Usually, the process in filing a Chapter 7 Bankruptcy case is simple and straightforward.
The process of chapter 7 involves listing your debts, assets, income, expenses and recent financial transactions.
You will also have to complete your bankruptcy petition, schedules, and other forms. After filing the paperwork, your case will be assigned to a bankruptcy trustee who will review your filing.
The next step of the process involves attending a brief meeting of creditors conducted by the trustee.
If everything goes well, the whole process should take around three to four months from filing of the bankruptcy until closure of the case.
10 steps are involved in the Chapter 7 Bankruptcy process:
1. Credit Counseling
Since 2005, it has become mandatory for individuals filing for Chapter 7 Bankruptcy to receive credit counseling from an agency approved by the United States Trustee’s Office.
Your credit counseling must be completed within six months prior to filing for Bankruptcy. The court will dismiss your case if you fail to get credit counseling before the case or fail to file the certificate of completion with the court.
2. Filing Petition and Forms
Before starting your bankruptcy case, you are required to file a Series of forms with the Court. These forms include the bankruptcy petition and schedules comprising your financial information.
The filing also consists of a form in which you have to disclose all of your income and expenses. This is titled Chapter Statement of You Current Monthly Income and is also known as the Chapter 7 Means Test.
Properly completing this form is necessary to confirm your eligibility to pass the means test and qualify for a Chapter 7 Discharge.
In order to retain your property and assets in Bankruptcy, you must properly claim exemptions on your bankruptcy schedules and forms. The filing of the bankruptcy petition puts a stay on place and stops actions taken by your creditors.
3. The Role of the Trustee
The court will appoint a trustee after you file your bankruptcy case. You must submit your latest tax return to the allotted trustee.
The trustee's job is to review your paperwork in detail. After that, the trustee will analyze your schedules to see if there is any nonexempt property to liquidate and distribute among your creditors.
This is why it is important to claim your exemptions, otherwise the trustee can sell your assets and disburse the proceeds to creditors.
4. Creditors' Meeting
The meeting of creditors is also known as the 341 Meeting and is a crucial part of the bankruptcy process. The court will schedule this meeting and notify you of the date and time, as should your attorney.
Under oath, you will be asked to answer questions regarding your finances and bankruptcy schedules. The meeting is usually held for a short period of time and in many cases none of the creditors show up.
However, this meeting is also their opportunity to ask you questions under oath if they do appear.
5. Confirmation of Your Eligibility
After the trustee's office accumulates and reviews all your information, they will determine whether they believe you are eligible for Chapter 7, mainly reviewing whether you have properly prepared and passed the Means Test.
If the trustee's office or a creditor objects to your Chapter 7 filing, it is up to the court to determine whether you are eligible for Chapter 7 or not.
The Means Test involves a comparison of your income to expenses. Here, an attorney can help you determine what expenses are allowable and how to maximize your legally available expenses.
An attorney can also help identify any income that may be excluded from the means test, which will also help you qualify.
Part of the reason for the means test is to find whether you are in the position to afford a chapter 13 repayment plan or not, in other words whether you are capable of paying any money to your creditors.
If you are not eligible for Chapter 7 Bankruptcy, then you still have a chance to file under Chapter 13 Bankruptcy.
6. Handling of Non-Exempt Properties
In case you hold any nonexempt property then your trustee will consider the property's worth and decide whether to seize it or sell it and distribute the amount to the creditors.
There is always a room for negotiation for preserving some of your nonexempt properties. If you get your hands on some cash, then you can negotiate with the trustee to retain certain properties in exchange for the cash.
7. Dealing with Secured Debts
Secured debts are those debts which are backed by collateral. If you default on these debts, than the collateral can be repossessed or foreclosed by the creditor, even if your debt gets discharged in the bankruptcy.
Thus in order to keep collateral you will have to pay the underlying debt on a timely basis and meet all other contractual requirements. Otherwise you can choose not to pay and let the creditor take the collateral back.
You can also "redeem" property by paying your creditor the full value of the property in cash.
8. Taking a Financial Management Course
According to the 2005 amendments to the bankruptcy law, it is mandatory to attend a debtor’s education course after filing a Chapter 7 Bankruptcy.
After completing the course, you have to file the Form 423 Certification to the court regarding your completion of the Financial Management Course.
9. Receiving the Discharge
Upon receiving the discharge, your automatic stay will be lifted. You will receive your discharge letter in the mail within three to four months of the Bankruptcy Filing and your attorney should also forward you a copy by e-mail.
10. Case Closed
It will take a few days or a week for a complete closure of your Bankruptcy Case after receiving the discharge. Upon closure of the case, you are no longer liable to your creditors other than nondischargeable debts.
In conclusion, we have covered the most essential steps to file for Chapter 7 Bankruptcy.
Hopefully this article explained enough for you to understand the process. If you have any other questions please contact us for a free consultation.