Chapter 7 Bankruptcy

Filing for Chapter 7 Bankruptcy

Many people contemplating filing bankruptcy need to know whether Chapter 7 bankruptcy is the best option for them. So in order to make that call, they need to be clear on what Chapter 7 bankruptcy is and what filing for it involves. It is the single most common bankruptcy chapter filed in the United States. Chapter 7, commonly referred to as liquidation bankruptcy, refers to the chapter of the Bankruptcy Code which can be found in Title 11 of the United States Code. It involves the sale of a debtor’s non-exempt assets by a trustee. Any proceeds obtained by the bankruptcy trustee are then turned over to creditors.

Here are some common questions asked when you are contemplating filing for Chapter 7.

1. Who can file a Chapter 7 case?

Anyone who qualifies and resides in, does business in, or has property in the United States is able to file a Chapter 7 bankruptcy case. (That does not mean you will necessarily get approved, but you a can file for it.) You may also file if you have intentionally dismissed a prior bankruptcy case within the last 180 days.

2. Who is not eligible for a Chapter 7 discharge?

  • Someone who has been granted a discharge in a Chapter 7 within the last 8 years.
  • Someone who has been granted a discharge in a Chapter 13 case within the last 6 years, unless 70 percent or more of the debtor’s unsecured debts were paid in the Chapter 13.
  • A person who acts with the intent to defraud his or her creditors or the trustee in the Chapter 7 case.
  • A person who fails to explain any loss or deficiency of his or her assets.
  • A person who refuses to answer questions or obey orders from the bankruptcy court.
  • A person who, after filing the case, fails to complete an instructional course on personal financial management.

3. How do I prepare a petition?

Prior to filing a Chapter 7 bankruptcy, you should gather together all of your financial records in order to fill out the bankruptcy petition, schedules, statement of financial affairs and other documents. Financial records include but are not limited to, bank statements, credit card statements, loan documents, and pay stubs. These records are critical because they act as proof that the financial information you list on your petition is accurate. They also allow you to easily comply with any requests by the trustee to verify your information.

4. What documents will I need to complete before filing?

Documents you will need to fill out prior to filing for a Chapter 7 bankruptcy include a voluntary petition for relief, schedules of assets and liabilities, declarations regarding your education, and a statement of financial affairs. These documents give the bankruptcy courts full access to your financial history including a listing of all your property, debts, creditors, income, expenses, and property transfers. Once you have filled out these documents in their entirety, you must file them with the bankruptcy court and pay a filing fee.

5. What is a Means Test?

Before you can file a petition for Chapter 7 bankruptcy, you must also pass a means test. This test calculates whether you are able to afford, or have the “means” to pay your debts. The means test annualizes your income for the past six months and compares it with the median income for your place of residence. The means test also includes your secured debt in determining whether you can afford to pay for your debts. You must pass the means test in order to be eligible to file Chapter 7 bankruptcy, unless you fall under very specialized circumstances.

6. What happens during the Meeting of Creditors?

After you have filed for Chapter 7, the court will issue a document giving notice of your Meeting of Creditors. This notice is also sent to all of the creditors that are listed in your bankruptcy documents.  Any creditor may appear at this meeting and ask questions about your bankruptcy and finances. During the Meeting of Creditors, the bankruptcy trustee will ask you various questions. The main thing they want to know is that all of the information contained within the bankruptcy documents is true and correct. You may also be asked other questions about your financial affairs. If the trustee feels your case requires further investigation, he or she may continue your Meeting of Creditors to a future date. If he or she feels they have obtained all the information they need, the trustee may conclude on the first meeting.

7. What happens to my assets?

If you have any non-exempt property, the bankruptcy trustee has the ability to seize and sell the property. Exemptions would be federal or state statutes which allow you to keep certain types of property from seizure in bankruptcy or can satisfy a judgment. Common exemptions include retirement accounts, such as a 401(k) plan. Exemptions must be set forth in Schedule C, a bankruptcy document completed upon filing your petition for Chapter 7. Any assets that the trustee seizes are distributed to creditors.

8. How long will it take for my petition to discharge?

The last day to file a complaint objecting to your petition is 60 days after the first session of the Meeting of Creditors. If no complaint is filed, the discharge is usually entered several days later. If neither the trustee, nor any creditor objects to your discharge, the bankruptcy court will automatically give your petition a discharge at some point after the last day to object.

9. What does a discharge do?

The discharge prevents creditors from attempting to collect any debt against you, personally, that arose prior to you filing Chapter 7. Essentially, the discharge effectively wipes out your previous debts. However, there are certain debts that are not dischargeable, including, but not limited to, certain taxes and child or spousal support obligations. It is important to remember that your bankruptcy discharge is personal which means that a creditor can still collect on a discharged debt from any co-debtor you may have had that did not file for bankruptcy.

10. What debts are not dischargeable in Chapter 7?

  • Tax debts and debts that have been assessed within 3 years of filing.
  • Debts obtained by fraud for money, property, services, or credit.
  • Debts not listed on the debtor’s Chapter 7 forms.
  • Debts for domestic support, which include alimony, maintenance, or support, and certain other divorce-related debts, including property settlement debts.
  • Debts for intentional injury to the person or property of another.
  • Debts for some fines or penalties.
  • Debts for student loans, unless a court finds that not discharging the debt would impose an undue hardship on the debtor.
  • Debts for personal injury or death caused by the debtor’s operation of a motor vehicle while intoxicated.
  • Debts that were, or could have been, listed in a previous bankruptcy case of the debtor, in which the debtor did not receive a discharge.