What Are the Procedures in a Chapter 7 Bankruptcy?
In a Chapter 7 bankruptcy, the debtor must list all liabilities, irrespective of the amount and age of the debt. Moreover, the debtor’s petition should list any current and potential claims that anyone may bring against the debtor. The following types of debt should be listed on the petition along with a brief explanation of the liability, if the debtor:
• Is a co-debtor on a note
• Is secondarily liable on a mortgage which a purchaser has assumed
• Personally guaranteed corporate and/or other debt
• Disputed debts and liabilities
• Previously had mortgages insured by a government agency (must be listed as a contingent creditor)
The Chapter 7 bankruptcy commences on the filing of the debtor’s petition, which creates a bankruptcy estate. The bankruptcy estate represents the entirety of the debtor’s non-exempt property which is subject to administration by the bankruptcy trustee.
The Court appoints a bankruptcy trustee immediately after the Chapter 7 bankruptcy petition is filed. Generally, a Chapter 7 trustee is either a private attorney or CPA. The bankruptcy trustee’s role is to collect all the debtor’s non-exempt assets, sell those assets (either to the debtor or a third party), and to disperse the proceeds to unsecured creditors according to the debtor’s schedule.
Assets such as a debtor’s retirement account (IRA) and homestead property are exempt assets and not part of the bankruptcy estate.
Upon the filing of a Chapter 7 bankruptcy, an automatic stay is imposed. The automatic stay immediately stops all active legal collection efforts and prohibits the pursuit of any collection efforts by creditors. While the automatic stay is imposed immediately the creditors may not become aware of the bankruptcy filing for a few days. Any active creditor litigation can be suspended by the debtor’s attorney filing a Suggestion of Bankruptcy.
If a debtor who files a Chapter 7 bankruptcy is delinquent on his or her mortgage, the mortgage creditors usually file a Motion for Relief from Automatic Stay to pursue foreclosure. If the debtor fails to pay the secured loan, the mortgage creditor will foreclose its lien taking the debtor’s property.
What Is the Timeline in A Chapter 7 Bankruptcy Case?
After a Chapter 7 bankruptcy case is filed, the procedure can be broken into 3 stages:
Stage 1: Petition Filing Date and 341 Meeting of Creditors
The 341 meeting of creditors generally takes place around 30 days after the date of filing the petition. Prior to the 341 meeting of creditors, the filer will be required to provide certain documentation to the assigned trustee. Some of the required documents include:
• Tax Returns
• Profit and Loss Statements
• Bank Statements
• Automobile Registrations and Titles
• Mortgage Statements
• Creditor Statements
If the filer kept copies of the documents used in the petition, the filer will already have most of the documents required for the 341 meeting.
While waiting for their 341 meeting of creditors filers can complete the financial management course. The financial management course is a requirement under bankruptcy law. This course must be completed by every filer and takes approximately 2 hours to finish.
Stage 2: 341 Meeting of Creditors and Date of Discharge
As previously mentioned, the 341 meeting establishes several procedural deadlines for the bankruptcy case. The deadlines are as follows:
• 30 days after the 341 meeting: The period where the bankruptcy trustee and/or creditors can file an objection to an exemption claimed by the filer. The time begins running for this deadline after the conclusion the 341 meeting of creditors.
• 45 days after the 341 meeting: The time where filers can negotiate their secured debts (dealing with an automobile finance company if the filer would like to keep their car).
• 60 days after the 341 meeting: The period where creditors can file an objection to the discharge of their debt. Although objections of creditors are rare in most Chapter 7 bankruptcy cases, they can occur.
When objections to discharge are filed, the time to complete bankruptcy increases. Moreover, once the period to object to the discharge has expired, a discharge order will be issued by the bankruptcy court.
How The Date of Discharge Can Be Delayed
The discharge date can be delayed by the bankruptcy court, causing the time to complete your bankruptcy to increase. This can occur in cases where the filer fails to complete the financial management course after filing their petition. In cases where there is a significant delay, the bankruptcy court may even close the filer’s case.
Additional Factors Which Can Delay an Order of Discharge:
• Creditor’s objection to the discharge: This can occur when a creditor files a written objection with the bankruptcy court. Creditor objections can occur in cases where the filer used credit cards and/or added new debt prior to filing bankruptcy. In addition, the bankruptcy trustee may also object to the entry of the discharge and/or delay the discharge. This happens in cases where a filer fails to provide the trustee with the requested information.
• The scheduling of a reaffirmation hearing: Reaffirmation agreements which were not signed by the filer’s bankruptcy attorney must be reviewed and approved by the bankruptcy court. The review and approval of a reaffirmation agreement by the bankruptcy court requires a hearing. Scheduling conflicts can result in the hearing being scheduled after the 60-day objection deadline has expired. As a result, a discharge cannot be granted until after the completion of the reaffirmation hearing has been completed.
Stage 3: Entry of Discharge; Closing of Bankruptcy Case
In some cases, even after an order of discharge may be issued by the court, a debtor’s case may remain open. The bankruptcy case may remain open so the trustee can administer the bankruptcy estate. The bankruptcy estate is created when a debtor files bankruptcy and includes all the debtor’s assets and liabilities. The value of all the debtor’s assets is determined on the date the bankruptcy case is filed.
Chapter 7 Bankruptcy Discharge
The Chapter 7 bankruptcy discharge refers to the legal process which cancels a debtor’s legal liability to pay creditors whose debts were dischargeable. Creditors whose debts were discharged in bankruptcy can never resume the collection of debts incurred by the debtor before filing bankruptcy. A debtor may sue a creditor for damages and sanctions if the creditor attempts to collect a debt after the debtor’s bankruptcy discharge has been entered.
Chapter 7 Bankruptcy Process Summary
The Chapter 7 bankruptcy process includes the following steps:
• Debtor prepares the bankruptcy petition, which includes all the debtor’s information regarding assets, debts, and income.
• Automatic Stay (aka Suggestion of Bankruptcy) is imposed after the debtor’s petition is filed. The automatic stay halts all collection efforts against the debtor during the pendency of the bankruptcy process.
• Relief from Stay is a remedy used by mortgage and other unsecured creditors who request that the Court lift the Automatic Stay. If the Court grants the request, creditors can foreclose on the secured property.
• A trustee is assigned to the debtor’s Chapter 7 bankruptcy. In most cases, once appointed, the trustee will meet with the debtor and the debtor’s attorney and ask questions in regarding the debtor’s petition.
• Objection to Exemptions may occur after the trustee reviews the petition. The bankruptcy trustee may assert objections for any exemptions the debtor has claimed in the bankruptcy petition.
• Adversary Claims may be filed by the trustee or a creditor. These claims are filed when there is a dispute whether a debt should be discharged or if the debtor is suspected of abusing the bankruptcy process.
• Chapter 7 bankruptcy discharge represents that the debtor no longer owes certain debt. All the dischargeable debts are discharged by the bankruptcy court.