What Happens in a Typical Chapter 7 Personal Bankruptcy Case?

Most people are hesitant to file for a Chapter 7 bankruptcy but decide that having protection from creditors and a fresh start is worth it eventually. The process can seem stressful and tedious at the beginning, and the preparation stages usually are, but the truth is, it’s almost always over once the petition has been filed.

There are several stages in a Chapter 7 bankruptcy. In very general terms, they are: the preparation of the documents to be filed in the case, the filing of the case with the bankruptcy court, the first meeting with the bankruptcy trustee and finally the discharge of the debts.

The first stage of preparation is usually the longest and most daunting for clients; it requires a lot of cooperation and documentation. A long worksheet is filled out after records are carefully reviewed by an attorney and paralegal. The last two years of taxes and six months of wages or other income are put into a computerized bankruptcy preparation program and a means test is done to calculate eligibility.

Once this has been finished, the petition will be created, listing all of the debtor’s assets and debts. Nothing should be left out of these calculations, except any qualified deductions from the spouse of the filing party. The petition will also contain a lot of personal information in its statement of affairs.

After the client has read the petition and signed it, they are held under penalty of perjury, fines and even jail time should the information be rendered false.

The petition is filed electronically and completely without paper but the client will receive a hard copy that they should keep forever.

Once the Chapter 7 bankruptcy case is filed, the Bankruptcy Court moves quickly and notifies creditors to stop their collection attempts through an “automatic stay”. This means that relief from harassment and calls should be effective immediately once your petition has been filed.

Also after filing, the Court will appoint a Bankruptcy Trustee and sets a First Meeting of Creditors usually a little over 30 days from the filing date. This meeting is held in an office building, not a Courthouse, and the Trustee will represent all of the unsecured creditors, who usually do not attend the meeting.

The Trustee will carefully check whether there are any non-exempt assets that can be taken or sold for the benefit of the creditors. Most times, they will not find anything, because your attorney will have already checked your assets thoroughly before filing and most consumer assets are exempt in a Chapter 7 bankruptcy anyway. This is why being honest to your attorney is so important; the Trustee has access to excellent databases and researches each debtor carefully before the meeting.

Also at the First Meeting, the mortgage holders and auto financiers (secured creditors) can be present to ask the debtor what they intend to do with their home and cars. Usually however, they will call the debtor’s attorney to ask these questions and skip the meeting. Debtors can choose to “reaffirm” these assets so they can keep their houses and cars as long as they can continue to make payments on them. If they cannot make these payments, they can “surrender” them. Additionally, debtors may be able to “redeem” a car or other asset that secures a debt if the asset is worth less than the amount owned on it and is “underwater.” Your attorney can help you find a financier for this type of loan.

Typically, the First Meeting will last around 5-15 minutes. In most simple no-asset cases, the bankruptcy case is as good as over once the petition has been filed, and the rest of the proceedings are usually pro forma. Finally, around 120 days after the consumer has filed for bankruptcy, the Court will grant a discharge of all dischargeable debts.

As a side note, some debts are not dischargeable under a Chapter 7 Bankruptcy. These include alimony, child support, some taxes, damages due to alcohol related automobile accidents and intentional fraud. Student loans are dischargeable in cases of severe hardship.