A Chapter 7 bankruptcy case begins when you file a petition

with the bankruptcy court serving the area where you live.

You can search online for your bankruptcy court.

 

Your primary goal in this is to retain any property you have that is exempt from the process and to receive a discharge from the judge that covers as many debts as possible.

 

Filing a petition automatically stops most collection efforts by creditors you list in your filing, at least temporarily.

 

 

In addition to the petition, you must file a list of what you own and what you owe, a list of what you make and what you spend, a statement of your financial affairs and a list of executor contracts and unexpired leases. Information on a spouse’s finances will be required, even if the spouse is not involved in the bankruptcy petition.

 

A trustee will be assigned to oversee your case and that trustee will also need your most recent tax return.

 

Within 180 days of filing, you must have received credit counseling from an approved credit counseling agency. A list of government-approved credit counselors is available online.

 

There may be exceptions to the credit counseling requirement in emergency situations or in areas where a U.S. trustee or bankruptcy administrator has determined there is a shortage of credit counselors.

 

You also must file a copy of any debt repayment plan developed during the counseling, evidence of any payment received from employers within the past 60 days, a statement of monthly net income and any increase in income or expenses anticipated after filing and a record of any interest you have in federal or state qualified education or tuition accounts.

 

You will also have to file a list of property you hold that is considered exempt in a bankruptcy. What that property is varies by state, and it is recommended that you consult with an attorney to determine the exemptions available to you.

 

The forms needed to file this paperwork are not available from the court. They can be bought from a legal stationary story or obtained online.

 

To file your petition, you will pay a $245 filing fee, a $39 administrative fee and a $15 trustee surcharge. If you cannot afford the fees and surcharge, a judge may set up a payment schedule for you, or waive the charges.

 

Husbands and wives can file a bankruptcy petition together or file petitions individually. If they file together, they pay only one set of fees and surcharge.

 

If you file for Chapter 7 bankruptcy, you will have to pass a means test if your monthly income is more than the median for your state. This is meant to weed out people who are trying to take advantage of the system by having their debts dissolved, even though they are likely able to pay them.

 

If you do not pass the means test, your case will be converted to a Chapter 13 filing, which allows for debt to be restructured to make it more affordable, or it will be dismissed.  You can get a look at the means test online.

 

 

Once your Chapter 7 petition is accepted, a case trustee – or, in North Carolina and Alabama, a bankruptcy administrator -- is appointed to oversee your assets, convert as many of them to cash as possible and distribute the money to your creditors. In some cases, the trustee may also try to recover property or money you disposed of prior to filing the bankruptcy petition.

 

Some of your property will be exempt from the process and your secured creditors – someone who lent you money for which you put up collateral -- also have rights.

 

If you have no non-exempt assets, the case is referred to as a no-asset case. There will be nothing to sell and your unsecured creditors will receive nothing. But if assets are sold and a creditor files a proof of claim with the court, he is eligible for a payout.  Most Chapter 7 bankruptcy cases are no-asset cases.

 

Within 60 days, the trustee will hold a meeting of creditors. You will have to be there and you will be placed under oath so that the trustee and the creditors can question you about your financial affairs and property. 

 

The trustee has 10 days from the meeting to report to the court whether there is a presumption of abuse under the means test. Creditors will file claims against your assets within set time frames.

 

 

 

Normally, individuals receive discharges releasing them from personal liability for certain dischargeable debts just a few months after the meeting with creditors. Discharges are made in more than 99 percent of all Chapter 7 filings.

 

A discharge releases you from personal liability for specified kinds of debt. You are no longer legally required to pay a discharged debt. However, if a creditor has a charge on a specific property securing the debt and that charge has not been made unenforceable in the bankruptcy case, the creditor may recover the property. 

 

A discharge order is permanent and prevents the creditor from taking any form of collection action on the discharged debt, including telephone calls, letters and personal contact.

 

The judge usually grants a discharge of debt as soon as the time for filing an objection has passed and the time to file a dismissal on the basis the Chapter 7 filing abuses the process has passed. That dismissal window closes 60 days from the date of the meeting with your creditors, known as the 341 meeting because it is section 341 of the bankruptcy code that requires the debtor to attend.

 

Usually, this all comes together about four months after you file the bankruptcy petition with the clerk of the bankruptcy court.

 

The judge may deny a discharge in a Chapter 7 bankruptcy if you are required to take a course in financial management and fail to complete it. A list of approved debtor education agencies, sorted by state, is available online.

 

You also may be denied a Chapter 7 discharge of debt if you fail to file requested tax documents; transfer or conceal property with the intent to hinder, delay or defraud creditors; destroy or conceal books or records; commit perjury or other fraudulent acts; fail to account for the loss of assets; or violate a court order.

 

Discharge may also be denied if you have been granted a discharge under a Chapter 7 or Chapter 11 (a reorganization chapter ordinarily used by commercial enterprises) bankruptcy filed within eight years of the current bankruptcy filing, or if you received a discharge under a Chapter 12 or Chapter 13 case filed within six years of the current case. There are exceptions.

 

Any debts not discharged must be paid after the bankruptcy. The law requires that certain debts not be discharged, and the list varies under each chapter of the bankruptcy code.

 

There are 19 categories of debt that will not discharged, in a Chapter 7 bankruptcy. The most common are certain types of tax claims, debts not listed by you on the schedules and lists you must file with the court, spousal or child support or alimony, debts for willful and malicious injuries to person or property, fines and penalties owed to government, most government-funded or government-guaranteed educational loans or benefit overpayments, debts for personal injury caused by driving drunk, debts owed to certain tax-advantaged retirement plans and certain condominium or cooperative housing fees.

 

Creditors also have the right to ask that a debt not be discharged. To object to a discharge, the creditor has to file a complaint with the court before a set deadline. The filing of a complaint begins a lawsuit known as an adversary proceeding.

 

You can also ask to reaffirm a debt – that is, have it removed from the discharge list. You might want to do this to keep a car that is worth more than you owe from being sold to pay your other debts. A reaffirmation is an agreement between you and the creditor that says you will pay all or part of what you owe in exchange for being able to keep the property. A reaffirmation will require a court hearing under some circumstances.

 

A Chapter 7 discharge of debt may be revoked if you obtained the discharge fraudulently, failed to disclose the fact that you acquired or became entitled to acquire property that would constitute property of the bankruptcy estate, committed an act of impropriety or failed to explain any misstatements discovered in an audit of the case or provide documents or information requested as a result of that audit.

 

A trustee, creditor or U.S. trustee can request a revocation, but there are time limits on their doing so. A judge will decide whether to grant the request.

 

Assuming the discharge stands, you have the right to pay any discharged debt you choose. Sometimes people repay family members or someone with whom they want to maintain a good relationship, such as a family doctor.

 

If a creditor tries to collect a debt after it is discharged, you can file a motion with the court reporting them and asking that the case be reopened to address the matter. The bankruptcy court often does so to make sure the discharge is not violated. The normal sanction for violating a discharge injunction is civil contempt, which often carries a fine.

 

Sources:  The web sites, of the federal court system, uscourts.gov, and the federal Department of Justice, usdoj.gov.