CHAPTER 7 is the simplest and most common form of bankruptcy available: the debtor exchanges their non-exempt assets, if any, for the release of their dischargeable debts.  In nearly all consumer cases, however, the debtor’s property is exempt and is excluded from the bankruptcy estate.

BEFORE YOU FILE.  Eligibility for Chapter 7 is determined by your income for the past 6 months, as adjusted by the statutory formula, known as the means test.  If your income is greater than allowed in Chapter 7, you can file Chapter 13.  Prior to filing your case, you must complete one session of credit counseling from an approved agency.

PROTECTION FROM CREDITORS.  The commencement of the case triggers an injunction (called a “stay”), which prohibits all creditors from beginning or continuing any effort to collect from you.  Any action taken by a creditor after the stay comes into effect is legally void and may subject the creditor to monetary sanctions in your favor.  If creditors call or write to you after your case is filed, provide the creditor with your bankruptcy case number, the date your case was filed, and the name of the court in which it is pending. This information is sufficient to bar the creditor from further contact. If the creditors continue to call, keep a list of names and the details of the call.

BANKRUPTCY PAPERS.  Your bankruptcy petition, schedules, and statement of financial affairs are filed under penalty of perjury. These documents must include a list of all assets and all liabilities, regardless of their form.  For the purposes of the bankruptcy schedules, your property includes not only real estate, time shares, business interests and tangible personal property, like cars and jewelry, but also intangible items, such as the right to the payment of money (like a tax refund or support), the right to sue someone, (even if the suit has not been filed), stock options, and rights in trusts.

Failure to disclose all of your assets can result in the court denying your discharge, making all of your debts forever nondischargeable, or can result in criminal prosecution.  If you have any questions about what must be listed, please ask your bankruptcy attorney.  If you learn after your case is filed that you have a right to sue someone, tell your attorney immediately; failure to do so may completely bar recovery on your claim.

We must provide the Trustee with copies of your pay stubs, if any, for the 60 days prior to the filing of your case.  We must also provide the Trustee with a copy of your most recently filed tax return.

APPEARING IN COURT.  The only court appearance a debtor must make is at the first meeting of creditors, also known as a § 341 hearing.  The hearing, under oath, has traditionally been conducted by the Trustee in a meeting room.  Because of the Coronavirus pandemic Trustees have been conducting video or telephonic 341 meetings.  It is possible that they will continue to allow debtors to appear by video and telephone even after concerns about the virus subside but it is not guaranteed.

The Trustee generally asks the debtors about the accuracy of the filed schedules. Creditors, on the other hand, are not required to attend and seldom do.

The court sets the date for the §341 meeting and notifies you of the time and date generally 30-45 days after you file bankruptcy.  Attendance at this meeting is mandatory and the date is non-negotiable.  We will attend this meeting with you.  If you fail to attend this hearing, the Trustee may take steps to dismiss your case.

Cooperation with the trustee is important.  He or she may ask more information at any time or request the turnover of financial books and records.  These requests are within the Trustee’s rights under the Bankruptcy Code and non-compliance may result in an objection to your discharge.

CREDITORS.  It is important to list on your bankruptcy schedules all creditors with accurate addresses.  If you forget a creditor, you can amend your petition to include omitted creditors.  However, you will be charged additional attorneys fees for the preparation of this amendment. The court charges a fee ranging from $30 - $50 for each amendment.  The claims of creditors who are not noticed of your case may not be discharged.

PREPARING TO FILE.   Once you have made the decision to file bankruptcy, do not use credit cards, take out new loans or cash advances, or change your spending habits without reviewing the consequences with an attorney.  Do not make payments on dischargeable debts unless it is on the suggestion of an attorney.  Identify any services routinely billed to your credit cards and terminate automatic deductions from your bank account.  If you intend to keep assets such as your home and vehicle following bankruptcy, it is important to stay current on your asset and insurance payments.

DEBTS SECURED BY YOUR ASSETS.  Liens placed on your assets remain valid, even following bankruptcy. Liens that you voluntarily grant creditors take precedence over exemptions.  However, the Bankruptcy Code allows debtors to avoid liens where a finance company takes a security interest in your household goods.  It is sometimes possible to also invalidate involuntary liens, such as judgments, which impair exemptions to which you would otherwise be entitled.

BANK ACCOUNTS.    If you owe money to a bank or credit union, the bank has the right to take funds from your account to pay these fees.  The bank may choose to exercise this right when they get notice of your bankruptcy. Some banks routinely freeze accounts regardless of funds owed.  Our recommendation is that you reduce your balance in any bank accounts to little or nothing prior to filing for bankruptcy.  The right to an offset for prepetition debts is ended by the bankruptcy.

REAFFIRMATION.  A reaffirmation agreement is a legally enforceable agreement that results in a waiver of the discharge of a particular debt.  All reaffirmation agreements are voluntary.  Following the receipt of a discharge, reaffirmation agreements must be approved by the court to be enforceable.  An alternative method of paying for post-bankruptcy debts is to voluntarily make payments to the creditor without entering into a binding agreement. Under this approach, if there is a change in a debtor’s ability to make payments, there are no legal consequences.  The legal fees in connection with reaffirmations are in addition to the flat fee Chapter 7 fee.

DISCHARGE.  A discharge is the legal forgiveness of a debt.  It eliminates your personal liability for a debt.  A bankruptcy discharge, however, does not eliminate liens that are attached to assets before a bankruptcy case is filed. There is an exception, however, if the court grants a motion avoiding a lien.  There are certain debts that are not dischargeable in Chapter 7.  These nondischargeable debts include recent or unfiled taxes; debts incurred by various forms of dishonesty; student loans, restitution awards; debts arising in a divorce; and legal penalties.  To obtain a discharge, a debtor must complete a financial education class within 45 days of filing their petition.

More questions?  This handout provides an overview of a complex area of law. 
Please contact us for any additional information.