Filing Chapter 7 Bankruptcy
Basics About How Chapter 7 Works
Chapter 7 bankruptcy is basic straight bankruptcy. Individuals filing chapter 7 seek a bankruptcy discharge that ends personal liability on many of their debts, giving them a fresh start financially. Creditors are paid from sale of debtor's assets; however, debtors are permitted certain allowances called property exemptions that protect assets from sale by the bankruptcy trustee. In some cases, the debtor will be able to exempt all of his or her property.
Chapter 7 Pre-filing Period
Much of the focus in chapter 7 is on assets, including exemption of assets and past transfers of assets. Prior to filing, a debtor is advised by his or her attorney on how a bankruptcy case is likely to affect his or her assets. The debtor's income and expenses are evaluated to determine eligibility to proceed in chapter 7. In some cases, this statutory means testing will indicate a formulaic ability to repay, making chapter 13 a better option for the debtor. The debtor will also pay the debtor's attorney fee, oftentimes in installments, prior to filing the bankruptcy case. The debtor will also need to complete mandatory credit-counseling, usually online.
Filing of Chapter 7 Case
Once the chapter 7 case is filed, an automatic stay comes into effect preventing creditors from taking further collections actions. A meeting of creditors will be held, where the trustee will ask the debtor questions about his or her assets and other financial affairs. If the debtor has secured debts, such as automobiles, he or she might elect at this point to reaffirm the debt. Debts that have been reaffirmed are excluded from the bankruptcy discharge--as if the case had never been filed, but debtor gains an enforceable right to keep paying for the car. The bankruptcy administrator will also make a determination whether to contest the debtor's eligibility to file chapter 7.
Discharge and Close of Case
If no issues have come up in the case, the debtor will be granted a bankruptcy discharge several weeks after the meeting of creditors. If the trustee is administering assets, the case may still proceed for some time longer while the trustee liquidates them and distributes the proceeds to creditors.