The Trustee may elect to continue the Meeting of Creditors, but generally, the Meeting of Creditors is concluded after all questioning is completed.

You filed your bankruptcy case, you’ve been to your Meeting of Creditors, what happens next?

Your creditors generally have up to 60 days after conclusion of your Meeting of Creditors to take any action to prevent their debt from being discharged. Each creditor is responsible for its own claim and cannot make a claim for another creditor; while for some creditors, their debts are automatically non-dischargeable.

You are eligible for entry of a Discharge 60 days after your Meeting of Creditors is concluded. The Discharge is the goal of filing bankruptcy and means that you have no more personal liability on discharged debts. While the Discharge is the goal, you must continue to cooperate with the Trustee until your case is closed, as the Trustee can move to revoke your discharge if you do not. Your case will remain open until after the Trustee has completed the administration of your estate.

The foregoing has been a general overview of the Chapter 7 process and is not meant to provide legal advice to your specific situation. For answers to your specific legal issues, you should consult with your attorney.

Bankruptcy is divided into Chapters (7, 9, 11, 12, 13 and 15). Individuals generally use Chapters 7, 12, 13 and 11. Corporations generally use Chapters 7 and 11. Family farmers and family fisherman generally use Chapters 7, 12 and 13. Chapter 9 is available to municipalities and Chapter 15 is available to parties operating in more than one country; this article will not discuss Chapters 9 and 15.

Chapter 7 – Chapter 7 bankruptcy is also referred to as a liquidating bankruptcy case and is available to most individuals, partnerships and corporations. Individuals filing under Chapter 7 are subject to a Means Test and a pre-filing Credit Counseling requirement. Chapter 7 is designed to give the honest debtor a fresh start by discharging most unsecured debts (partnerships and corporations are not entitled to a discharge).

Chapter 11 – Chapter 11 is often referred to as Reorganization, and is available to individuals, partnerships and corporations. Partnerships and corporations seeking to reorganize are required to file under Chapter 11 and must be represented by an attorney. Individuals filing under Chapter 11 are subject to a Means Test and will generally seek to file under Chapter 13 (or 12) when this is available.

Chapter 12 – Chapter 12 is used by Family Farmers and Family Fisherman with regular income to reorganize their debts through a repayment plan. The debtor must be engaged in farming operations or a commercial fishing operation. There are limits to the amount of debts that can be reorganized and a percentage of debts related to the farming or fishing operations. There are also limits on other sources of income.

Chapter 13 – Chapter 13 is also called a wage earner plan and is available to individuals with regular income (including sole proprietorships). A Chapter 13 Plan will repay all or part of debts over a three to five year Plan. Debtors are subject to a Means Test to determine the minimum term of the Plan as well as the minimum repayment to non-priority unsecured debts. There are limits to the amount of debts an individual can have to file a Chapter 13. A Chapter 13 is often used by individuals behind on secured debt payments such as home mortgage or automobile payments, and priority debt payments such as taxes, child support or spousal maintenance.

When times become financially tough for any person it is best not to bury your head in the sand and hope that your problems will just go away. In fact, financial problems tend to grow out of hand very quickly until they are taken care of. Managing your financial problems early in the process can help alleviate many current issues as well as help prevent many significant issues in the future.

Bankruptcy can be a very scary thought for many people; however, the majority of situations involve a fairly simple process with the help and guidance of an attorney. People often think that contemplating bankruptcy is accepting failure and if they just try to keep afloat, everything will be fine. While it is possible for you to avoid the discussion of filing bankruptcy and climb out of your financial drowning/hole, it is highly unlikely that this will be the end result.

One of the most important pieces of information to derive from this blog post is that most bankruptcy/ debtor protection attorneys offer a free consultation at your convenience. What this means is that once your financial problems begin to hit, it is best to immediately schedule an appointment with a bankruptcy attorney to discuss all potential options that best fit your circumstances. Taking advantage of a no-cost, no-obligation consultation can be crucial to your financial future and it takes very little effort on your part. Understanding the whole process and all of your options early will not only prevent future damage, but can also give you piece of mind knowing what you can do to be financially successful.

Because we offer many other options to bankruptcy, you will not feel like we are forcing you into an unnecessary bankruptcy. In fact, we believe that bankruptcy is most likely a person’s last option and we will review every other option with you before suggesting bankruptcy. Alternatives to bankruptcy include, but are not limited to, short sale, loan modification, debt settlement, or no action at all. You may be surprised that many of our consultations end with our staff advising no action be taken at the current time and setting a plan to keep your current financial problems from rising to a severe level.

Many people don’t realize that decisions they make before their bankruptcy is filed (even years prior to the bankruptcy filing) can be detrimental to their bankruptcy process. If you are planning to make a significant financial decision, speak to an attorney first to avoid potential ramifications in a future bankruptcy.

Speaking to a bankruptcy attorney is important because there are many myths and misunderstandings regarding bankruptcy and debtor protection laws that exist amongst the general population. Because we offer free consultations, there is no reason to trust advice from someone who is not an attorney or what you may have heard from others’ experiences. Everyone’s circumstances are different, so speak with a bankruptcy attorney today and get on the right path to financial freedom and success.