Chapter 7 bankruptcy provides for liquidation of the debtor’s assets so that a certain portion of his/her debt can be paid off. Chapter 7 petition is not a simple process. If you are thinking about filing one, you should thoroughly understand the various aspects of Chapter 7.
First of all, you should understand that Chapter 7 bankruptcy will go on your credit record and stay there for 10 years. This will definitely ruin your credit; therefore, you should think carefully before you file the petition.
An individual, a partnership, a corporation or a business entity can file for Chapter 7 bankruptcy. However, Chapter 13 is more suitable for business, corporation and partnership.
Means Test
The recent changes in the bankruptcy law have made it mandatory for you to seek credit counseling service 6 months prior to filing for Chapter 7. When you file the petition, your case would be subjected to the means test. This simply means that your current monthly income should not be more than your state median. If your current monthly income is more than the state median, then the court would look into whether you are abusing the law or not.
Documents You Would Need To Submit
You would be filing this petition with the bankruptcy court in your area. Along with the petition, you would have to file the following:
• Schedules of your assets and liabilities
• A schedule of your current income and expenditures
• A schedule of “exempt” property
• A statement of your financial affairs
• A schedule of your executable contracts and unexpired leases
• A copy of the most recent tax returns and any tax returns filed during the case
• A certificate of your credit counseling
• A copy of your debt repayment plan that was developed through credit counseling
• Proof of any interest that you might have in federal or state qualified education or tuition accounts.
Exempt Property
There is a case filing, miscellaneous administrative and a trustee surcharge fee that you would have to pay at the time of the filing. Above, I mentioned that you would need to file a list of your “exempt” property. According to the bankruptcy law, “exempt” property refers to the assets that cannot be liquidated to pay off the creditors. Every state has its own exemption list. So you must check with your attorney to find out which of your assets are included in the exemption list.
Trustee
After you have filed for Chapter 7, a trustee would be appointed to look into your case. Your creditors will automatically stop making the collection efforts. 20 to 40 days after you have filed the petition, the trustee would hold a meeting with your creditors. You must attend the meeting and answer all the queries. If you have filed the petition along with your spouse, then he/she also needs to be present at the meeting.
Within ten days of this meeting, the trustee will report to the court whether your case should be considered as an abuse under the means test or not. Once your case is approved for Chapter 7 bankruptcy, the trustee would liquidate all the non-exempt assets (if you have any) and pay off your creditors. The role of the trustee is to liquidate the debtor’s non-exempt assets in such a way that debtor’s unsecured debt is paid off as much as possible.
Discharge
Finally, the court will give a Chapter 7 discharge to the debtor. Usually this discharge will release the debtor from personal liability for most of the debt. In most cases, the bankruptcy court will issue the discharge 60 to 90 days after the first meeting of the creditors with the trustee.
However, you should keep in mind that alimony, child support, certain taxes, and some other debts would not be included in the discharge. Please consult your attorney about these debts so that you stand in the clear on these issues.