Chapter 7 bankruptcy is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities established in the Code. This is commonly called “straight bankruptcy” or “Fresh Start” bankruptcy. Most people who file Chapter 7 have “no asset” cases and they keep all of their property or surrender it voluntarily if they can no longer afford to keep it.
Chapter 7 is generally the quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. Most cases are discharged within six months after filing the petition. Eligibility to file Chapter 7 is determined by the means test instituted with the 2005 amendments to the bankruptcy code. The means test determines if the individual or couple make too much money to file for a Chapter 7 . If there is too much income and they don’t qualify for a Chapter 7, then they must file a Chapter 13 and enter into a payment plan to pay back all or a portion of their debts.
Filing Chapter 7
The case is begun by filing the official petition, schedules, statement of financial affairs and a few other documents. These forms prompt you to list all of your assets and all of your debts, along with some recent financial history. This is the most important and most time consuming part of a bankruptcy filing
It is important that every creditor is listed in the schedules with an accurate mailing address. You must list all of your debts, even if the debt is non dischargeable (child support or student loans) or if you intend to keep and pay (reaffirm) the debt. All creditors must be listed– even family and friends. We cannot choose to leave out some creditors and include others.
The schedules also list your property, any debts secured by that property, and the sale value of the property. “Property” here means “assets” or “possessions”, not just real estate. Your choice of exemptions is made on one of the schedules.
For most purposes the rights of the debtor and the creditors are those that exist on the day the case is filed. All of the proceedings in bankruptcy after the filing relate to the situation as it was on the day the case was filed.
Once the case is filed, the court appoints a Trustee and gives notice to all creditors listed in your schedules that you have filed bankruptcy. You will get a copy of that notice at the same time it is sent to creditors.
The automatic stay goes into effect immediately upon filing the petition, creating a legal barrier to collection actions by creditors. Creditors can no longer attempt to collect a debt absent specific permission from the Court. The Automatic Stay gives you the much needed breathing room from creditor calls and provides immediate relief. Once the discharge order is entered, the automatic stay becomes a permanent injunction barring collection attempts of discharged debts. At the time the discharge order is entered, your “personal obligation” to repay those discharged debts is extinguished.
Approximately one month after the filing of the Chapter 7 petition and schedules, you must appear at the “first meeting of creditors” (also called the 341 meeting from the section of the Code that describes the meeting.) The trustee can asks you questions under oath about assets and liabilities. Creditors can also question the debtor on those subjects, but seldom do.
Approximately 90 days after the meeting with the Trustee, if all goes as planned and there are no complications, the discharge order is entered and you get your Fresh Start!