Filing Chapter 7 Bankruptcy: A Procedural Overview

Chapter 7 bankruptcy is a liquidation proceeding.  If you own any non-exempt assets, they're sold by the Chapter 7 trustee and the money is dispersed to your creditors according to the priorities set up in the Bankruptcy Code.  In virtually all consumer cases, all assets are exempt.  There are, therefore, no assets to liquidate and no money to pay out to creditors. Chapter 7 is usually the easiest and quickest form of bankruptcy.  It's available to individuals, married couples, corporations and partnerships.

Before you'll be able to file Chapter 7 bankruptcy you'll have to pass means test.  The means test is a calculation that compares your average income for the last six months, annualized, to the average income for families of the identical size in your state. If your income is less than or equal to the state average income, you "pass" the means test and may file Chapter 7 bankruptcy.

You Start by Filing a Chapter 7 Bankruptcy Petition

Your Chapter 7 bankruptcy is begun by filing the official petition, schedules and statement of financial affairs. These forms require you to name all of your assets and all of your debts, along with some recent financial history.  This is the most important and most time intensive part of a bankruptcy filing.

It's crucial that you list all of your creditors with correct mailing addresses.  You must list all of your debts.  You must even list those debts that are't dischargeable and those you plan to reaffirm.

You must likewise name all of your property, along with any debts guaranteed by that property, and the sale value of the property.  "Property" as defined by the Bankruptcy Code means "assets" or "possessions."  It's not confined to just realty.

You must sign the schedules under penalty of perjury.  You then file the schedules with the bankruptcy clerk in the district in which you live. 

After you file your Chapter 7 bankruptcy petition, all the succeeding bankruptcy legal proceedings relate to your state of affairs as it existed on the date of filing.

The automatic stay moves into effect upon filing the petition.  The automatic stay creates a legal barricade to collection activities by creditors.  They can no longer contact you in an attempt to collect a debt.

The court then names a trustee and sends notice to all your creditors telling them that you've filed bankruptcy.  You'll get a copy of that notice at the same time as your creditors.

Initial Meeting of Creditors

You must appear at a meeting of creditors.  This is ordinarily called the section 341 meeting.  It gets its name from the section of the Bankruptcy Code that describes the meeting.  At the meeting of creditors, the trustee will interview you about your assets and liabilities.  Your answers are given under oath and carry the penalty of perjury.  Creditors can similarly question you about those issues, but they seldom do so.

After The Initial Meeting of Creditors

If you have several non-exempt assets, the trustee will take charge of them. The trustee will sell the non-exempt assets and apply the income to the expenses of administrating your case.  He'll also parcel out any left over money to creditors with allowed claims.  Each claim is appointed a priority according to the Bankrtupcy Code.  Those claims are paid off in order of the priority of the claims.  

The trustee may review your income and expense schedule to find out whether you have sufficient money remaining after your actual living expenses to give something to creditors.  Any money you make after the case is begun is yours.  It's out of the reach of creditors who have dischargeable debts on the date of filing.

Normally, the lone responsibility you have after the 341 meeting is to cooperate with the trustee by providing whatever information he requests.

Obtaining A Discharge

The trustee and your creditors have a 60 day period following the 341 meeting during which they may dispute your right to a discharge generally or the dischargeability of a specified debt.  Unless a request to deny your discharge is filed, the order allowing the discharge of debts is issued by the court soon after the 60 day time period passes.  If one creditor files a challenge to your discharge it doesn't preclude or hold the entering of a discharge of the rest of your debts.

As a condition to your discharge, you must complete a financial training course from an approved provider. The class usually lasts for several hours.  Most authorized providers make online classes available. Your failure to attend the course and file a certificate of completion of the course of study may result in your case being closed without entry of a discharge order. The court can charge you a new filing fee to reopen the case, file the certificate and enter the discharge.

You can usually expect your discharge within 4-6 months of filing your case. The discharge touches dischargeable debts that existed at the outset of your case.

Certain debts do survive a Chapter 7 bankruptcy discharge.  They're omitted from the discharge by law.  Those specific debts are taxes, child support, student loans, and liens.  If you reaffirm some debts they also survive the bankruptcy discharge.

Harvey L. Cox is a licensed attorney who runs a bankruptcy information site.  Please visit The Bankruptcy Info Center to get more quality bankruptcy information and tips.