Chapter 7 Bankruptcy
Once I receive a call from an interested debtor, I will engage in a brief conversation about their situation to get a sense of where they are. If they seem like a good candidate for bankruptcy then I will send a list of information and required documents to them to bring to our first meeting. As you can imagine, I am asking for a complete picture of their financial life for the last couple of years.
1. All 3 credit reports
2. 6 months of pay stubs
3. 2 most recent tax returns
4. Title/Deed to everything they own
5. Most recent auto loan and mortgage statements
6. Completed intake questionnaire
For more on this go to my intake page.
Credit Counseling Requirement
Debtors must complete a credit counseling class with an approved institution within 180 days of the case being filed.
A chapter 7 case starts with a voluntary petition being filed with the division of the Maryland bankruptcy court assigned to the county where the individual or couple lives or where the business debtor is organized or has its principal place of business or principal assets.
Under new rules, married debtors regardless of sexual orientation can now file joint cases unlike in the past where it was defined as man and woman.
Along with the petition, the debtor also files:
(1) schedules of assets and liabilities
(2) a schedule of current income and expenditures
(3) a statement of financial affairs
(4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b).
(5) Statement of current monthly income
(6) Means Test
The chapter 7 filing fee was raised to $335.00 as of June 1, 2014. The filing fee can be paid in four (4) installments as long as a request is made to the court at the time of filing. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. Fed. R. Bankr. P. 1006. Sometimes debtors are unable to pay the filing fee in time and with the court’s permission they can get more time after demonstrating a good reason for the request. Failure to pay will result in dismissal.
Upon filing your chapter 7 case, a trustee is automatically assigned. The trustee is a court appointed official who reviews your case to ensure compliance with the law and maximize recovery for your creditors.
As a debtor, you are required to provided a copy of most recent tax return or transcripts for the most recent tax year as well as any returns filed while the case is pending 11 U.S.C. § 521. Proof of income over the sixt (60) days prior to thefiling of your case. For those with jobs, pay stubs and commission pay outs are required. Self-employed individuals must prepare profit and loss statements.
The schedules filed in the chapter 7 provide the court and your creditors the following information:
A list of all creditors and the amount owed
List of exempt property
Debtor’s monthly living expenses, from rent, food to entertainment.
Once a petition is filed under chapter 7, the automatic stay goes into effect and collection actions against the debtor or the debtor’s property must cease. 11 U.S.C. § 362. No additional court orders are need for the automatic stay to take effect. This can be a bone of contention especially when a wage garnishment is in effect and inexperienced employers may insist on receiving a court order from the state courts before stopping the garnishment. Moreover, with the stay in place, creditors cannot initiate new collection activity.
MEETING OF CREDITORS
Approximately 30-45 days after the case is filed, a hearing known as a meeting of creditors is held. Debtor must attend the meeting and testify as to his or her case under oath. Both the trustee and creditors can ask the debtor questions. 11 U.S.C. § 343. At the meeting, the trustee will verify basic biographical information such as name, address and social security number. In addition, the trustee will ask questions to verify the accuracy of the petition in terms of assets, liabilities and expenses. The trustee can go as far as four years prior to the filing of your case in accordance with the disclosure required in the Statement of Financial Affairs.
If the trustee is satisfied in the debtor’s responses and find that there are no assets available to pay off creditors then he or she will conclude the meeting. Otherwise, a meeting will be held open or even debtors may be required to return for further examination and submission of requested documents. Most trustees in my experience will take detailed written explanations and documentation to resolve issues before calling for a second meeting of creditors.
In order to accord the debtor complete relief, the Bankruptcy Code allows the debtor to convert a chapter 7 case to a case under chapter 11, 12, or 13 (6) as long as the debtor is eligible to be a debtor under the new chapter. However, a condition of the debtor’s voluntary conversion is that the case has not previously been converted to chapter 7 from another chapter. 11 U.S.C. § 706(a). Thus, the debtor will not be permitted to convert the case repeatedly from one chapter to another.
Once the trustee is satisfied and there is nothing to pay back your creditors the trustee will issue a no asset report. In the report, he or she will list your assets and liabilities along with an explanation that there is nothing that can be taken to pay down your debt.
Financial Management Course
Debtors are required to take a second debt management course known as the financial management course before an order of discharge can be entered. This takes about an hour and a half to complete and can be done online, over the phone or in person. Costs vary with some programs being as little as $10.00. Live classes are the most expensive.
An order of discharge in a chapter 7 case occurs 60 days after the meeting of creditors. This refers to an order holding that the debtor is no longer personal responsible for certain debts. Since not all debts can be discharged, debtors may still be subject to debts such as income tax, student loans and alimony.